Employers have been struggling for years with the ever-rising cost of their traditional health-benefit plans. As a result, they’ve had to ponder whether to boost employees’ out-of-pocket payouts or, in a less common scenario, to cut back on benefits. In either case, employee relations — not to mention labor negotiations involving benefits — can get touchy these days.
With all the energy that companies have been expending on such choices, it’s fair to wonder why 58 Fortune 500 companies would participate in the National Health Access program, which is aimed at providing up to 3 million uninsured workers, independent contractors, and pre-Medicare retirees with low-priced health-care coverage. Among Corporate America’s many virtues, altruism isn’t the first that springs to mind.
On the other hand, it’s easy to see why UnitedHealth Group, Humana, and Cigna are thrilled to provide the insurance. National Health Access will supply these three companies with an excellent entrée into a potentially huge new pool of business. What’s more, the new policies could help them replace employee-benefits revenues that they lost during the last five years or so, as a result of downsizing and outsourcing by many employers.
As companies have increased their emphasis on jobs that pay by the hour and on outside consulting, “the number of benefit-carrying jobs is shrinking,” notes Andrew Slavitt, chief operating officer of Ingenix, a subsidiary of UnitedHealth Group, the leading carrier on the National Health Access program. Insurers that sell only traditional group-benefit programs face dwindling returns, adds Slavitt, but “if we get [National Health Access] right, we do have an opportunity for a significant market expansion.”
The framers of the program, scheduled to launch in September, seem to be especially adroit at getting it right. One big problem in providing health coverage for low-income workers is the obvious one: carriers just haven’t been able to price it low enough. In contrast to the economies of scale they’ve been able to swing in employer-sponsored group plans, insurers haven’t been able to amass a pool of individual buyers large enough to spread the risk among people in varying states of health.
But the new program — which will be run by the HR Policy Association, a group of senior human-resources executives at Fortune 500 companies — could end up serving a pool that is not only big enough but also economically and demographically diverse enough. Among those who could buy coverage would be low-wage part-time workers, highly paid consultants, and early retirees, says Tom Beauregard, a health-care consultant with Hewitt Associates in Norwalk, Connecticut.
The program’s designers included six different insurance tiers, notes Beauregard, to appeal to people with vastly different means. At the least expensive level, participants could buy into a network that provides medical and drug discounts rather than health insurance. At the top end, they could purchase plans featuring high-deductible major medical coverage and health savings accounts. Levels in between offer various wellness, outpatient, and inpatient benefits.
Despite the prospects for a nicely diversified pool, however, UnitedHealth will be taking a chance: in exchange for a larger share of the business, the company will ignore applicant’s medical histories when pricing their coverage. (Humana and Cigna will reportedly still take insureds’ health backgrounds into account.) “We’re taking on some risk,” acknowledges Slavitt — for example, an abundance of relatively ill people could choose to sign up — “but it’s not a risk without reward.”
The incentives are certainly clear for insurers, but the potential payoffs for employers are tougher to decipher. To be sure, little immediate expense is involved — the companies’ only obligations are to gather the names of eligible participants and communicate the details of the plan — although potentially hefty administrative tasks may not be far behind.
One reason offered by participating companies is that by providing uninsured workers with access to health coverage, a company can improve its overall performance. “I don’t think it’s a matter of altruism; it’s a matter of enlightened self-interest,” suggests Robert Galvin, director of corporate health and medical programs at General Electric Co. “If [employees] are not getting health care when they work for us, they’re not going to be productive.” Galvin acknowledges, however, that employers haven’t been able to quantify how much productivity is lost due to a lack of health coverage.
Another benefit suggested by the sponsoring companies is that the program would help curb the use of hospital emergency rooms, where care is costliest. In turn, the reasoning goes, hospitals might have less need to shift those costs to employers via increased health insurance premiums. Other than for individual companies that bargain directly with hospitals, however, keeping uninsured workers out of emergency rooms would seem to have little direct effect on insurance costs .
Likewise for a third justification that some companies have put forth: If businesses offer a solution to the national problem of insuring the uninsured, the federal government and state regulators won’t come calling with mandates ordering the companies to pay for people without coverage.
There is, however, a much more compelling explanation of the employers’ motives. National Health Access could help participating companies secure a competitive edge in hiring desirable workers.
For example, the plan would help information-storage company EMC Corp. compete for retirees between the ages of 55 and 65 who still want to work part-time, according to senior vice president of human resources Jack Mollen. To be covered under EMC’s traditional benefit plan, an employee must work 30 hours a week. Under National Health Access, early retirees — who must wait until age 65 to be covered under Medicare — could work as little as 10 hours a week and still obtain lower-cost insurance than they could buy on their own.
Hiring early retirees would help the company with its medical costs, says Mollen, and offering the program to uninsured freelance engineers could provide EMC with a competitive edge in a labor market where pay scales are fairly uniform.
A further benefit of the National Health Access program — one that would be enjoyed by many companies that downsized or outsourced in recent years — is that it would help employers rebuild their workforces and prepare for growth without rehiring full-time employees.
The more affluent of these workers — including highly skilled contractors and other employees able to retire young — will likely find National Health Access alluring. Problems might arise, however, if the poorer uninsured workers who could make up a large part of the pool find the coverage unaffordable. In that event, the program might not lure sufficient enrollees for insurers to justify their lower prices — and then premiums could rise, unraveling the affordability that is the plan’s reason for being.
To avoid that eventuality, some participating companies acknowledge, subsidies might be needed to help the uninsured pay for their coverage. No one, of course, suggests that the employers themselves would kick in the money. To help finance health care for the uninsured nationally, the program could become part of a broader push for a federal reinsurance program or tax breaks for individual insurance buyers, says Ingenix’s Slavitt.
Still, if the labor force does continue to move in the direction of Freelance Nation, employers could discover a strong self-interest in keeping programs like National Health Access afloat. And then they might start subsidizing them.
David Katz’s column “Risks and Benefits” appears every other Thursday. Contact him at DavidKatz@cfo.com.