The new economics of health care benefits: though corporate health care decisions have traditionally been an HR and benefits function, financial executives must be increasingly focused on these critical issues--especially now as companies face rising costs, increasing government involvement and regulation and economic uncertainty.

Author:Bergner, Amy
Position:Health Care

For nearly 70 years, employer-based cover! age has been a cornerstone of the United States health care system and health care .benefits have been a core component of total rewards used to attract and retain talent. The health care tax exclusion has been the "carrot" to provide health care benefits and the lack of a functioning individual health market has been the "stick" to prevent widespread change in this reality.

However, with the 2014 changes resulting from the Affordable Care Act (ACA), employers have never had a better opportunity to reexamine their role in providing healthcare coverage.

Once viewed as a tax-efficient way to reward employees, health care costs are now infringing on many corporations' efforts to compete globally. Compared with other industrializal nations, on average, the U.S. spends twice as much on health care per capita and 50 percent more as a share of GDP, as cited by The Commonwealth Fund Commission on a High Performance Health System in January 2013..

In fact, the employer share of payroll going toward health insurance costs was 12.8 percent in 2010, up from 8.2 percent in 1999. New mandates, taxes, fees and administrative burdens imposed by the ACA are further shifting the economics of employer-sponsored health care. Employers will see higher costs, at least in the medium term, due to many factors, including the following ACA provisions:

* Broader coverage mandates (e.g. covering dependents up to age 26, minimum coverage and eligibility standards, removing lifetime and annual dollar caps, providing at least 60 percent actuarial value plans and covering preventive services with no cost-sharing);

* Limits on employee premiums and out-of-pocket costs; and

* New fees, including a three-year "temporary reinsurance fee" on insured and self-insured plans starting in 2014 at approximately $63 per covered individual.

And, with health care entitlements driving the ongoing budget crisis at both the state and federal level, employers are concerned that cost-shifting from these programs will only accelerate in the future. Entitlement costs could double over the next 30 years as percent of GDP and deficits are likely to loom for the foreseeable future as the baby boom generation retires. Reforms are essential but any reforms that do not fundamentally bend the cost curve could result in unprecedented shifts to employers.

The fiscal crisis could also threaten to repeal or amend the health care benefits tax exclusion. The tax preference for employer health benefits is the largest single tax expenditure in the federal budget ($163 billion annually). While there may be an emerging movement to limit tax rates and broaden the tax base, the elimination or capping of the health care tax exclusion would further weaken tax incentives for offering benefits.


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