Bearing the Burden
5 Things Businesses Should Know to Cope with the Health Care Conundrum
By Sandy Graham
Photography by Howard Sokol
Health care and health insurance have become unsustainably expensive – a fact that business owners know all too well.
While individuals, families and governments feel the pinch, businesses are especially aware of health care costs' upward trajectory because they insure the majority of Americans. Employer-offered health plans cover 62.9 percent of Coloradans under age 65 and 59.7 percent of all Americans under age 65, according to the Kaiser Family Foundation's 2007-2008 figures.
But the costs of that benefit are devastating the bottom line.
"There's no question the generosity of employer health benefits has been cut back. Businesses are doing what they can about runaway costs. I can't blame them," says Len Nichols, Ph.D., professor of health policy and director of the Center for Health Policy Research and Ethics at George Mason University.
As state and national lawmakers, health policy experts, health care providers, insurers, business organizations and others work on solutions, here are five key points that businesses should know about health care and the changes ahead to better cope with the changing scene.
5 key points businesses should know:
1. The business community is still the backbone of the American health insurance system.
Employer-offered plans have provided coverage to most Americans for decades. In recent years, high costs have led to reductions in both the number of employers offering health insurance and the number of workers enrolling in their employers' plans. Business-offered plans covered 64 percent of Americans in 2000; now they cover 59.7 percent.
Small businesses with 50 or fewer employees in particular have experienced difficulty finding affordable coverage. According to the Colorado Division of Insurance, there were 4,021 fewer small companies providing insurance in 2009, a 10 percent drop from 2008. The number of "lives" covered by those small companies dropped by 13 percent, or 43,759 people, from 2008 to 2009.
"Historically, a poor economy and high unemployment enable employers to hire without offering insurance," says William Lindsay III, president of Lockton Companies' employee benefits group and former chair of Colorado's Blue Ribbon Commission for Health Care Reform, which presented its report in 2008. "When the economy rebounds, I suspect that many employers will strive to offer insurance."
2. Insurance costs and health care costs continue to rise.
Colorado's total spending on health care grew by an average of 7.7 percent a year between 1991 and 2004, according to the Kaiser Family Foundation, reaching a total of $21.7 billion in 2004.
Insurance premiums represented nearly 22 percent of Colorado family incomes in 2008, according to "The Future of Colorado Health Care," a report authored by Nichols with economic analysis provided by Henry Sobanet, president of Colorado Strategies LLC. (See story, 'Attack Every Angle' to Revamp Health Systems.) That report, co-sponsored by the Colorado Health Foundation and The Colorado Trust, showed the average deductible in 2008 was $1,660. The Colorado Business Group on Health, a nonprofit coalition representing large purchasers of health care, projects premiums will continue to grow by 10 percent a year unless reforms are undertaken to control health care costs.
"That trajectory is the proverbial warning shot that should impel us to take action," says Nichols.
3. The economy is suffering because of health care costs.
Spending so much money on health care and health insurance means Americans have less to spend on other things. U.S. businesses spend nearly three times as much per worker per hour for health benefits than other industrialized countries, making it that much more difficult to compete in a global economy, according to Nichols' report. In addition, the report found that the high cost and inaccessibility of health insurance stifle entrepreneurship.
Ultimately, the economy will benefit if improvements are made on how health care is paid for and delivered, says Donna Marshall, executive director of the Colorado Business Group on Health.
"With a high-quality health system in the state, you attract new employers. You have a workforce that's going to be more productive because good health correlates with people being on the job," she says. "And a strong health care sector has a multiplier effect on the local economy. Employees in the health care sector earn their money right here and spend it right here."
4. Change – here it comes.
Nationally and in Colorado, policymakers and legislators are grappling with these tough health care issues. In March, Congress passed national reform in the shape of a complex, 2,000-plus-page bill. Many changes don't take effect until 2014, but this year, small businesses should be able to take advantage of tax credits of up to 35 percent of premiums to help make health insurance more affordable for workers.
The federal bill has its supporters and critics.
"Health care costs have been high on the business agenda for years," says Kelly Brough, president and CEO of the Denver Metro Chamber of Commerce.
"We continue to be concerned that this year's health care reform [law] will not curb costs in a meaningful way and that businesses and employees will continue to see double-digit increases in benefit costs."
Nichols notes, "If implemented correctly, the [reform] bill will reorganize the small-group insurance market and free up a lot of creativity and productivity that are now being suppressed. The delivery transformation aspects of the bill are the real key for the long run because they'll get costs down so we can afford our health care system going forward."
Annette Quintana, CEO of Denver-based IT services firm Istonish Inc., applauds the federal bill. "I'm personally supportive because I don't think anybody needs to look far to find examples of people lost in this Neverland of not finding coverage."
In Colorado, encouraging initiatives are under way. The launching of the Center for Improving Value in Health Care, for instance, "is very exciting and is an example of where Colorado is leading the nation," says Lindsay. (See story, Memo to Business.)
Nichols agrees, noting the Blue Ribbon Commission helped create a broad base of support for change that already put Colorado ahead of many states. With so many entities already knowledgeable about health care issues, Colorado "can drive reform so it delivers early compared to the rest of the nation. It can really be a beacon," Nichols says.
5. Businesses have the power to shape change.
Very large employers have often been at the forefront of important initiatives that improve patient safety and quality of care. When big companies incorporate quality and safety into their health purchasing, all Coloradans benefit, says Marshall.
Even medium- and small-size companies, which make up the bulk of Colorado employers, have the potential to effect substantive change.
"Employers in the 500- to 1,000-employee range could be very influential, but really haven't exercised their purchasing power [for health insurance]," says Marshall. These companies could develop expertise on their staffs to develop value-based benefit designs and value-based purchasing to hold the line on premium increases and cost escalation.
While small companies of 50 to 100 workers have less negotiating leverage, they can improve employees' health with simple steps such as encouraging lunchtime walks or not serving unhealthy snacks at company meetings.
"There are myriad innovative ideas out there," Marshall says. "Just because you are a small company, it doesn't mean you can't do something really positive."
(See Tips, for simple ideas to improve employees' health.)
- In 2007, the United States spent $2.2 trillion on health care, an average of $7,421 per person.
- The share of economic activity (gross domestic product, or GDP) devoted to health care has increased from 7.2 percent in 1970 to 16.2 percent in 2007.
- Health care costs have grown on average 2.4 percentage points faster than the GDP since 1970.
- Almost half of health care spending is used to treat just 5 percent of the population.
- Although only 10 percent of total health expenditures, spending on prescription drugs has received considerable attention because of its rapid growth (89 percent from 2000 to 2007).
- About 30 percent of individuals with low incomes spent more than 10 percent of their income on health in 2004; for the total population with private nongroup insurance, the share of those with low incomes spending more than 10 percent of income increased by more than one-third, from 39 percent in 2001 to 53 percent in 2004.
- Many policy experts believe new technologies and the spread of existing ones account for a large portion of medical spending.
|Source: Health Care Costs: A Primer, Kaiser Family Foundation, 2009.
|Why Companies are in the Business of Health Care
Employers don't pay for necessities like groceries and gasoline, so why do they provide health insurance for roughly 60 percent of Americans?
The answer is more than seven decades in the making. But in short, employer-sponsored insurance is "an accident of history" that businesses still pay for today.
During World War II, factory owners used health insurance to lure workers at a time when wages were frozen by the federal government. To compete for workers, companies began offering more attractive "fringe benefits," including health plans. By 1954, the Internal Revenue Service decided that employer contributions to health plans should be tax-free – sweetening the pot even more for employers and cementing employer-sponsored insurance as a cornerstone of the U.S. health care system.
As the economy improved, company benefits became even more generous. Despite rising health care costs, consumers paid for only 15 percent of health care expenses in 2000 – down from 48 percent in 1960. By 2004, more than 159 million Americans received health insurance from an employer.
But critics say the employer-sponsored model is showing serious signs of wear and tear, as health care premiums rise far more rapidly than the rate of inflation.
Still, many employers maintain that what was true in 1940 is true today: Health insurance is a good incentive for recruiting and retaining workers. Others argue that the employer-sponsored model is a World War II relic that should have faded long ago.
Like it or not, businesses are enmeshed in health care. Indeed, if the employer-sponsored system disappeared, "chaos would certainly result: the health of patients throughout the United States would be jeopardized," wrote David Blumenthal, M.D., M.P.P., in The New England Journal of Medicine.
Although the model has its share of detractors, many Americans seem to like it just fine. When campaigning for federal health care reform, President Barack Obama assured employees who get health insurance from work that their coverage wouldn't change much.
With reform now a reality and the economy shifting, businesses will likely remain in the health care game – even though the rules of that game are clearly changing.
By Bob Mook