Obamacare: Looking After Your Business?

By Lucy Douglas

Back in March, the President achieved the goal that had eluded a string of his Democratic predecessors and successfully passed legislation to overhaul the country’s healthcare system.

In one of the most rigorous pieces of reformatory legislation this country has seen, the Affordable Care Act will bring medical care to a vast majority of the 47 million uninsured American citizens - a luxury that had hitherto passed them by. Following the close triumph of his bill with 219 votes to 212, the President said: "This legislation will not fix everything that ails our healthcare system, but it moves us decidedly in the right direction. This is what change looks like."

However, critics of the legislation - and they come in scores - fear that the reform will mean increased taxes and compromised healthcare standards. For many in the multibillion-dollar healthcare industry, the legislation represents a social transformation that would bring care to the masses at considerable cost to higher earners and lucrative businesses. Insurers will be obliged to offer care to all patients, regardless of pre-existing conditions. Some prescription drugs will be subsidized, and four million senior citizens previously falling into the so-called Medicare donut hole can expect financial relief for prescription drugs. The list of changes goes on, and will continue to grow until at least 2015, when the final provisions of the legislation as it currently stands will come into play.

There is no doubt that Obamacare will benefit the individual. An estimated 95 percent of the total population will be able to access medical care under the reform law, which equates to 32 million citizens who had previously gone without health insurance. But what will be the wider implications on America's private sector and its host of healthcare heavyweights?

According to a report by Reuters back in March, the country's health insurers stand to lose out the most under the provisions of the legislation. Consumer protection regulations will prevent insurers from discriminating against consumers with pre-existing conditions, from capping the amount of funding consumers can receive annually and from rescinding coverage to consumers. In addition, Medicare will be required to ensure that at least 85 cents of every dollar spent on a private plan goes directly on medical care, leaving only 15 cents for company overheads, salaries and profit.       

While there are some benefits for insurance companies - firms such as UnitedHealth Group and WellPoint have seen a $67 million tax delayed until 2014 - the legislation will bring stringent regulations and huge transitions in the way these companies operate. In a letter to Congress in March, David Cordani, CEO of Cigna Corp., expressed concerns about the sustainability of the bill. Cigna Corp provides care to over 11 million citizens and clearly states that it is in support of increasing access to healthcare; however, Cordani's letter highlighted a concern that the legislation would in fact have the adverse effect on the system. "I strongly believe that costs of healthcare will increase, not decrease, for the country as a whole and these costs will further challenge job security and economic growth," he wrote. 

For America's businesses too, the implications are vast. Insight from industry specialists states that those most likely to feel the effects are businesses who employ lower-income workers. According to a report carried out in January by Tower Watson and the National Business Group on Health, 71 percent of employers believe that healthcare reform will increase the overall cost of services in America and 69 percent thought their benefit programs would rise in price.

These concerns are hardly surprising, given the extent of anti-reformist lobbying that has taken place over the last year. Between the vehement Republican politicians, who remained unanimously against the legislation throughout the process, and the outraged, often violent, demonstrators in Washington, little has been done so far to put the anxieties of concerned employers at ease. "Of course US healthcare costs remains a big concern and it is likely that healthcare reform will be the subject of continued debate in the country for years to come," says Richard Buino, a spokesperson at Kraft Foods. "We're hopeful that the recent reform legislation will contribute to a stabilization of these costs."

While more people are getting used to the changes since the legislation was passed four months ago, anti-reform protesting has by no means disappeared. Will the reform succeed in stabilizing the expensive and volatile system, making healthcare accessible to millions more Americans, or will Cordani's concerns materialize, and the legislation only send the costs higher and further hinder the economy from recovery? Perhaps it is still too early to tell, but one thing is for sure: industries and businesses across America are going to be feeling the effects of the shake-up for many years to come.

Taking care of the little guy

It has been a tough couple of years for small businesses. Only the very good or the very lucky have managed to weather the financial storm that swept across the nation. While there were reports that recovery was under way in the early part of this year, business taxes and unemployment rates remained high, capital and financial products were increasingly harder to come by and both businesses and consumers continued to spend less. And these factors impeding income all came in addition to the financial burden that small businesses have been carrying for as long as they can remember: health insurance benefits for employees.

According to the US Small Business Administration (SBA), small businesses were paying as much as 18 percent more for the same health coverage as larger companies prior to reform. This was largely because they were unable to pool their risks in the same way that large corporations could, meaning a single employee with a health problem could bump up premiums for the whole company. The premiums were also volatile; reports have shown premiums rising by as much as 25 percent year on year, meaning that an employer able to offer its staff health benefits could potentially have that luxury taken away within weeks. And in addition to the costly premiums, smaller companies were incurring higher charges for costs such as administrative fees. For a firm turning over less than a million dollars a year, picking up a health insurance bill for tens of thousands of dollars in times of such economic uncertainty could potentially be crippling. Given these figures, it hardly comes as a surprise that 13 million of the uninsured working people in America today work for businesses with 100 employees or less.

Despite these numbers, however, offering health insurance benefits is a main concern for small employers. "We know from surveys that healthcare was actually one of the number one priorities for small businesses overall," says Christine Koronides, a Senior Policy Advisor at the SBA. "And it's polled that way since 1986." And while 96 percent of business remain exempt from any responsibility mandates the reform legislation will bring, not offering insurance can prove more detrimental to the business in the long term. Koronides and her colleague, Hayley Matz, believe small businesses are liable to lose strong, hard working employees purely because they cannot afford to pay for healthcare. "We met a small business owner in Connecticut," Matz says, "who lost an employee who had been there for seven years. The job that the employee took was actually a lower paying job, but it provided healthcare. The employee had a son who needed treatment for an illness, so he couldn't afford not to have healthcare."

Such scenarios provide something of a Catch 22 situation. Without being able to offer this crucial benefit, small businesses find it difficult to attract and retain good employees, making it increasingly hard for them to compete with large firms when it comes to taking on new talent. However, without the best team it is impossible to generate the profits required to offer employees healthcare benefits. 

As such, so-called Obamacare could not have come at a better time for small businesses. Mass job loss and internal budget cuts in both the public and private sectors across the country mean that the number of uninsured Americans rose significantly as a result of the recession. Following a tense year for the new President and his cherished reform proposals - which dominated his manifesto during the election campaign back in 2008 - the legislation has brought some welcome relief for businesses looking to regenerate.

Small businesses that have been offering their employees healthcare can benefit from tax credits, a provision that has taken immediate effect to bring a financial reward to such firms. Matz says that there are about four million businesses that will be eligible for some form of tax credit this year, based on the insurance that they already provide. "Depending on the size and the wages of employees, [the tax credits] can cover anything from 35 to 50 percent of the costs that an employer is paying for an employee's benefits," adds Koronides. Indeed, these are impressive deductions for businesses, with a sizeable government budget to back them up; according to reports, there is over $40 billion in tax credits available that these four million businesses can access.

This remarkable allowance marks just a fraction of the fiscal budget that has been put aside for healthcare since the reform. An estimated $938 billion in funding will be spent on the sector over the next 10 years, and according to the Congressional Budget Office, that boost to the sector will result in a projected $138 billion reduction in fiscal deficit during that same period. Critics of the legislation largely object to this budget, claiming that it is unsustainable, but Matz explains that the Affordable Care Act is based on incentive. "It takes the approach that if the costs are lower and the benefits of health insurance are so great, small businesses should be able to, and continue to want to, provide health insurance for their employees."

The tax credits are not the only benefit small business can expect to see this year. The new regulations on health insurance companies that prevent discriminatory practices will allow employers greater access to policies for their workforce. However some of the biggest changes are still to come. In 2014, Matz says the state run exchanges will come into place, providing a whole new level of benefits to small employers. "It's going to allow small businesses to pool their risks together and have a larger economy of scale to provide more options and lower-cost insurance to their employees." 

With businesses of all sizes across the country looking to return to a state of growth post-recession, traditional methods of healthcare provision and the crippling costs they brought were proving more an obstacle for employers than a benefit for employees. Research suggests that had healthcare costs continued to rise at the same rates seen in recent years, the number of uninsured citizens in America would have grown to 72 million by 2040, leaving no doubt that a major reform of the system was essential in order to ensure medical care for the nation and a much needed boost for the business economy. As such, small-to-midsize businesses have largely been in favor of the reforms. "Overwhelmingly," says Koronides, "what we've seen in talking to small businesses is that they want to offer health insurance and with these measures, like the exchanges that will help them access affordable quality plan, they're going to do it. They're jumping at it. They want to do it."

Preventing the hit

Wellness and preventative healthcare are becoming a hot topic. For a number of years now healthy living campaigns have gathered force, but with the healthcare industry in a state of transition, preventative measures are taking place as a form of healthcare in their own right. And for Lillian Petty and the Alliance for Wellness Return on Investment, this is the ideal time to promote the benefits of preventative care. "What we're doing right now is continuing the thrust," says Petty when I caught up with her after the Alliance's annual planning meeting. "We're trying to reach out and partner with some other national groups that are focusing on health and health initiatives, until we see how the regulations are going to help or hinder corporate America."

Two years ago, America was spending an overwhelming $2.4 trillion on healthcare, the same as 17 percent of the GDP. This is an alarming statistic, especially when we consider that many of the leading causes of illness, disability and death are preventable. Moreover, the Journal of Occupational and Environmental Medicine estimated the overall annual costs of poor health in the workplace to be around $1.8 trillion.

With these figures in mind, the wellness provisions in the newly instated legislation seem long overdue. The President's Recovery and Reinvestment Act, which provides a $1 billion investment for prevention and wellness strategies that are designed to improve the country's health and reduce the costs of healthcare in the future, is undoubtedly a step in the right direction, but it seems a paltry effort when considering the amounts of cash that the nation's businesses have been hemorrhaging on healthcare for perfectly preventable illnesses. "We've got to continue the whole measurement of population engagement," explains Petty, "getting people involved, getting corporations to not wait on the government, but to go on taking care of the health of your population."

Petty and the Alliance recognized that the growing costs of healthcare were unsustainable for businesses long before the government did, and have been working on various strategies to demonstrate the business benefits of an employee wellness program. "The data repository of the Alliance captures all the health claims by each person," she tells me, "and that's medical, prescription drug or whatever, and we financially impact that through our analytics as an off-set to people participating in our wellness programs. And from that we get a financial result for each individual company's measure of wellness, and we can get an aggregate result."

Finding a way to measure the financial return on investment of wellness programs for a business had proved the biggest challenge, as the success of the investment is measured by an outcome not occurring. Fortunately for the Alliance, the erratic rising costs of insurance became enough of a reason for businesses to get on board with wellness and preventative care for employees. At Kraft Foods, Richard Buino explains how pleased the firm is that wellness incentives had been included in the new legislation. "Our prevention efforts include a 100 percent coverage for annual physicals and health screenings, education, disease management and assistance to support well-being and to identify and manage risks," he says, highlighting that many of Kraft's US employees can also benefit from on-site fitness centers and access to an on-call nurse. 

It's not just global corporate employers like Kraft who have been caught up with the wellness and prevention movement. Health insurers themselves are starting to see the opportunity for this new concept in healthcare. David Cordani, CEO of Cigna Corp, outlined preventative care as a key concern for the firm, stating that: "True healthcare reform must focus on prevention, encourage and reward healthy behaviors and ensure access to routine preventative care." Cigna have since expanded in this market and now provide onsite health services to their clients.

Petty explains, however, that incentives from insurers only represent one part of wellness as a business strategy. It's a focus on the long-term, she says. "It's not just implementing an incentive program alone and thinking that's it," she says. "Behavior is such that you don't know what's going to cause people to act and to continue to stay engaged to make a difference." She goes on to explain that the impact of wellness programs for a company should be looked at over a three to five year period, but they must be implemented in a tactical way because the population is always changing. 

Ultimately, it is becoming increasingly clear that a healthy workforce equates to a healthy bottom line. While the reform legislation is making healthcare more financially accessible, cutting down on employees' need for healthcare in the first place is surely the most effective way to see a reduction in the costly yet indispensable expense. Slowly but surely, corporate America is starting to get on board with this; as Petty says: "People are thinking more about accountability and responsibility. Companies have to look strategically at this and not just look at buying one program; they need to think about all the different aspects that they can put around this whole issue to make it a long-term part of their business strategy, and not just a temporary fix."

HEALTHCARE AROUND THE WORLD

USA

Private healthcare system

Funded by the private sector with citizens taking health insurance from employers, the government or private schemes. The largest health insurer is the Federal government, with two funded schemes, Medicaid and Medicare, that provide health cover to certain low income groups, such as children or the elderly, and groups in need of continuing medical care, such as people with a disability.

Business impact: 76%

Offering healthcare insurance as an employee benefit is commonplace. The majority of large corporations offer employees some healthcare benefits, however according to a survey conducted in 2008, only 38 percent of the small businesses asked were in a position to offer health insurance.

Expensive premiums that can rise without warning make insuring difficult for businesses. However employees can come to depend on health insurance benefits and can take or leave jobs because of it. Employers in America assign 13 percent of their payroll to health insurance.

Japan

Combination system

System is funded partly by job-based insurance premiums and public taxes, making payments mandatory but healthcare is universal and no one can be denied care.  The system consumes about eight percent of the country's GDP, roughly half than in the US, however some think the system is unsustainable.

Business Impact: 40%

Employer insurance programs have suffered as the economic dip has meant that many employers are unable to offer insurance.

France

Social Insurance

National citizens are covered by public health insurance funded by mandatory health insurance contributions from employers and employees. Patients pay doctor's bill but are reimbursed by the public insurance. Many people take out extra insurance policies to cover eventualities that are not covered by the public insurance.

Business Impact: 27%

Less competitive because the public insurance contributions are set as mandatory, however they do contribute to employers overheads.

UK

Tax-funded system

The National Health Service, is government funded with tax-payers money and covers all aspects of healthcare from primary care physicians to specialists to emergency services. Some charges are imposed on prescriptions, however a number of social groups are exempt from these charges, including children, elderly and unemployed. There is a private health system in the UK, funded by insurance in the same way as the US.

Business Impact: 9%

A tiny proportion of businesses offer their employees private health cover. This is largely uncommon and not expected by employees. Aside from this the business impact of healthcare is minimal.