it would have to give an employee a taxable raise of more than $14,000 to buy an equivalent policy on an exchange. Plus, the employer may have to pay the $2,000 penalty for dropping coverage. The employee then comes out whole, but the company would be at least $7,500 worse off per employee than if it kept its health care benefit.
Suppose, instead, that a company wanted to drop coverage but be cost-neutral with its current expense of $8,500 per employee. In that scenario, it would limit the raise it gives to an employee to buy a policy to only $5,700.
Unfortunately, in most cases, that added compensation of $5,700 would not be enough to buy an equivalent policy on the exchange. That’s true for many employees even if the employee qualifies for the subsidies offered by the federal government for buying a policy through a public exchange.
Here’s a worse scenario for employees. If the employer drops coverage and offers no contribution, the worker gets hit hard. The employer may pay the $2,000 penalty, versus its previous $8,500 expense, so it saves a lot of money. But the employee is on the hook for a policy that currently could cost the national average of $16,000 or more for family coverage. That’s before the rate increases that the new law could cause in the years ahead.
Analysts say a family premium could rise to $23,000 by 2020. That would be unbearable for an uncovered worker, even taking into account offsetting federal subsidies. And it gets close to the Cadillac tax on premiums of more than $27,500 in 2018.
At present premium prices, ACA’s federal subsidies for a family of four range from about $3,000 for a household making $94,000 to $11,000 for a household making $31,000. Clearly, that’s just not enough. The gap between the premiums and the subsidies could be huge. It’s a good bet that future administrations will have to hike the subsidies, which carry an estimated price tag of $23 billion in 2014. That tab will escalate beyond 2014.
When Serigraph did its go or no-go exercise, the after-tax costs were about a wash for keeping or dropping coverage. That assumed a $5,000 annual contribution to each employee if we dropped coverage.
Taking into account the soft and hard costs, the best answer for many employers will be to continue to offer health care. The obvious exception among medium and large employers is those that do not value a long-term relationship with their workers. Where wages are low and turnover is high, in sectors such as restaurants, hotels, nursing homes, and call centers, employers may choose to pay the penalties. Those uncovered workers will have to head to the exchanges for individual policies and the subsidies.
THE INNOVATIONS IN HEALTH CARE ARE AT HAND
Serigraph’s decision to stay in the health care game was made possible because managers in the private sector have invented a new business model that makes it tolerably affordable for companies to offer a health care benefit.
The maelstrom surrounding ObamaCare, which is insurance reform, not health care reform, has proved a monumental distraction from the fundamental problem facing the country—the staggering costs. What I call “real reform” of the delivery system has gained momentum at the grassroots level, as companies have become smarter managers of the supply chain for health care.
ObamaCare . . . is insurance reform, not health care reform.
As three million companies make the go or no-go call on providing coverage, they need to take into account more than just the penalties imposed by the new federal law for bailing out of coverage and the costs they currently see before them. They also need to be acutely aware of the many innovative efforts across the private sector that add up to a radical reengineering of the delivery of health care in America. The innovators have taught us that the costs of health care can be dramatically reduced as workforce health is significantly improved.
Smart employers are doing a better job of improving workforce health while controlling costs.
Note: A widespread default to individual insurance and government plans would sharply raise the national health care bill, because governments and insurance companies are slow movers when it comes to systemic changes. They are not good at managing costs. They are the wrong horses to ride for innovation.
The right horses are sharp corporate payers that are revamping the delivery of health care. They are bending the inflation curve. They and their consumer/employees are the game changers.
Their collective, transformative innovations add up to a megatrend. Their successes make this an optimistic book, regardless of the impact of ObamaCare on the health care insurance industry.
PRIVATE PAYERS FORGE DISRUPTIVE NEW BUSINESS MODEL
CHIEF EXECUTIVE OFFICERS across America, with a few exceptions, should offer a class-action apology for allowing the economics of health care to get totally out of whack.
By any financial measure, the existing business model for health care in the United States is busted, and the people in the corporate offices let it happen. They are paid lots of money to fix major problems facing their companies and the economy, and only a few have raised health care to the level of a strategic priority.
They didn’t apply the golden rule—he who has the gold rules. They are the payers for about half of the national health care bill, and they didn’t rule. (Indirectly, they pay for the other half of the nation’s health care bill, the public half, as well, through the taxes paid by their companies and from the taxes taken out of the wages of their employees.) Specifically:
■ The CEOs didn’t create a marketplace to bring supply and demand disciplines to the delivery of care.
■ They didn’t engage their employees as active managers and consumers of medical treatments.
■ They gave in on union contracts that enabled workers to practice economic misbehaviors.
■ They didn’t create a culture of health in their organizations.
■ They allowed providers to vertically integrate the health care supply chain, to the great disadvantage of employers and their employees.
■ They didn’t deploy the managerial expertise of their teams to build a better business model for health care.
Fortunately, there is an amendment to the CEO apology. A growing vanguard of innovative CEOs has taken measure of the magnitude of the challenge and has moved to action. The CEOs’ collective efforts have given birth to a disruptive business model that works. They are CEOs or former CEOs like Paul Purcell of Robert W. Baird & Co., Jim Hagedorn of Scotts Miracle-Gro, Steve Burd of Safeway, Tim Sullivan of Bucyrus International, and Bill Linton of Promega. (More on their stories later.)
A growing vanguard of innovative CEOs . . . has moved to action. The CEOs’ collective efforts have given birth to a disruptive business model that works.
This book is full of innovations that executives across the country have implemented
