A Tall Order
Employers turn to consultants for health care reform answers
Karen Pallarito
Hungry for advice on complying with national health care reform, employers are turning in droves to benefit consulting firms, experts say.
The surge in demand has resulted in new revenue-producing opportunities—as well as longer hours—for health care consultants.
“All along, we’ve been seeing more demand from employers who were worried about their ongoing trend” in health care costs, said Linda Havlin, partner and global leader for research and intellectual capital for Mercer L.L.C. in Chicago. “This bump, I would say, is one of those off-cycle changes where you’re just going to be working faster and harder,” she said. “We don’t staff to anticipate times like this and so, yeah, there is a ramp-up and people are definitely working harder right now in order to keep up with the demand.”
Many firms prepared for the onslaught last year by assembling expert teams to provide input on legislative, tax, compliance and actuarial issues.
“The question everybody’s asking is, ‘What does this mean to me and my plan and my associates and how I run my employee benefits plan?’ and then the follow-on is, ‘Should I dump my medical plan?’” said Mike Brewer, president of Lockton Benefit Group in Kansas City, Mo.
To stay ahead of the curve, PricewaterhouseCoopers L.L.C. convenes weekly teleconferences of its “water cooler group,” 60 health, legislative and economics experts who share insights on health care reform and client experiences, said Mike Thompson, a PwC principal and practice leader in New York.
Educating employers and keeping them in the loop on the law’s various nuances is a must. To get the word out, consultants are using newsletters, e-mail, teleconferences, webcasts and Web page updates.
“They don’t have the luxury of time to really read 2,000 pages (of health care reform legislation), so they’re relying on us to kind of triage it for them,” said Edward Kaplan, senior vp and national health practice leader for Segal Co. in New York.
Sue Good, manager of total compensation for Arapahoe County in Littleton, Colo., which provides benefits to 1,500 of its 1,900 employees, said she knows what to expect and what changes to plan for because of Lockton’s health reform newsletters and webcasts.
Mike Craford, managing principal at Craford Benefit Consulting, a San Rafael, Calif., firm that targets companies with 250 to 5,000 employees, prefers face-to-face client meetings to address their specific issues, although he also uses newsletters and e-mail.
Consulting firms are supplying background information and general guidance as a value-added service to existing and prospective clients. The real revenue-boosting potential arises from detailed, customized analyses and advice that individual employers are requesting. Generally speaking, that work is not covered under existing contracts, although exceptions exist.
In April, a Citigroup Inc. analyst, who maintains a “buy” rating on Lincolnshire, Ill.-based Hewitt Associates L.L.C., noted that “the recently passed U.S. health care reform could serve as a nice source of upside” to the firm’s health care consulting practice and could “help its benefits unit as well.”
Towers, Watson & Co., another publicly traded consulting firm, recently reported a decline in third-quarter net income on costs related to the merger of Towers, Perrin, Forster & Crosby Inc. and Watson Wyatt Worldwide Inc. However, in a statement, the company credited an increase in revenues from health and group benefits for offsetting slight declines in other segments.
In the near term, employers want to know what they have to do to expand coverage to young adults under age 26, remove lifetime limits and preserve their “grandfathered” status exempting them from certain new provisions of the law. Employers that provide retiree drug benefits are seeking guidance about whether to retain those benefits.
Segal’s Mr. Kaplan advises employers that offer retiree benefits to take advantage of the law’s early retiree reinsurance program, even though not all program details are clear.
Health care reform also is resulting in new administrative rules and requirements. For example, employers must begin reporting the value of health care benefits on workers’ Form W-2. Earlier this month, rules were issued detailing requirements that employers extend health coverage to workers’ adult children up to age 26.
Long-term decisions are more complex. Most consultants expect health care reform will increase health plan costs, forcing companies to make trade-offs.
In the future, Colorado’s Arapahoe County may do financial modeling to assess its health benefits strategy, Ms. Good said.
Towers Watson advises clients to examine their health programs from a “total rewards perspective,” said Mark Maselli, Parsippany, N.J.-based leader of health and group benefits for North America. To invest more heavily in health benefits, for instance, some employers may decide to reduce their commitment to compensation programs or retirement benefits, he said. Conversely, some firms may choose to scale back health benefits to free dollars for other programs.
Because of the sour economy, layoffs, reduced 401(k) contributions and other reductions, some employers don’t want to alter their health benefits plans, Mr. Craford said. Other employers are using the economy and health care reform “as a jumping-off point to actually communicate changes to their employees that they may have wanted to make,” he said.
Ken Sperling, global leader of Hewitt’s health care consulting practice in Norwalk, Conn., expects each employer to attack the cost issue differently. “Some might adjust their plan design, some might adjust their contribution schedules, and others will look toward care management programs and health improvement programs to try to impact the size of the pie as opposed to how you slice it up,” he said.
While exiting the health plan business remains a topic of discussion, consultants said they expect most large, self-insured companies to stay the course. Health benefits are, for many, a significant recruitment and retention tool. Others, however, may find that the math simply doesn’t add up.
“Employers can drop coverage today with no penalty,” Mr. Sperling said. “Why would you consider dropping coverage when there’s a penalty” under the new law?
Industries with large numbers of lower-paid, part-time workers such as retail, manufacturing and hospitality, face tougher choices, consultants said.
In a recent survey, Mercer found that about half of all large employers—those with at least 500 employees—offer coverage to part-time employees who work 30 hours or more a week. The rest don’t cover any part-time employees, require them to work more than 30 hours a week to qualify for coverage or impose other eligibility requirements.
For employers maintaining their benefits, Mr. Brewer urges them to aggressively pursue strategies to bend the cost curve. “By our measure, that’s renewed interest in wellness initiatives,” he said.
Comments