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They’re looking more and more at the impact of new and higher costs and planning for big health-care reform provisions that have yet to take effect.

CFOs are far more involved in their employers’ health-care strategies than they were before the Affordable Care Act (ACA) was signed into law in 2010, new research indicates.

In a Towers Watson survey of benefits managers at 420 large and midsized employers, participants were asked to rate the extent of increased involvement by their companies’ CFOs compared to “three to five years ago.” Responses to the survey, expected to be publicly released in about a month, were on a five-point scale where one meant “not at all” and five stood for “a great extent.”

Almost half – 46% – gave the CFO a rating of five or four, while a further 29% cited a moderate degree of increased involvement. Only 7 percent said the finance chief was no more engaged in health care now than several years ago.

Healthcare in the Spotlight

 “Incremental costs from the ACA continue to mount every year,” says Randall Abbott, a senior health-care consultant for Towers Watson. “There is an impact on earnings per share.” Next year will be a big one for new costs, the most significant being the “transitional reinsurance fee” that will be assessed on employers for the first time.

The purpose of the fee – a flat $63 annually for every employee and dependent covered by an employer-sponsored health benefits plan – is to help offset the adverse risk that insurers participating in the public health-insurance changes scheduled to open in 2014 will be exposed to. Low-wage earners, who generally are less healthy than the general population, and those who previously couldn’t get health insurance because of pre-existing conditions are expected to comprise much of the exchanges’ initial user base.

But a much bigger concern for CFOs is an onerous excise tax, often called the Cadillac tax, that will be assessed starting in 2018 on employers with plans valued at more than $10,200 for individual coverage and $27,500 for family coverage. Such an employer would have to pay a tax equal to 40 percent of the so-called “excess benefit.”

Sixty percent of survey respondents said the excise tax will have a significant or moderate influence on their health-care strategy in 2014 and 2015. After factoring in four more years of health-care cost hikes, 61% of respondents said they expect their companies to be exposed to the tax in 2018 unless they take corrective action. A company with a plan covering 10,000 employees and dependents, and that is $2,000 over both the individual and family thresholds, would incur a tax of $8 million.

But 2018 is five years from now. Why the panic? “Should you wait until 2017 and act in a very radical way? Or should you manage this in an incremental way, with the change occurring gradually, which would benefit your annual costs and also reduce the risk that you hit the excise tax?” says Abbott.

He notes that many observers are speculating that the excise tax will be repealed or morph into something different before 2018. But, he adds, “If you’re a CFO, and there is a known business risk that’s four years out, it would be imprudent not to be planning for that.”

Meanwhile, CFOs aren’t getting more interested in health care only because of costs. They are also motivated by social responsibility. “Health-care reform has business implications but also social ones,” opines Abbott. “If you look at any of the announcements by organizations that are making changes to their health benefits, it’s clear that the C-suite is acutely concerned about that.”

He notes that his main role is to brief top executives and boards of directors on changes in the health-care and benefits landscape. “I can say unequivocally that they are considering the effects of these changes on employees and their families, and even the impact on the community,” he says. “I know there’s a broad perception that employers don’t care about those things, that they only do what’s right for the numbers, but I have not seen that. At the end of the day most of them balance the two and make intelligent business decisions that are responsible to both shareholders and employees.”

Source: David McCann, CFO.com