Shock and Awe: Employer Views about Health Reform


I’ll be writing in a direct, jargon-free way on a topic of interest in health care. Having been in the health sector for over three decades as a practicing physician, a “policy person”, a sometime academic and a full-time health care manager on the employer side, I see plenty of meetings, papers and marketers but very little straightforward talk. Of course, the thoughts expressed here, while they will seem like the truth to me, can only be my version of what’s taking place. And the ideas will be mine alone and not Blackstone’s or Equity Healthcare’s. I welcome comments from anyone who reads the posting. Fair warning: expect some debate coming back at you!

Make no mistake: the Patient Protection and Affordability (ACA) passed in March, 2010, is the single biggest change for employers since they started sponsoring health benefits almost 70 years ago. Although small employers not currently paying for health benefits are obviously the most affected, the implications for employers currently covering health care are major. How employers respond to the legislation will change the shape of the health care system for decades.

As I travel around the country the most frequent topics I hear employers discussing are: (1) the “shock and awe” response as the implications on employer sponsored health insurance become clear; (2) the challenge of dealing with the uncertainty of all the unfinished items in the bill; and (3) the confusing difference of opinion about whether or not the legislation is going to save money. Overlying these concerns is the strategic question: will the health reform bill give my company an opportunity to exit the sponsorship of health benefits?

The reform bill has been a bonanza for consultants and conference organizers; there are already so many well-done white papers about short and long term implications of the bill that there is no reason to repeat the analyses here. In this initial blog as well as for the next several entries, I’ll focus on the broader implications of the reform act rather than the particulars.

Why shock and awe?

Other than the change to retiree accounting rules and the institution of COBRA, mandates on employer sponsorship of health benefits have been uncommon, largely due to the protection of ERISA. After the failure of the Clinton health reform almost 18 years ago employers have been struggling with health care but on their own terms— accountable to their employees and using market forces and innovation rather than spending time figuring out government regulations.

That has certainly changed with the ACA. The breadth of changes, from expansion of coverage for dependents to the free rider charge for uninsured employees, is awesome.

While I have yet to speak with an employer that does not endorse covering the uninsured, I haven’t met one either who isn’t in some way shocked by how little regard the government paid to private sector employers already providing coverage. Although I’ve been around long enough that you would think I would know better, I was still ‘shocked’ as well as disappointed that the bill so clearly missed two major opportunities: making employers partners in the reform effort and insuring that cost shifting to employers would not increase.

With up to one thousand “The Secretary shall decide….” in the legislation, employers are understandably paying more attention to potential scenarios than they are to what they do best, meeting the needs of their workforces and innovating. Unfortunately, as the Secretary and other agencies develop policies to administer the legislation, there is very little partnering with employers to make decisions jointly. About the only exception is the PCORI (Patient-Centered Outcomes Research Institute), the organization which will lead the effort to develop comparative effectiveness data, on which future quality measures, payment reform and perhaps some day, coverage, will be based. PCORI is set up with a non-governmental, non-profit structure that gives a voice to employers (Xerox is on the board). But almost every other new structure sits inside of government and with little-to-no employer input. This is true of CMS’ Innovation Center, where the Acting Director told me two months ago that they were “thinking about” a vehicle for employer input but I have heard nothing since. Although this Center develops programs for Medicare, the private sector will be impacted by every decision they make, from accountable care organizations to medical homes, and to not include employers as key stakeholders and co-decision makers is ‘shocking’ if not surprising.

By not including employers as partners in the vast majority of decisions that impact us, not only has the government “taken the oxygen out of the room’, it has reinforced the lack of trust the private sector has that government will be real partners in progress.

Will the bill save money for employers?

The simple answer is, not on your life. There’s an old saying among employers: when the government acts, employers pay. The ACA is almost exclusively a coverage bill and despite rosy projections from supporters, as well as the CBO, it’s pretty clear that employers will pay more, both directly and indirectly. The direct costs are easy to see:  mandates for increased coverage (for example, dependents to age 26), the Cadillac plan tax, and the “free rider” charge for uninsured employees are three prime examples.

However, the indirect costs increases dwarf the direct ones. Cost shifting to employers is the “escape valve” of our healthcare system. Medicare and Medicaid pay hospitals and doctors below-cost prices and the providers in turn simply raise the prices to employers to make up the shortfall. Covering the uninsured will cost about another $100B annually; about half of this funding is paid for by lowering Medicare payments even more. It seems pretty clear that this will be shifted to employers.  The theory that covering the currently uninsured will lower costs rests on the premise that many of the uninsured, as in any risk pool, are pretty healthy to begin with. Unfortunately, the very weak penalty for individuals who do not buy insurance means that most of the healthier uninsured will in fact not buy coverage. This means that government subsidies will have to increase, which will be funded in part by even lower Medicare payments which will lead to…..well, you get the picture.

Finally, and most concerning is the government’s ideological embrace of accountable care organizations as a delivery system re-engineering that will help save costs. I will devote a future blog to this topic but for now suffice it to say that while these organizations might result in better care and lower costs, they will definitely result in larger provider organizations with more power to raise prices to insurers and employers. Since the ACO’s are not a pilot, but permanent Medicare policy, this is like adding lighter fluid to the cost shifting fire.

Simple advice: employers, guard your wallets!