Reacting to Reform

In the voluminous health-care reform law, CFOs see hope, uncertainty, and – above all – a giant omission.

Frugal Intentions

To be sure, there is some language in the reform legislation that targets waste in the health-care system. For one, the law directs both the Comptroller General and the Department of Health and Human Services to study “value-based purchasing programs” for hospitals, nursing facilities, and home health agencies in an effort to align doctors’ pay with their performance. In addition, the law provides for incentive payments to hospitals that meet certain standards starting in October 2012. There are also multiple efforts made to tighten up the Medicare program.

Experts also point to some indirect effects that may create cost savings. For example, as hospitals see less bad debt from services provided to uninsured people, their rates could come down anywhere from 5% to 20%, estimates Ron Fontanetta, a principal with Towers Watson. Also, the 40% excise tax on Cadillac plans will likely accelerate shifts to lower-cost plans, he says, such as those based on health savings accounts (HSAs) and high deductibles. The reconciliation bill also allows for greater variation in premiums for people who refuse to participate in wellness programs than current laws do, which could ultimately lead to a healthier population.

However, critics say reform doesn’t go far enough, failing to include, for example, efforts to limit medical malpractice suits, which are seen as a major area of waste. They also say some of the measures intended to help mitigate costs — including tax credits aimed at small businesses that provide health care — fall short.

Mike Mitternight, head of Louisiana-based Factory Service Agency, a heating and air-conditioning service firm with about 10 employees, says reform will likely do little except raise his costs. Mitternight already pays 100% of health-care coverage for his employees, at a cost of more than $4,000 per month. He says the 50% tax credit for businesses with 25 or fewer employees likely won’t apply to his firm, since his workers make more than the $25,000 annual average cap specified in the current law for companies with 10 or fewer workers.

Mitternight also notes that a tax credit won’t help unprofitable businesses, and may also be unhelpful when monthly cash flow is tight, since the credit would only be available annually. “For a small business, cash flow can make or break you,” he says.

Given the uncertainty, though, few CFOs say they have plans to change their current insurance offerings at this point. Stuart says his objective is to do what he can to help Rainsoft’s employees manage the cost of health care through the firm’s traditional and HSA-based options. “We’re not expecting to make many changes, if any,” he says, although he notes the new legislation does allow insurance premiums to be adjusted for tobacco use. “We’ll have to explore that further, but our plan would be to have employees that do use tobacco pay higher premiums,” he says.

For Mitternight, the equation may be tougher. “With the economy being down, bids have become so competitive, you can’t just keep raising your rates to cover your costs,” he says. But he is loath to make a change as well. “Most of my guys have been with me for a long time — I wouldn’t do anything to hurt them unless I was forced into it,” says Mitternight. “And we wouldn’t do anything without some discussions.”

 

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