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Making business sense of health care

Strategies, risks, and market alternatives


Risk management has risen to the top of boards of directors’ responsibilities, and now, along with IT security threats, health care is a top priority. At a recent National Association of Corporate Directors program, our Colorado director community was treated to a far-reaching conversation on corporate responsibilities for developing health care strategy. The panel of experienced experts included Howard Carver, a director with insurance company Assurant; Tom Miller, national health care policy expert and American Enterprise Institute Fellow; and Jeff Wilson, SVP-Global Total Rewards at Western Union.

All brought a welcome pragmatic perspective to our region’s directors, who are being pressured to get up to speed on approaches to financing health care, connecting health care to their companies’ employment value propositions and other here-and-now impacts of the Affordable Care Act.

Though each expert came from different perspectives, all advised directors to further develop their own understanding of the issues:

  • Full awareness of company liability in providing health insurance coverage requires continuous attention of the board. While no organization of size is choosing to exit from providing health care benefits, most have become far more intentional in developing benefit strategies and managing the risks. Depending on the type of company and culture, this can range from an arms-length relationship that puts the onus of health care decisions on employees, to a much more aggressive central-control approach that manages health care costs with heavy reliance on analytics driving purchasing efficiencies and other tactics.
  • A key driver for board oversight of health care strategy should be based around each company’s employment value proposition. Companies must connect their benefits and financial position to their need to recruit and retain talent. Every organization’s workforce profile, industry, culture and geographic footprint will influence its approach to competing for talent, and in turn will determine how health care is positioned.
  • Directors need to understand not only the cost dynamics, but also the looming reputational risks in making major health care coverage decisions. Legal requirements aside, companies will remain obligated to finance health care insurance coverage, and after decades of providing superior plans, the negative optics in removing such benefits will likely trump economic factors. Large companies in particular will need to heed the risks to their reputations while pursuing the best talent.
  • Similarly, organizations that choose to take an active role in influencing health care in the external market and political arena must also consider reputational risks. Most will choose to do so through consortiums or industry associations to avoid being thrust into the spotlight, while still being able to expand their influence by pooling collective interests.
  • Thought difficult to track, any inattention to the tentacles of tax protocols found in the ACA that apply to all parts of business will place companies at risk. Ignorance of the “Cadillac Tax” on coverage will be a costly oversight, as will improper attention to ACA reporting requirements.
  • As companies continue to look for solutions to health care challenges, private exchanges have emerged as an appealing option for many to consider. These exchanges, like any new option, are being met with both enthusiasm and reticence. We are seeing both waves of early adopters and now early defectors. The marketplace will certainly look very different in a few years.

Surprising and yet illuminating were the varying views on risk management of wellness programs. Each expert approached the issue from a different perspective and with some healthy skepticism. However, all agreed that a return on investment could be attained through results-focused measurement and coordination across the many program options affecting population health. Many programs are unsuccessful due more to lack of clear objectives and rigor in design rather than the concept itself.

Misguided decisions on health care amidst external confusion and change are open threats to any company’s reputation on a number of levels – not just image problems with employees, but customers, suppliers, vendors, shareholders and other stakeholders in the company’s community. The risks of litigation, the high fines for non-compliance, the political risks with programs that discriminate, the potential polarization with unions, unpredictable legislation and the debilitating results from misaligned health care strategies are greater than ever.

Human resource managers should provide a review of health care strategies, risks, and market alternatives to the board twice a year at a minimum, and for the board to carve out time for frequent, in-depth discussions on progress and on managing risks. Frequent discussions and board education on health care challenges provide a level of understanding that will help to mitigate surprises caused by the rapidly changing health care landscape.

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Leo Tokar

Leo Tokar is senior vice president at Lockton, the world’s largest privately owned insurance brokerage and employee benefits consulting firm. Tokar serves on the boards of the Colorado Health Institute, Porter Adventist Hospital, the American Cancer Society and Judi’s House. Lockton works with executive teams and boards of directors on managing risk at multiple levels. Lockton’s Denver office is a corporate sponsor of the Colorado Chapter of the National Association of Corporate Directors.

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