The case presents the GMFC company with several divisions and employees exceeding 50,000. The company uses the option of self-insurance to cover its workers. However, it is facing two challenges in its insurance approach. The Patient Protection and Affordable Care Act (PPACA) requires it to increase the benefits of healthcare insurance it offers to its employees and also increase the age limit. Also, the company is likely to start paying 40 percent as exercise duty for the health care premiums of employees whose limit is above $ 10,200 and $ 27,500 for their families with the introduction of the Cadillac tax. What is worrying about the management is that the two changes will raise the cost of healthcare which is already experiencing inflation and the company might be forced to stop the self-insurance approach.
This study presents the management position on how to adapt to the anticipated changes in the cost of healthcare. It bases the negotiation on the idea that the charge of health is part of the expenses which GMFC incur in the production process. Any adjustment on the value will cause a corresponding change in the value of the goods and therefore profit. Increase in cost of production in the form of wages is likely to make the company retrench some workers, but that will mean a reduced output and therefore low profit.
Copayment of healthcare services
There exists a mutual benefit between the employer and the employee, and therefore there is a need to look at the issue from a perspective where both parties will benefit. Reducing the cost of healthcare is one of the strategies which can benefit the GMFC and the employees. However, both parties will require to dig deeper into the pockets more than the current plan where the company is insuring its employees without having to divide the cost of healthcare. It means that the benefit will come with an extra charge, but it will be more sustainable compared to an alternative of winding self-insurance.
The concept of reducing the cost of healthcare lies in the economic principle where increasing coverage age limit and including new benefits through the PPACA provisions will lead to increased cost of healthcare. The law of demand prescribes that where there is a perfect market, an increase in demand leads to a decrease in supply and a corresponding increase in price. In this case, the healthcare service form the provider is the product, and the number of those who need the service creates demand. An increase in the number of those who seek medical services will lead to a rise in price. Adhering to the PPACA provisions means that there will be more people able to get health services because the employers are mandated to pay for the costs. Also, there will be an increase in the number of those who seek specialized medical services as the provision increases the number of benefits. The increase in demand for services will create pressure on medical services including drug prescriptions, emergency rooms as well as other primary and secondary health care. The result will be an increase in the cost of drugs and health services to reduce the pressure.
In that scenario, GMFC will suffer from the increased cost of self-insurance due to the inclusion of new benefits as well as the age limit of the dependents. Apart from that, the company will also have to increase the premiums for the insurance because of the increased cost of health services. The pressure is too much for the company to bare. On the other hand, the employees will suffer in that the company will have to retrench some of them to reduce the cost of production.
Benefits of copayment
The option which the management proposes is to shift some of the insurance coverage to the employees so that they can directly pay for such in to the healthcare provider. Copayment means that the company takes a small percentage of what it was spending as a premium for each worker and add it to their salaries so that the two parties share the cost of healthcare. For example, the company can shift the burden of prescription cost to the workers and add their wages by an amount which they calculate as the cost of drugs per annum. The move creates a scenario to the healthcare providers that the clients will have options of buying generic drugs or seeking cheaper services in different hospitals reducing the demand. Also, most workers will avoid regular checkups which do not lead to diagnosis because they will have to contribute part of the cost directly.
The result of copayment is the reduced the cost of healthcare which benefits both the employer and the employee. Hospitals and clinics tend to raise the cost of healthcare for clients with medical insurance since they know that the client is not directly involved and the insurer must make payments. Sharing the burden will make the employees negotiate for the services leading to low cost of health services. Also, the employees will get better services to form the bargain with the healthcare provider, unlike the case where there were no negotiations on the cost. The company will pay less, and the employees will also save from part of what they are supposed to pay. The strategy will ensure that GMFC accommodates the PPACA provisions without bearing the excess cost. GMFC will have to increase its premium contribution for each worker to cater for the added PPACA provisions. The employees, on the other hand, will pay more taxes from the increased salaries. However, there is the benefit of reduced cost of healthcare which the company and employees shares.
Copayment will also reduce the uncertainties of abolishing self-insurance in GMFC with the implementation of Cadillac tax. The risk of the Cadillac tax affects both parties. GMFC will incur more cost on the self-insurance program while the employees will experience an increased deduction on their salaries to offset the burden on increased tax. Cadillac tax introduction means that GMFC will have to pay 40 percent as a duty on any employee whose premium is above $10,200 and $27,500 for the families. The tax will affect the company with the introduction of the PPACA. Increase in the age limit of the dependent will increase the family premiums which are likely to go beyond the Cadillac tax minimum. Also, the inclusion of the new benefits will raise individual premiums beyond $10,200.
In the negotiations, it is good for the management to inform the employees that the tax burden affects both parties. Businesses pass cost burdens to consumers, and in the case of GMFC, the Cadillac tax expense is coming as a result of employees. It, therefore, means that the company will have to pass part of the burden to the employees even as it bears some. Copayment will help to overcome the Cadillac tax and therefore maintain the company expenses as well as the wages of the employees. Again, the strategy will cost the employees through an increased burden on their salaries, but they will benefit from maintained salaries.
A copayment of the healthcare services means that the total premiums as they appear on the employees pay slip will reduce. The government will not recognize the direct payment for premiums on the pay slips, and therefore, no Cadillac tax will apply. GMFC in will mostly induce copayments for those employees whose premiums are likely to go beyond the minimum limit where a company is supposed to start paying a 40 percent exercise duty. The company will allocate a direct premium pay combined with the salaries to an amount which will maintain below $10,200 for individuals and $ 27,500 for the families. Through the approach, GMFC will be able to accommodate the PPACA provisions with minimal costs. Also, the approach saves the company for future inflations on healthcare cost. The agreement to co-pay for premiums will allow GMFC to reduce premiums whenever the government increases the cost and when the providers increase charges.
Although there is an option of changing the approach of insuring the employees, self-insurance provides the employees with a better and more comprehensive coverage thereby increasing their satisfaction. The company benefits from satisfied employees with increased production. Retaining the approach will maintain the benefits but increase the cost of production for GMFC. The management, therefore, proposes to adjust the approach by employing copayment of the healthcare cost which will save both the employer and the employee. Once the employees disagree on the strategy, the management will not have any other option apart from dropping the self-insurance plan.