It’s a paradox: For years, CFOs have bemoaned the continually rising cost of health care and have spent countless hours assessing what percentage of those costs can be passed through to employees. Yet when talk turns to reform efforts, many CFOs are lukewarm about the prospect, if not openly hostile.
Finance chiefs know the cost of health care is squeezing their margins at a time when they can ill afford it; in some industries it affects their ability to compete on a global scale. But their widespread skepticism of government intervention has set many against reform. Is that an entirely appropriate stance born of painful experience, or a knee-jerk response that may ultimately harm their companies?
Few would argue that something must change. That in itself is a notable difference from 1994, when the last major push for reform went up in smoke. “Businesses know that health-care costs are eating them alive,” says Len Nichols, director of the health policy program at the New America Foundation, a think tank based in Washington, D.C.
At a time when they plan cuts or freezes in nearly every other spending category, CFOs predict a 6% rise in health-care costs over the next 12 months, according to the most recent Duke University/CFO Magazine Global Business Outlook Survey. At small businesses, which typically have less bargaining power than large employers, respondents anticipate even bigger hikes, and some studies suggest increases as high as 14%.
That creates an undeniable sense of urgency, but the feeling that something must be done has not translated into much overt advocacy on the part of companies.
There are some exceptions, however. Wal-Mart Stores, the nation’s largest private-sector employer, joined the health-reform debate in 2007, helping to found a group called Better Health Care Together, a surprising coalition of large companies, unions, and public-policy organizations. The group, which includes General Mills, Kelly Services, Qwest Communications, and Intel, as well as the Service Employees International Union and the Center for American Progress, a liberal think tank, has come out in support of health reform. “Wal-Mart is a company that is historically politically conservative and that has typically stayed out of this kind of controversial public fray,” says Nichols. “But they have small margins, and health-care costs are eating those margins.”
While Wal-Mart has staked out a high-profile role in support of reform, others in the business community also quietly acknowledge the need for change. “The U.S. health-care system, for whatever reason, is horribly inefficient,” says Wade Miquelon, finance chief at Walgreen, the national drugstore chain. “We’re on board with the fact that reform of some type has to happen. The current system is not sustainable.”
Continually climbing costs have some finance executives worried about what they are giving up to pay for health care, and what that opportunity cost means for their companies’ competitiveness. “Health-care costs are increasing faster than pretty much any other component of our cost structure,” says Rob Schriesheim, finance chief at Lawson Software. “As those costs — which make up more than 8% of our total employee salary expense in the U.S. — continue to rise, they have the potential to crowd out investment in other areas and ultimately make us less competitive.”