Newsletter Issue 2

Concerns About Health Care Reform

(A compilation of recent health articles)

As the health care reform bill continues its troublesome trek through the political waters, two new surveys from Towers Watson, a global HR consulting firm, indicate that both employers and employees are concerned about the potential effects of health care reform on costs, quality, and availability of health care.

Initial results from an employer survey conducted by Towers Watson and the National Business Group on Health show that a vast majority of U.S. employers – 71 percent – believe health care reform would lead to higher costs for health care services. Furthermore, 69 percent believe it would increase the cost of their benefits programs.

A separate Towers Watson survey of employees found that a majority of workers think health care reform will result in higher costs (67 percent), a decline in the quality of care (53 percent), and a reduction in the benefits available to them (54 percent).

"These survey data confirm quantitatively what many people – employers, employees, and policy pundits – have been talking about for the past four months," said Helen Darling, president of the National Business Group on Health. "That is, whatever else a health care reform plan might do, it is unlikely to control health care costs, which has everyone worried."

Some employers also believe that health care reform would diminish the number of companies that offer this benefit to their workers. The Towers Watson-National Business Group on Health survey found that 35 percent of employers say health care reform will lead to fewer employers offering subsidized benefits. Nearly half (46 percent) believe it will decrease employer-sponsored offering of retiree medical benefits, 5 percent say it will increase, and 27 percent say it will cause no change.

Ron Fontanetta, Towers Watson Health and Group Benefits practice leader for Intellectual Capital Development, says, "While health reform could ultimately provide greater access to health care to more Americans, there is a fair amount of skepticism over whether health reform will be able to curb rising health costs."

Another potentially negative consequence of health care reform for employees is a federal requirement to purchase insurance. The Towers Watson survey of roughly 1,000 workers at midsize and large U.S. companies found that 40 percent of employees would not be comfortable purchasing their own insurance in the markets if they could not obtain coverage through their employer. Proposals in Congress include a mandate for all individuals to have health insurance coverage, which ultimately could affect employees who receive insurance from their employer if the employer decides to terminate the company plan and pay into the government system instead.

"All eyes remain on Congress, and there will likely be trade-offs in whatever final legislation emerges from their negotiation process," said Steve Raetzman, senior consultant for Towers Watson. "However, with or without health care reform, employers will continue to look for ways to control rising health care costs and provide high-quality health care for their workers and families."

Equity Research still believes the health insurance industry will bear the brunt of any reform bill. "Insurance companies remain vulnerable to government intervention and are an easy target of any populist revolt," the research firm said in a statement.

Positive Aspects

Not all of S&P Equity Research's predictions spell doom-and-gloom for insurance companies and other health care-related businesses. In the near term, the firm expects that the loss of the Democratic supermajority in the Senate may lead to upward earnings revisions for companies that could have been hurt by some of the previous health care reform proposals. Furthermore, scaling back reform would be a near-term positive for pharmaceutical companies, as it would eliminate the proposed $80 billion in fees and concessions agreed to by the industry to help fund reform. However, curtailment of reform may mean the government will revisit direct negotiations of Medicare drug pricing in lieu of the $80 billion in fees and concessions. S&P Equity Research also believes any cutbacks in proposed reforms would be generally negative for health care facilities providers, especially acute care hospitals.

While scaled-back reform is expected to eliminate the $155 billion in reimbursement concessions already agreed to by the industry to help finance reform, it could also mean that the vast majority of the uninsured won't get health insurance benefits, thus leaving the industry with no immediate solution for its biggest problem: uncompensated care or care for which it is not reimbursed. (Uncompensated care currently comprises about 20 percent of total revenue.) Given the dramatic growth in health care expenditures and ensuing budgetary pressures, Medicare likely will be forced to seek future rate reductions from hospitals that would amount to more than the agreed-upon $155 billion in reimbursement concessions.

Blue Cross/Blue Shield Points

The Blue Cross and Blue Shield Association (BCBSA) agrees with President Obama on a few health care reform goals: reigning in costs, improving quality, and expanding coverage to everyone. But as to the best methods of achieving those goals, the BCBSA parts ways with the president, as it explained in a recent statement it issued regarding the president's health care reform proposal.

First, the BCBSA argues that President Obama's idea to create a Health Insurance Rate Authority would have dire consequences. "President Obama's proposal to establish a new Health Insurance Rate Authority ignores the unique cost drivers in each of the 50 state insurance markets," the statement explained. "Several governors from both parties have recently expressed reservations about a one-size-fits-all approach to healthcare reform.

"This new agency, which creates a highly politicized federal review process, would divorce premium review from the state regulators' responsibility of assuring that health plans have enough funds to pay future policyholder claims, potentially leading to multi-plan insolvencies across the country. The risks of such a proposal—namely undermining the security and stability of Americans' health insurance—must not be ignored.

Second, the BCBSA urges that reform proposals must address the three underlying drivers of health care costs:

1. Higher prices resulting from cost-shifting by health care providers to the private sector because of government programs underpayments, higher priced technologies and pharmaceuticals, and reduced provider competition.
2. Increased utilization due to an aging population, a rise in obesity and chronic illnesses, new treatments, more intensive diagnostic testing, and the practice of defensive medicine.
3. Lack of care coordination and a delivery system that rewards volume rather than quality.

Third, the BCBSA claims that some provisions in President Obama's proposal would make coverage more expensive. "These provisions include putting new taxes on people's insurance, requiring many people to buy richer benefit packages than they do today, and allowing millions of people to forgo coverage until they are sick—driving up costs for everyone," the BCBSA statement continues.

Finally, the BCBSA argues that reform proposals it backs, such as guaranteeing coverage regardless of pre-existing conditions and not varying premiums based on health status, will work only if every American is required to obtain and maintain coverage.

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