Many senior finance executives who aren’t as well-versed on health care matters as they are on other factors that determine financial results are about to get an education.
The dawn of the Affordable Care Act’s individual-mandate era and other ACA-related issues, as well as emerging macro trends in health care and continued cost increases, will command more attention from CFOs and their teams next year.
In a September CFO survey of 148 finance executives, 71% said they expect to spend more time on health care in 2014 than they did in the previous two years. Just over a quarter (27%) said they will devote “much more” time to the topic. The shift in priorities will play out more vividly at small companies, for which costs are rising much more steeply than for large ones.
“I’m definitely going to have to spend more time analyzing and reviewing what’s going on with health care, what I’m providing to my employees and how things are going to change,” says Ed King, CFO at 600-employee Marina del Rey Hospital and a principal at Hardesty, a provider of contracted financial management services. The government “will tinker with the ACA to alleviate some of the issues that will certainly come up, and I’ll have to keep up with all of that to manage my costs,” he says.
Ironically, for King and other small-company CFOs, the heightened focus on health care will occur during a period of “wait and see.” The Obama Administration in July delayed the imposition of penalties on employers that don’t offer affordable health benefits meeting minimum quality standards. That gave companies more time to decide whether to stop offering health care themselves and instead make direct contributions to help employees buy health care from the new public exchanges. If they do, in 2015 they will owe an annual $2,000 per-employee penalty, although the penalty plus the stipend may often add up to less than they have been paying in premiums or claims costs.
“I’ll wait and see what the coverage is like in the exchanges,” says King. “I don’t think I’ll know where the numbers are going to fall out for six to 12 months. Then I’ll be at a decision point that will factor in the potential for losing employees to competitors with a health care plan, the cost of replacing those employees and the lost productivity in the meantime.”
Also in waiting mode is Gary Rihani, CFO at Ace Metal Crafts, a $17 million stainless-steel fabricator with just over 100 employees. “We’ll let everyone else experiment,” he says. But the time and effort required to watch what’s going on with health care and make decisions will be such that the company probably will hire an insurance expert dedicated to that role, Rihani adds.