How to Make Health Care Costs More Sustainable

Bob Ludke
Hieu Nguyen

By Robert Ludke and Hieu Nguyen
May 16, 2013

With the implementation of the Affordable Care Act (ACA) and the rising financial burden imposed by health care spending, corporate America is faced with difficult decisions relating to its traditional support for employer-sponsored health coverage.

In observing companies engage in the process around the development and implementation of the ACA, it appears there is, at best, grudging support for the measure. Some of our clients have indicated they are seriously considering dropping employee health coverage and looking to save money by paying a penalty for doing so. In certain cases that decision may make sense. In others, it will not — both financially and reputationally.

Without a doubt, corporate investment in health care is significant, and growing. In its annual Employer Health Benefits survey, the Kaiser Family Foundation and Health Research & Educational Trust found that health care premiums for family coverage in 2012 averaged $15,745, with employers paying nearly 75 percent of that amount — double what was spent 10 years ago.

For American companies to remain competitive in the long term, corporate leaders need to take control of their growing share of health costs.

Most notably, some companies are weighing whether to continue offering health insurance, particularly in light of the reforms coming online under the ACA. Because the law’s penalty for employers that do not offer coverage could be dramatically less than the cost of coverage itself, companies that discontinue coverage may reap substantial savings. Many employees would then become eligible to buy their own plans, some of them subsidized by the federal government, through state-based health insurance exchanges (now called marketplaces).

While this action may enable companies to reduce both insurance and administrative costs, most will likely hold off making this decision in the near term. A 2012 Deloitte survey among 560 employers with more than 50 employees found:

  • 9 percent anticipated dropping coverage in the next 1-3 years (represents 3 percent of the workforce);
  • 81 percent planned to continue providing coverage (represents 84 percent of the workforce); and
  • 10 percent were unsure (represents 13 percent of the workforce).

Reasons for the hesitance vary. It is not simply a matter of dollars and cents. Companies concerned about the reputational consequences of dropping employee health coverage may choose to wait until competitors drop their coverage, while others may be waiting for greater clarity about the long-term viability of the health insurance exchanges. In a recent article on, Ron Fontanetta, CFO for Towers Watson, explains: [Companies] want to see how the exchanges materialize, what their cost structures are, how they’re generally received in the marketplace. Large employers also want to see how effectively they manage their costs over the next several years.

In competitive labor markets, while shifting employees into insurance exchanges may save money in the short term, it could result in long-term damage to companies’ recruitment and retention of top talent. In addition, if large employers withdraw from the health insurance marketplace, a critical lever for long-term cost containment and delivery-system reform could be lost. It is large companies that are implementing some of the most innovative approaches to reducing health care costs. For example:

  • In Arizona, IBM and UnitedHealthcare teamed up to offer IBM employees medical care through a patient-centered medical home (PCMH), a new model for organizing and delivering primary care. After the program launched, 25 organizations joined IBM in this effort. Three years into the pilot program, necessary emergency room visits declined 4.5 percent and unnecessary emergency room visits decreased by 22.5 percent.
  • Pitney Bowes, Inc. partnered with UnitedHealthcare to improve the health of its Spanish-preference employees. The program provided culturally relevant, bilingual health and wellness materials to meet the needs of these employees. According to Pitney Bowes, the program boosted productivity, enhanced employee well-being and saved money.

The ACA recognizes the leading role employers can take, and includes provisions designed to help companies continue to innovate and lower long-term health spending, including:

  • $200 million in grants for small businesses to establish wellness programs. In a 2012 National Small Business Association/Humana survey, 78 percent of small businesses that offered a wellness program believed the program positively impacts their bottom line.
  • Incentives for insurance companies to participate, in tandem with large employer partners, in multi-payer delivery system reform initiatives, such as patient-centered medical homes and efforts to hold providers more accountable for the quality and efficiency of the care they deliver.
  • Investments in comparative effectiveness research, to help purchasers and payers identify health care treatments and interventions that improve outcomes and advance health, while discouraging spending on wasteful, unnecessary care.

It may take time for many of these initiatives to show a return on investment. However, as Deloitte noted in its 2012 survey of employers, The difference between understanding health benefits compliance and optimal ways to extract improved value from the system is a huge gap.

For companies willing to bridge that gap and take more thoughtful control of their health care spending, the rewards can be dramatic. Regardless of what companies decide about health insurance coverage for their employees, a greater understanding of the changing landscape in the health care system and health care policy will enable them to chart a more cost effective and sustainable course of action.

Robert Ludke is the U.S. head of the Hill+Knowlton Strategies Sustainability Practice. He provides senior counsel to a variety of clients regarding communications surrounding their sustainability efforts. He can be reached at [email protected].

Hieu Nguyen is a senior account supervisor in the Hill+Knowlton Strategies Washington, D.C., office. As a member of the Health Care Practice, he works with a variety of clients providing communications counsel in areas such as sustainability, provider communications, product launches and internal communications. He can be reached at [email protected].

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Richard Blanchard
Rick is the Managing Editor of Corp! magazine. He has worked in reporting and editing roles at the Port Huron Times Herald, Lansing State Journal and The Detroit News, where he was most recently assistant business editor. A native of Michigan, Richard also worked in Washington state as a reporter, photographer and editor at the Anacortes American. He received a bachelor of arts from the University of Michigan and a master’s in accountancy from the University of Phoenix.