This story reflects the views of these authors but not necessarily the editorial position of Fast Company.
Earlier this month, the U.S. House of Representatives narrowly passed the American Health Care Act (AHCA), a piece of legislation that, if signed into law, is likely to impact the health care coverage of nearly every American, including the 50% of Americans who receive insurance through their employers.
Now it’s the Senate’s turn to take up the bill. While it’s been suggested that the measure will likely see major revisions there, as it stands, it’s wildly unpopular. A remarkable coalition of doctors, civic organizations, and health care industry interest groups has opposed its passage, as has nearly every major health insurer in our country. As the bill stands, it will cause tens of millions of Americans to lose insurance–through cuts to Medicaid and various regulatory rollbacks, including protections for pre-existing conditions–while cutting taxes for high earners. But the AHCA’s impact on employers would go further than even the Congressional Budget Office predicted when it analyzed the bill in March (the agency has yet to publish a report on the version passed by the House).
We spend a lot of time thinking about employee health benefits as part of our day-to-day roles; Laszlo spent more than 13 years building industry-leading health benefits programs at GE and Google, and Ali, after enduring a freak medical emergency and getting stuck with $200,000 in uncovered medical expenses, founded a company to give self-insured employers more control and flexibility in the coverage they offer employees.
We’ve read the bill and have come to the same conclusion: If the employer-specific elements of the AHCA become law, American companies will be faced with a difficult decision: They’ll either limit the scope of health care coverage they provide in order to save money today, knowing that will likely lead to higher costs down the road, or they’ll decide to pay more in the near-term for health care in hopes of significantly better outcomes (and consequently lower costs) in the long run. It’s a choice between taking a little medicine now or a lot later. The law basically incentivizes the shortsighted option, which will be disastrous for employers and employees alike.
The Economics Of Essential Benefits
Health coverage is a major cost for American employers. Today, they spend a total of $1.2 trillion per year and cover more than 90% of our country’s private health care costs.
The Affordable Care Act’s mandates, along with the rise of high-deductible health plans over the last decade, have together succeeded in helping control medical cost inflation. The ACA model is far from perfect, but it was meant to encourage smarter health care spending without comprising preventive care and essentials like emergency room visits, maternity care, and behavioral health coverage. And to a considerable degree, it’s worked as intended.
But if the AHCA passes, this model would be jettisoned. Employers won’t be required to provide a federally mandated minimum level of coverage to employees and their dependents, thanks to a loophole letting them adopt the plan requirements of any state. That means a company in one state can cherry-pick from another state with more lenient essential benefits requirements.
For example, an employer could choose to not cover behavioral health or maternity care by adopting the coverage requirements of a state that doesn’t mandate those forms of coverage–even if the employer doesn’t operate there. Over the long term, this can increase the overall cost of health care as people wait longer for or avoid treatment to save money, and ultimately get sicker.
At the same time, the bill that passed the House addresses neither the underlying drivers of health care costs nor how employers, as a powerful buying group, can be leveraged to drive those costs down. That could mean enabling employers to deregulate access to clinical care, for instance, or giving them more power to negotiate bulk drug pricing, or even just adding incentives to promote healthy behaviors among their workforces. But the AHCA does nothing of the kind.
Instead, it removes a powerful incentive for employers to provide better care to employees. That’s not only a short-sighted approach to controlling costs, it’s actually one that we believe will ultimately drive them up much more significantly over the long run.
Tax Credits That Hurt Women And Help The Wealthy
One of the more confusing aspects of the AHCA as it stands is its impact on the tax advantages–for both employers and employees–that incentivize businesses to offer health care coverage. In particular, the bill appears to redefine what a qualified health plan is without providing much detail about what that actually means.
One detail, however, is clear: Employers whose plans cover abortion costs will lose eligibility for tax credits. This will mostly affect the plans of smaller employers, which depend on those credits to offer insurance to employees, but the message for working women is clear and frightening. The change would clearly disadvantage women in the workplace and further reinforce the gender stereotypes that we as a country have spent decades trying to undo. This sexist ethos extends to other parts of the bill that don’t directly affect employers; the AHCA would also let insurance companies charge patients significantly more based on medical histories that include postpartum depression, Cesarean sections, or issues stemming from sexual assault.
At the same time, another group stands to gain handsomely from the AHCA’s tax treatment: highly paid executives. The bill bizarrely changes rule 162(m), which limits the tax deductibility of salaries greater than $1 million for public companies. That’s a massive gift to highly compensated executives and CEOs, whose companies would no longer face tax hits for paying them more than $1 million every year. What that has to do with health care is a mystery to us.
Employers Have An Important Decision To Make
While the Senate reshapes the AHCA in the days and weeks ahead, employers are already facing an urgent conundrum; they’re in the midst of planning a 2018 health benefits year without a clear picture of the federal and state laws that will guide them. If the AHCA does become law, they’ll also likely face an ethical and business dilemma: Should they reap the immediate economic benefits the AHCA would hand them, or keep investing in their employees’ health?
It’s nice to imagine that employers will continue to provide at least the same level of benefits to their employees, if not actually spend more to protect the long-term health and productivity of their workforce, but many surely won’t. The reality is that the opportunity to lower costs may be too good to pass up. Collective Health recently polled more than 150 benefits leaders and found that nearly 40% were exploring new benefits solutions with the primary goal of driving down health care investment costs. These weren’t all struggling startups, either. Even successful, cash-rich technology and financial services employers–which typically provide some of the most generous benefits packages in the U.S.–have gradually begun covering a lower share of employees premiums as health care costs have risen steadily over the last decade.
When weighing the decision, it’s important to focus on the word “investment.” Yes, health care is expensive, and controlling costs is a real, pressing issue for everyone involved. But as research has long confirmed, healthy employees are critical to long-term business performance; they’re happier, better engaged, and more productive. Employees also see health benefits as a major part of their compensation packages, making it a key element in where they decide to work. So if you want to attract, retain, and get the most out of the best and the brightest talent, reducing health care coverage is simply a risky strategy. Unfortunately, it’s the one the AHCA seems to want employers to adopt.
Whatever the fate of the legislation, though, employers will still have to decide whether to make near-term cost reductions, or to build workforces of happy, healthy employees who trust that they’re cared about for the long haul. As CEOs of our own respective companies, and as executives who’ve been entrusted with the welfare of the people we serve, that choice is easy.
Laszlo Bock is the CEO of Humu, Inc as well as the author of Work Rules! and former SVP of People Operations at Google. Ali Diab is cofounder and CEO of Collective Health.