“The fat lady hasn’t even come on stage yet,” says legal studies and health care management professor Arnold. J. Rosoff. “The current legislation is going to be in play for a good long time.”
Rosoff notes that the new law is “an important step in the right direction” and believes it will open up business opportunities. But questions from employers across the country have already arisen about how to implement the new rules and what they mean for business. From public sector to private, the focus now falls on a jumble of loose ends that need to be tied up. Many of the legislation’s much touted cost-cutting measures could backfire, some say. And the ugly political wrangling, backstabbing and partisan bickering that marred the bill’s passage has raised questions about Washington’s ability to manage future crises. After all this, the ultimate fate of health care remains up in the air as opponents seek ways to challenge or undo the reform.
As it stands now, the reform is expected to insure 32 million more Americans by mandating that all U.S. citizens carry health insurance and providing government subsidies to help those who can’t afford it. It requires states to set up market-based exchanges so individuals without insurance can find coverage, and bans insurance companies from denying coverage for pre-existing conditions, imposing lifetime caps, or rescinding existing coverage after a person falls ill. By 2014, it also requires employers with more than 50 employees to offer affordable health insurance or pay annual fines of up to $750 per full-time worker.
Some business groups, such as the National Federation of Independent Businesses, have said the legislation places an unfair burden on small companies. “Forcing employers to offer health insurance, plain and simple, will cost America jobs and revenue, and inhibit small businesses from growing,” the Washington, D.C.-based group said on its Web site. “It’s a bad idea any time, but is particularly destructive in the current economic environment.”
The reform has a variety of implications for human resource departments, says management professor Peter Cappelli, who studies workforce issues. He notes that employers are trying to figure out which employees will be covered and what the ramifications of the new law will be. For example, the law says full-time employees must be covered, but what constitutes full-time?
In a recent column for Human Resource Executive Online, Cappelli writes that many provisions in the health care overhaul “spill over” into other human resource issues. “For example, an employer cannot pay for the costs of the mandated health care through reductions in wages, but how will that be assessed in practice?” Cappelli asks. “Will any reductions in pay become suspect as a result?”
The overhaul could also change the way companies recruit and retain employees. “Offering health care benefits will no longer be a big source of advantage in recruiting,” Cappelli suggests. “While this may never have been a big deal for larger employers, it did matter for smaller ones. At the other extreme, some companies may try to structure themselves to remain small enough to avoid coverage under the Act. Others may decide that full-time employees are now too expensive. Will this contribute to greater use of part-time employees, temp workers or independent contractors?”
In addition to the recruiting question, offering health insurance may no longer provide employers with an advantage in retaining employees, Cappelli notes. Before the overhaul, some people with health issues stayed in unsatisfying jobs because they were afraid they might not be able to get health insurance if they switched employers — a phenomenon known as “job lock.” Theoretically, this shouldn’t happen under the new plan. That means some employees who have been holding on to jobs they don’t like might finally decide to jump ship. “How big will the uptick in turnover be as a result?” Cappelli asks. “Probably not huge, but possibly notable.”
A $5 billion question mark
Human resource departments are not the only ones with questions about the bill. “There’s uncertainty even about what’s in the bill,” says Mark Pauly, a professor of health care systems, business and public policy. This is because the reform calls for a number of changes but doesn’t explain exactly how those changes will be made. The legislation reportedly falls back on the phrase, “The secretary shall,” more than a thousand times, Pauly points out, “which means they turned it over to the U.S. Department of Health and Human Services to figure out how to do this.”
Loose ends include details of the high-risk pool option, which the government is supposed to create within 90 days of the bill’s passage. “Nobody knows how that’s going to work,” Pauly says. “The only thing we know is that they’re going to put $5 billion into it. What the coverage will be and what the subsidy will be is up in the air.”
State-run health exchanges are also a big question mark, notes David T. Grande, a senior fellow at the Leonard David Institute of Health Economics at the University of Pennsylvania. “Each state will be responsible for setting up its own health insurance exchange,” Grande says. That could translate into some state exchanges working better than others. “If you do this 50 times, some states will do this very well, and some might not do this very well.”
Cost containment is another big issue, says Pauly. A number of measures in the bill supposedly slow down the rate of growth in health care costs, but Pauly is skeptical that all of them will work. “My slogan on this is that if there were an FDA (Food and Drug Administration( of cost containment, none of these measures would be considered safe and effective,” he quips. Pauly agrees with some of the measures—such as trying to reduce the rate of readmission to hospitals by letting nurses counsel patients, or requiring checklists in hospitals that remind workers to wash their hands and sterilize equipment. Other measures look less promising, at least in terms of cost, he says. For example, the reform encourages more preventative care, which is good for patient health but does not necessarily improve the bottom line. While studies have shown that preventative care saves lives, “it doesn’t save money,” Pauly notes.
The bill’s emphasis on “community rating” is another component that could backfire. Community rating is when insurance companies offer the same premium to everyone in the community, regardless of age or health. Politicians often claim that community rating will lower the costs to high-risk individuals, Pauly says, but they often leave out the flip side of the equation—that insurance companies will probably respond by raising premiums for everyone else. “Community rating will not lower total cost since it just averages the costs of different risks,” says Pauly. “Compared to basing premiums on risk, community rating lowers them for high risks and raises them for the more numerous lower risks.” The result could be that people in the low risk groups might decide to stop buying insurance altogether, since the penalty for not signing up would be less than the increased premiums. “From an insurance point of view, the theory is, I might as well wait until I get sick.”
The reform’s approach to undocumented immigrants could also cause unintended cost increases, according to Grande. Specifically, the legislation prevents undocumented immigrants from buying insurance in state-run exchanges. “That seems a bit punitive and counterproductive if the idea is to not use tax dollars to pay for care for undocumented immigrants,” Grande says, “because they will show up in hospital emergency rooms.”
Wanted: more management talent
Wharton management professor Lawrence G. Hrebiniak is less concerned with the legislation’s minutiae as he is with the big picture. “The health care overhaul raises many questions about the bill’s costs, effectiveness and political viability. But it also raises questions about effective management,” he says. “The bill is terribly complex and opaque, but it is only one source of problematic complexity facing decision makers in Washington. The federal debt looms huge and, left unfettered, will create major financial and fiscal crises in the future, while burdening U.S. taxpayers tremendously. The intelligence community has problems that defy easy solution. The viability of Social Security, Medicare, and Medicaid presents major challenges. Immigration issues, record unemployment, the economy, infrastructure repairs, energy questions, wasteful earmarks, etc., only add to the multitude and complexity of the issues facing leaders in Washington.”
The health care “debacle—with its political bickering, name-calling, blocking tactics, lack of clarity of costs and benefits, length and general painful legislative process—makes me wonder if our leaders can handle the many complex problems facing the country,” Hrebiniak notes. “Are our decision makers up to the task? Can the politicians ever become effective strategic managers? The health care overhaul suggests to me that the country lacks the management talent to handle the mounting problems facing the nation.”
Rosoff echoes that concern. Health care reform “devolved from a policy debate into a political game,” he points out. “Shame on these people for allowing it to become so political.” Rosoff, who has spent five years studying how Argentina, France, Italy, Japan and Singapore made the transition to universal health care, believes the United States “has made a major step” by passing health care reform, but it remains in jeopardy. “The stars are just barely in alignment to get the reform passed now,” Rosoff says, but “it’s not solid. It could be significantly rolled back… There’s a tremendous amount of state push-back.”
More than a dozen states have filed suit in federal court challenging the validity of the health care mandates. Some states are working to pass laws to counteract parts of the health care reform. And many Republicans are gearing up for an electoral battle this November in hopes that they might muster enough votes for a repeal.
“I believe that Republicans should take the unequivocal position that if they are given a majority in Congress in November, they will stop the implementation of the government takeover,” Phil Gramm, a former Texas senator, wrote in an op-ed piece in The Wall Street Journal on March 26. “And if a Republican is elected president in 2012, they will do with Mr. Obama’s health care bill what the American voters will have done to the Democrats: Throw it out.”
Rosoff suggests this is the wrong approach. “Instead of wringing our hands, look at all the ways we can meet the challenge to deliver health care to the population,” says Rosoff, who believes the overhaul opens up business opportunities in medical information technology, education, retail stores and methods of delivery, among other areas. “Change brings pain to people who are too heavily invested in the status quo, but it brings opportunity to everybody else… Adding 32 million people is going to put stresses on all of our systems. We’re going to have to create more doctors, re-orient who does what. By starting in the direction of universal health care, we have committed to making major changes… and these have tremendous business potential.”
Grande also sees opportunity. He believes that the mandate for coverage increased the likelihood of substantive discussions about cost containment. “The requirement that people have health insurance is the transformative piece” of the legislation, he notes. “Everything follows from that. No longer is the starting point whether to expand coverage. The debate going forward is how to do it and how to make it affordable.”
Author: knowledge@wharton.com
