Spend Health Matters: Accounting for the Cost of Healthcare (Part 1)

Spend Matters' sister-site MetalMiner recently did some homework attempting to account for the corporate costs of new domestic healthcare legislation in the U.S. MetalMiner notes, "two elements of the reform bill appear most contentious. The first involves the notion that health-care must be provided by employers (and not via some other mechanism) and second that the bill does little to actually control costs, which we would argue remain essential to any successful public policy around health care." The issue of what should still be done about healthcare cost control via new government/private sector cost containment programs, tort reform, physician preference and other cost reduction mechanisms is one that deserves a whole series of posts (if not a book) in its entirety. But I'll save that for another time.

What matters most for industry watchers from a near-term perspective is how much healthcare reform will cost companies. According to MetalMiner, "Manufacturers have publicly announced some hefty charges to earnings in the current quarter including Caterpillar and Deere with $250m, according to the Wall Street Journal. AK Steel said it too would take a charge -- of $31m for the first quarter. Large industrial manufacturers 3M and Honeywell will each take a $90m charge and Honeywell's will include a $.04-.05 per share charge when they next report earnings." MetalMiner also notes that "Small employers will also feel the impact of the legislation, 'It will raise, not lower, insurance costs and it will increase both taxes and the cost of doing business for the very people they said they wanted to help -- small business,' said Susan Eckerly, spokeswoman for the Washington, D.C.-based National Federation of Independent Business, in a written statement."

Small and large companies worried about the escalating costs of healthcare should look to immediately offset cost increases by tackling cost reduction programs in both targeted (e.g., pharmacy benefits administration) and broader categories. Perhaps the most important step CEOs and CFOs should take is to disallow their benefits consultants from negotiating healthcare related contracts, especially in cases where the benefits consultants are also brokers that have no incentive to lower costs (since they're compensated by payers and others based on an overall percentage of a deal). By bringing in either in-house specialists in healthcare cost reduction, hiring specialized consultants (without potential conflicts of interest and without the need to pander to HR) and/or leveraging GPO or buying group contracts that already exist in key areas and can drive immediate cost reduction, it's possible to at least partially offset the costs that national, socialized healthcare and mandatory coverage will bring.

Jason Busch

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