In the past year, I've visited more than 60 clients to discuss the impact of health care reform on their respective organizations. Through this process, I had the opportunity to meet many CFOs.
As the employee benefits landscape continues to evolve, CFOs and HR/benefits practitioners will be meeting more than ever before. As an HR/benefits professional, you'll want to be in the best position to address your CFO's ideas, requests and concerns in an accurate and timely manner. Here are some considerations as you develop or expand a relationship with your CFO:
1. Get to know your CFO. You'll be spending a great deal of time with him/her over the next few years. In addition to planned benefit meetings, there will be many times when you appear at his/her door to mention a regulatory change that affects the benefits program. For example, if you performed a 2014 benefits cost financial model for your organization a few months ago, there is a good chance you will be approaching your CFO with version #2, as the free choice voucher provision of health care reform was repealed.
Or, he/she may be calling you to discuss a benefits-related item he saw on the news. At a minimum, it will be in your best interests to learn his/her personality, preferences, and main benefit interests/prerogatives. This will make working together most effective, your periodic drop-ins understandable and put you in a position to be the sole source of credible benefits information for him/her.
2. Prepare your CFO for the potential cost impact that he/she probably has not been thinking about. The HR/benefits department does the benefits-related work, right? Yes. And health care reform is benefits-related, right? Yes, but not 100%. On its face, health care reform looks like a job for any HR/benefits department but if you look closely, that's not necessarily the case. There's a good chance your HR/benefits department alone will not be able to do all of the work. Payroll departments/vendors, for example, will be involved with the new W-2 "value of benefits" reporting requirement, and HRIS or IT will become more involved with benefit system modifications like automatic enrollment and new reporting requirements.
Start thinking about all of the internal and external resources that will be involved in effectively implementing health care reform within your organization over the next few years and bring such information to your CFO's attention now so he/she can address cost and staffing requirements. If you wait, this could become a major issue, as the different departments who need to be involved are not fully prepared from a resource, budget and capacity standpoint.
3. Use this as an opportunity to discuss new cost-control opportunities with your CFO. Attempting to squeeze more savings from raising deductibles, coinsurance and copayments cannot be the sole benefits cost-control solution anymore. What I've seen is a greater focus on things like introducing new plans and alternative funding arrangements. Here are some considerations:
* New plan type. More employers are considering consumer-directed health plans with health savings accounts or health reimbursement arrangements under the guise that offering such plans will introduce a new level of cost control by making employees wiser consumers.
* Plan funding. More employers are considering self-funding so they can truly understand what is occurring (and what areas they should address through wellness) using participant claims data. Plus, it's likely that when health insurance carriers are impacted by the new annual fee starting in 2014 as a result of health care reform, such additional costs will be passed down to their fully insured premiums.
Assessment of 'pay or play' needed
4. Look closely now at the true impact of 2014's "pay or play" health care reform provision on your organization - your CFO may be surprised. I've often engaged CFOs in a conversation regarding whether he/she was thinking about not offering medical insurance in 2014. More often than not, I heard, "The annual penalty is less than what we are paying now, so we will take a hard look at continuing to offer it but for competitive reasons, we expect to continue offering medical insurance."
My response would always be, "If you look closely at the penalty versus what you currently pay to offer medical insurance, you can probably justify a solid financial reason to continue offering medical insurance as well." How so? Two reasons:
* If you are able to take advantage of the corporate tax deduction for the employer-paid portion of the medical insurance premium, your current annual cost of medical insurance is not the amount you pay in premiums per se; it is the amount you pay in premiums minus the value of the corporate tax deduction. Thus, a lower cost than generally thought.
* If you are considering not offering medical insurance and paying the annual penalty, you cannot say the amount of the penalty is the only company cost of not offering insurance. You must also consider the lost opportunity to take a corporate tax deduction for the employer-paid portion of the medical premium, the increased amount you will now pay in FICA and workers' compensation taxes because your employees will no longer have a pretax premium deduction reducing their taxable wages (assuming your employees contribute to the cost of their medical insurance on a pretax basis), and the "financial takeaway" that employees will say has occurred because there is a good chance you told them that there is a financial value to the benefits they are provided. Thus, the cost of not offering insurance is most likely higher than thought.
It's in your best interest to run an analysis now for your CFO to show him/her that if the "pay or play" rules remain the same, there's a good chance that there won't be much of a discussion about not offering insurance in 2014. Therefore, you can shift the focus now from discussing "paying or playing" to developing short- and long-term medical insurance strategies to get through the next few years.
The significant financial impact of employee benefits is certainly top of mind for HR/benefit professionals. It will be to your advantage to develop a relationship with your CFO so you can truly call him/her your co-pilot as you weather the storm of the next few years. -E.B.
Contributing Editor Ed Bray, JD, is director of compliance for Burnham Benefits Insurance Services. He helps corporate clients establish and maintain regulatory compliance for their health and welfare benefits plans. He can be reached at email@example.com.
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