StrategyDriven Editorial Perspective – You Don’t Get Something for Nothing

Some would argue that with President Obama’s signing of health care legislation into law a great deal of uncertainty was eliminated from the marketplace. While the uncertainty associated with whether or not health care legislation would become law has been resolved, the new healthcare entitlement itself represents an injection of new uncertainty into the market. As is the case with many laws, the various regulatory agencies of the U.S. government must now determine the specifics of how the new law will be enacted. This process itself may take several years to accomplish; allowing the uncertainty to continue to fester within the U.S. marketplace. Additionally, legal challenges as to the constitutionality of the healthcare law also inject an unknown into the business environment. Thus, businesses are left to deal with the healthcare uncertainty at least for the time being.

One thing is for certain, you don’t get something for nothing. Provisions of the new healthcare law provide for the extension of benefits to millions of currently uninsured Americans. Insurance companies will not be able to deny coverage to individuals with pre-existing health conditions and there will no longer be lifetime insurance payout limits. Another requirement extends the age for which children can be carried on their parent’s insurance policy to twenty-six. …and the list goes on. All of these additional healthcare benefits have to be paid for by someone or some company even if the specifics of those payments remain unknown for some time.

Some leaders already estimated the cost of the new healthcare law on their organization as:

• AT&T: $1,000 million
• Verizon: $970 million
• Deere & Co.: $150 million
• Beoing Co.: $150 million
• Caterpillar: $100 million
• Prudential Financial: $100 million
• Lockheed Martin Corp.: $96 million
• 3M Co.: $85-$90 million
• Exelon Corp.: $65 million
• AK Steel: $31 million
• Eaton: $25 million
• Illinois Tool Works: $22 million
• Xcel Energy: $17 million
• Valero: $15-$20 million
• Honeywell: $13 million
• Goodrich: $10 million
• Allegheny Technologies: $5 million¹

Other companies warning of an increase in benefits costs include: Con-Way Inc., Navistar Inc., Xerox Corp., Public Service Enterprise Group Inc., and Met Life Inc.²

“The total cost of this [healthcare legislation] has been significantly underestimated,” said Jim Rogers, Chief Executive Officer of Duke Energy Corp. and a director of U.S. health insurer Cigna Corp. “Corporations are going to pay billions of dollars this year that no one even talked about in the debate and that’s just the beginning.”

Rogers said the health-care law makes it more economical for Duke Energy to pay a penalty for not providing health coverage for employees, forcing workers to “go shop” for a plan. The company won’t take this route, he said.

“Your health-care program is important; it demonstrates that you care about your employees,” he said. “So as a practical matter we won’t be driven by the most economic thing to do, we will be driven by taking care of our employees.”³

StrategyDriven Recommended Practices

So what is known? Unless the new healthcare law is found to be unconstitutional, it is reasonable to infer that existing capital within our economic system, regardless of its source, will be diverted in larger portions to the healthcare industry – and away from other market sectors. It is also reasonable to assume that those receiving health care coverage will make greater use of the medical services now available to them than simply the emergency room visits they were entitled to before. These reasonable yet broad assumptions drive StrategyDriven leaders to consider the following strategic options:

• Eliminating, streamlining, and outsourcing all labor intensive work activities. The goal is to reduce hiring and/or eliminate headcount in order to avoid the potential costs associated with the new healthcare legislation. In the case of outsourcing, serious consideration should be given to transferring those functions not absolutely required to be performed within the United States to overseas providers.
• Relocating operations to another country not as heavily burdened with taxes and other mandates. The goal is to reduce non-value adding payments required by the government. Consideration must be given to other added costs such as transportation and importation taxes when evaluating whether or not to relocate.
• Examining the potential competitive advantage the organization’s health care program provides when seeking to attract and/or maintain talent. The goal is to use the organization’s healthcare benefits as a differentiator when acquiring and maintaining top performing individuals.
• For those organizations providing products and/or services to the healthcare industry, reevaluating the company’s production capacity with respect to the potential change in the demand resulting from the influx of millions of newly insured patients. The goal is to be appropriately prepared and positioned to seize as much of the newly created market as possible.
• For those organizations not currently providing products and/or services to the healthcare industry, considering the impact of the diversion of discretionary personal funds and/or corporate capital away from their market segment. This evaluation should take into account the extent to which the product and/or service is provided are a human or business necessity. The goal is to estimate the amount of business loss that may be incurred because of the diversion of personal and corporate funds to the healthcare industry.
• For those organizations not currently providing products and/or services to the healthcare industry, evaluating the company’s capability and opportunity to provide products and/or services to the healthcare industry. The goal is to be appropriately prepared and positioned to seize some of the newly created market if it is reasonable for the organization to do so.

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Sources

1. “Companies Take Billions In Health Care Charges,” Reid Wilson, National Journal, April 2, 2010
2. “Deere & Co. says new health care reform law will increase fiscal 2010 expenses by about $150M,” Josh Funk, Associated Press, March 25, 2010
3. “Duke Energy Says Health Law to Result in ‘Large’ Cost (Update1),” Kim Chipman and Jordan Burke, Bloomberg, April 01, 2010

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