Better Than Corporate Tax Reductions: Controlling the Healthcare Expense

Jobs for everyone. $4,000 raises for households. 3% economic growth for the next decade. These are just a few of the big promises being made by Republicans in Congress as they work to get a tax bill signed into law.

Fulfilling those promises, the lawmakers contend, requires corporate tax relief. When corporations see their tax rate shrink from 35% down to 20%, they will invest in growing their U.S.-based work forces and improving the wages of their workers. With more take-home pay, employees and their families will spend more money on U.S. goods and services, growing the economy. Of course it remains to be seen what the final bill will look like, whether or not it will become law, and if it does, just how effective it will be in delivering on those promises down the road.

But if the goal is to increase U.S. competitiveness and put more money into the pockets of working families to stimulate growth, the most direct path might be found in employer healthcare – rather than corporate tax reform.

As healthcare costs continue to increase, albeit at a slower rate, employers continue to shift more of the cost burden to employees. According to the 2017 Milliman Medical Index, the annual cost of healthcare for a family of four increased 4.3% from 2016 to 2017 to $26,944¹. Employees are now taking on 43% of that expense ($11,685) in the form of payroll deductions for premiums and out-of-pocket costs at the time of care – up from 39% in 2001.²

And while employees pay a greater share of a rising healthcare expense each year, their wages remain stagnant: Annual real wage growth is just below 0.2 percent.³ Economists cite a variety of reasons for poor wage growth, including low inflation, slack in the labor market, flat productivity, and, of course, the rising cost of healthcare.4 Even as employers ask employees to pay a greater share of healthcare costs, as they transition from fully-insured to self-insured plans; and as they implement narrow networks, pharmacy management and a wide range of other cost-control strategies, they continue to face unsustainable medical cost trends of 4-6%.

The growth in healthcare spending is not just unsustainable – it’s largely unnecessary: An estimated 40% of our country’s healthcare spending is avoidable.5

When it comes to delivering financial relief for employers and all employees, a great place to start is getting people the care they need at the right time and eliminating the inefficiency and waste we’ve come to accept: the over-use, mis-use and under-use of healthcare resources. Helping people avoid the emergency room when an urgent care clinic is appropriate can save hundreds or thousands of dollars for both employee and employer. Enrolling an expectant mother of multiples into a high-risk pregnancy program can improve health outcomes and prevent lengthy and costly hospital stays for both mother and babies. A simple biometric screening can put an employee on the path to better health instead of heart disease.

Employers taking these steps today are not only helping employees improve their health and keep more of their hard-earned dollars; they’re also seeing up to 15% savings in annual healthcare spending, and a medical cost trend of less than 1%. That’s savings they can invest in many ways, including putting more money into the pockets of employees to spend on goods and services outside of the healthcare system.

Want to learn more? Watch our recorded webinar, Best Practices for Partnering with HR for Success with CFO Magazine.

 

¹, ² Girod, C., Hart, S., and Weltz, S., 2017 Milliman Medical Index (May 2017), Retrieved from http://www.milliman.com/uploadedFiles/insight/Periodicals/mmi/2017-milliman-medical-index.pdf
³ Shambaugh, J., Nunn. R., Liu, P. and Nantz, G., Report – Brookings Report: Thirteen Facts about Wage Growth (Sept 25, 2017), Retrieved from: https://www.brookings.edu/research/thirteen-facts-about-wage-growth/
4 Glassman, J., Five Reasons Wages Have Stagnated, JP Morgan Chase (June 2017), Retrieved from: https://commercial.jpmorganchase.com/pages/commercial-banking/executive-connect/reasons-wages-stagnated
5 Main, T. and Slyotzky A., The Patient to Consumer Revolution (2014), Oliver Wyman, 40.