WHY YOU MUST DO IT
It’s time to face the hard truth. For too long, you’ve sidestepped the issue of soaring health insurance costs by handing the problem over to HR managers who lack the means, motivation, or strategic authority to fix it. As a result, your company’s standard coping mechanism has become an annual ritual of hiking employee deductibles, copayments, and premium contributions to defray the costs of an increasingly unaffordable benefit. Such actions—all under your nominal stewardship—amount to nothing more than tactical responses to a strategic problem that demands a strategic solution. I know you don’t want to hear this, but you’re the one who has to drive that solution.
Yes, I know that, for Type-A’s like you, managing health benefits can be a real snoozer, especially when it’s such a departure from your core strengths and from the primary market focus that your business demands for maximizing shareholder value. Even when I ran companies—and those were health care companies—I felt the same way. That’s a major reason why CEOs have always delegated it to staff, not line managers. It’s even worse if you have an ERISA self-funded plan. Instead of treating it like the full-blown insurance subsidiary it really is, you pretend it’s nothing more than a health benefits purchasing function which you continue to delegate to HR. Even as a purchasing operation, you haven’t applied your exquisitely refined supply-chain management system long used for your “real” business, even though medical services make up your largest single non-wage expense.
I don’t want to appear to be beating up on your HR folks because I’m not. Some of the most capable executives I’ve worked have been the HR managers who effectively juggle a massively challenging set of responsibilities for hiring and firing, labor law compliance, employee orientation and development, labor relations, performance management, compensation, retirement benefits, and health benefits. The problem is that the requirements for effectively managing that last item have long since transcended the skill set of even the most capable HR executive, with the possible exception of the vanishingly rare individual who has actually run a managed care organization.
You may have found some comfort in managing your health benefits the same way everybody else does, which includes outsourcing critical functions to third-party vendors whose interests often conflict with your own. And you may even boast about your innovative wellness program, even though most companies have wimped out by rewarding nominal employee efforts rather than real achievements to stop smoking, lose weight, and otherwise reduce personal health risks.
So let’s face it; employers have done a terrible job deciding for your employees what benefits they can have, what doctors they can use, and how much they have to pay for it all. As hard as your managers may have tried, the result constitutes a terrible, paternalistic substitute for savvy consumers armed with the responsibility to spend their own money to get the medical care they need.
You already know what you need
Yet, in your gut, you know what you need to do. For years I’ve asked you this question: “If you could stop buying insurance for your employees and just give them the money you’ve been spending on it so that they could buy their own coverage with equal or better benefits for equal or lower premiums, would you do that?” Without exception, you’ve answered “Yes.” I should tell you, however, that your HR managers have been less than unanimous in their responses to the same question. In any event, my query has been an academic one, since the option I’ve posed isn’t available. Too many of your employees (and dependents) have serious medical conditions that prevent them from buying individual coverage at any price. But that’s about to change.
A whole new ballgame
The new health reform bill’ s (ACA) creation of the insurance exchanges promises to be a real game changer that will give you exactly what you’ve been telling me you want. Starting in 2014, small employers (and in 2017, large ones) will be able to fund their employees to buy their own coverage through the exchanges according to their own needs, means, and circumstances. Most will choose high-deductible health plans (HDHPs) because, by then, those will be just about the only ones still affordable.
If you don’t start now to prepare your employees for the challenges they will face under this new regime, you will do them—and your company—a grave disservice. And make no mistake; you personally are the one who has to make it happen, because it will require tough decisions that some—perhaps many—of your employees aren’t going to like. And if employees won’t like it, neither will your HR folks, because they’re the ones who will get the complaints.
So what are these draconian changes that only you can effect? There are two. First, you need to skip ahead several years of those gradual employee cost-sharing increases and impose them now all at once. Second, you’re going to have to get out of the health insurance business as soon as you can. Do it right and you’ll be surprised how easy the transition will be. Do it wrong and you’ll have some very righteously angry workers who’ll be stuck with medical bills they can’t pay because you didn’t give them time to become the responsible savers and consumers they must be to weather the new era of health reform.
In Part 2, I’ll tell you specifically what you need to do.