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Pwc view-winter08

  1. 1. viewIn this issue 22 Achieving business agility 38 Maximizing talent winter 08 46 Interview with Andrew Zolli and more...Healthychoices?What election-year healthcare reform proposals meanfor the future of employer-sponsored health insurance 10
  2. 2. Departments 3 A new view Business success in the 21st century Tom Craren 4 My view The key to 21st-century competitiveness: Finding the right people Dennis Nally 52 Your view On constant changeView points 6 Solving the tech waste problem 7 Syncing up on info security 8 Joining the consumer conversation 9 The business of bribes 9 International assignmentsFeatures 10 Cover story 22 Change agents Just whose job is it to Healthy choices? What do election-year ensure your business can keep pace with healthcare reform proposals mean for customers, competitors, and suppliers? the future of employer-sponsored health Randy Browning insurance? Sandy Lutz, Benjamin Isgur, and Jeffrey Gartland
  3. 3. It’s time to check up on how election-year healthcare reformwill affect employers, page 10.30One global flavor A US move to 38 Maximizing talent There are strategies 46 InterviewInternational Financial Reporting for making the most of your people Piercing the veil Andrew Zolli looksStandards is inevitable. All companies no matter what tomorrow brings. at the future of business and of theshould think strategically about this Steve Rimmer, Karen Vander Linde, world. Interview by Tom Craren andchange and begin to understand Dolores Wilverding, and Warren Cinnick Gene Zasadinskithe impact now. Raymond J. Beier
  4. 4. view winter 08 Editorial Contributors Editorial Director In addition to our authors, we thank the following individuals for their contributions Tom Craren to this issue of View: View points Managing Editor Deborah K. Bothun, Principal, Advisory Services, Global Digital Convergence Leader Gene Zasadinski Charles Hacker, Partner, Advisory Services, Investigations Assistant Managing Editor Neil Keenan, Director, Advisory Services, Investigations Christine Wendin Mark Lobel, Partner, Advisory Services, Security Assistant Editor Mitchell Schuckman, Partner, International Assignment Services Reena Vadehra Steven Skalak, Partner, Advisory Services, US and Global Investigations Leader Online Business agility Director, Online Marketing Bo Parker, Managing Director, Center for Technology and Innovation Jack Teuber International Financial Reporting Standards Designer and Producer Sara DeSmith, Partner, National Professional Services Group, Global Accounting Joe Breen Consulting Services Design Photography Odgis + Company Corbis, David Doubilet, Bill Gallery, Getty Images, Matt Goins, Vance Jacobs, JupiterImages, Kit Kittle, National Geographic Image Collection, Reuters Pictures, Creative Director and Leonard Rubenstein Janet Odgis Designers Banu Berker Rhian Swierat To request additional copies of View or to comment: www.pwc.com/view. PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 146,000 people in 150 countries across our network share their thinking, experience, and solutions to develop fresh perspectives and practical advice. © 2008 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US). PricewaterhouseCoopers View winter 08
  5. 5. Business successA new view in the 1st century According to naturalist and evolutionary As it does to 21st-century business, theorist Charles Darwin, “It is not the change also applies to View. With a new strongest of the species that survive, nor design, a new format, a new editorial the most intelligent, but the one most approach, and an enhanced online pres- responsive to change.” Whether his words ence, View is evolving to keep pace with accurately describe biological processes a changing business environment. is still a matter of heated debate. But there is no debate about their applicability to In line with those changes, we intend to 21st-century business: Complex forces consistently offer business executives of change are at work, and only those like you straight talk on subjects that companies flexible enough to respond matter. Topics in this issue include health- appropriately will survive and prosper. care policy, agility, International Financial Reporting Standards, and strategies for Addressing these forces of change is what finding and maximizing talent. And there’s View is all about. In each issue we share also an interview with noted futurist insights into challenges that most concern Andrew Zolli. you and that affect your success—chal- lenges such as embedding agility into We hope you enjoy this issue of View and your company and making change stick; that you’ll come back often. We promise discovering opportunities inherent in some to be a friendly, reliable, informative, and risk; attracting and maintaining talent; entertaining place for you to check in on maximizing your corporate social respon- and track the trends and issues that interest sibility efforts; disarming complexity; and and concern you most, not just today, fostering innovation and collaboration. but over time as well. We know your expec- tations are high. We wouldn’t have it any other way. You can be sure that we’ll deliver. Sincerely, Tom Craren Partner-in-Charge US Thought Leadership PricewaterhouseCoopers View winter 08
  6. 6. The key to 1st-century My view Dennis Nally competitiveness Finding the right people In today’s knowledge-based economy, talent will be the defining competitive advantage. And companies that want to succeed are dramatically rethinking the way they find, develop, and hold on to talent. PricewaterhouseCoopers View winter 08
  7. 7. In today’s leading organizations, there is no We can start by increasing the visa cap for want us. Yes, that’s right, want us. Today’squestion that talent—finding it, developing international professionals who want to recruits have expectations about theit, and retaining it—affects success more work in the US. This year, for the first time companies they want to work for. They aredirectly than any other single factor. It also in history, the visa cap was reached on the looking for commitments to integrity, tois among the greatest causes of concern. first day of filing. Applications arriving after social responsibility, and to flexibility. And day-one were denied. they are in a position to demand this andOur 11th Annual Global CEO Survey bears more. Companies that meet and exceedthis out. While 89 percent of CEOs assert This and other policies and approaches to these demands will win. Those that don’tthat their companies’ people agendas education and to developing talent need to will fall behind.are among their top priorities, 61 percent change. I firmly believe that to maintain itsexpress concern over the availability of competitive edge, America must become Some companies will find that coping withkey skills. In addition, 62 percent maintain a magnet for talent. But until this happens, these new realities is difficult. Others willthat their organizations need to change we can’t just sit on the sidelines. We’ve pretend they don’t exist and continue onthe way they recruit, motivate, and got to find and cultivate talent in our own with the old ways. However, organizationsdevelop employees. backyards. We’ve got to recruit students that succeed will be those that neither at an earlier age. And we’ve got to learn ignore change nor fear it. Rather, they willResponses such as these to questions how to use newer technologies such as be those that respond to change and turnabout what, a decade ago, was a yawn- mobile email and text messaging as pow- it to their advantage.inducing issue suggest that a fundamental erful, new recruiting tools. We also need toshift has occurred. Perhaps more than any fully exploit rich sources of new talent And that’s my view.other aspect of business, the competition such as virtual online communities andfor talent has changed profoundly. social networks. Dennis Nally is chairman and senior partner of PricewaterhouseCoopers LLP. In the next issue ofThe reasons are not difficult to find. They But most important, we have to find ways View, he continues to examine this critical issue andare related directly to globalization and to of ensuring that the people we want also offers his insights on developing and retaining talent.changes in demographics and technology. 89%Finding the right peopleThere was a time—at least in the account-ing profession—when the only talent youneeded involved understanding a balancesheet and an income statement. Thosedays are long gone.Today, we look for people not only with of CEOs assert that their companies’ people agendas are amongtechnical skills, but with integrity as well.We also look for people with diverse back- their top priorities. 6%grounds and cultures—people who bring abroader understanding of the world aroundthem. Without such people, a companycannot compete globally.However, tapping into this type of work-force is easier said than accomplished, andbusiness leaders must work proactively to of CEOs maintain that their organizations need to change theremove obstacles. But what can be done? way they recruit, motivate, and develop employees. PricewaterhouseCoopers View winter 08
  8. 8. View points Corporate social responsibility Solving the tech waste problem For businesses across the United States, burden of its products—a burden shoul- Research’s November 2007 report titled In yesterday’s technology has become dered by its corporate customers. A Search of Green Technology Consumers— tomorrow’s problem. The millions of com- recent study by PricewaterhouseCoopers which covered American attitudes toward puters, printers, and other gadgets that are surveyed tech industry senior executives green technology—only 12 percent of commonplace in any office—and that we on their companies’ attitudes and policies respondents agree that they would pay steadfastly rely on to conduct business— on environmentalism. When asked which extra for consumer electronics that used can become threats when we discard them. factors were most important in their com- less energy or came from a company that panies’ environmental decision making, was environmentally friendly. Forty-one In the United States alone, approximately nearly half of the respondents cited “meet- percent said that though they are con- 2 million tons of e-waste is tossed into ing customer expectations/requirements,” cerned about the environment, they do not landfills, poisoning the air and the land and but energy savings and regulatory compli- strongly agree that they would pay more exposing people to dangerous toxins. In ance had an even greater impact on their for environmentally friendly electronics. addition, all that hardware—especially data environmentally focused pursuits.1 centers that house a company’s informa- Despite this disconnect, many technol- tion lifeblood—is eating up a lot of energy. So, can customers expect more green ogy companies have jumped on the green In fact, 50 percent of the energy consumed products when a company’s next bandwagon. For instance, Sony is creating in a data center is used just to cool down upgrade cycle rolls around? According to an e-waste drop-off facility where anyone the network system. PricewaterhouseCoopers/National Venture can recycle unwanted electronics. And Capital Association MoneyTree™ Report many technology companies are collabo- Along with these practical problems, com- based on data from Thomson Financial, rating with smaller organizations to develop panies face the challenge of going green venture capitalists invested in 2007 almost and promulgate more environmentally and reducing their carbon footprints. This $2.2 billion in companies that make green friendly processes. is becoming important as public interest in tech products. That investment is more environmentalism increases and as more than the amount spent on green technology Such initiatives and collaborations are organizations want to position themselves companies in 2006 and 2005 combined. pivotal for making green technology as socially responsible businesses. a reality for any business. They reduce While such numbers are impressive, a energy costs and provide an alternative The technology industry is beginning to considerable amount of resistance to to junking used hardware. recognize and address the environmental green tech products still exists. In Forrester 1 Technology Executive Connections: Going Green: Sustainable Growth Strategies, PricewaterhouseCoopers, 2008. Motivation for environmental decision making Percent of tech company executives surveyed 70 60.1 60 50.7 50 44.6 43.2 40 30 20 17.6 14.9 14.2 10 8.8 3.4 0 Potential Complying with Meeting Potential Obtaining Matching the Attracting and Meeting Don’t know/ cost savings environmental customer for gaining tax incentives environmentally retaining staff investor/ Not applicable from energy legislation and expectations/ competitive focused actions shareholder efficiency regulation requirements advantage of competitors demands Source: Technology Executive Connections: Going Green: Sustainable Growth Strategies, PricewaterhouseCoopers, 20086 PricewaterhouseCoopers View winter 08
  9. 9. CEOs, CIOs, and CSOs differ in their attitudes about business security matters.Managing riskSyncing up on info security Executive views on security attacks Percent of senior executives surveyed 100 83 80 71 74 65 60 53 50 44 43 40 38 CEO 20 CIO CISO/CSO 0 An employee or A hacker as the Fewer than 10 security former employee as source of an attack attacks in the past year the source of an attack Source: Fifth Annual Global State of Information Security Survey 2007, CIO, CSO and PricewaterhouseCoopersCEOs worldwide might want to sit down page concerning the number one priority Despite security and technology execu-with their information and security offi- for company information security efforts: tives’ growing awareness of the truecers to discuss their differing perceptions maintaining business continuity and alle- nature of security threats, an overwhelm-of risk. According to a recent global viating risk. CSOs, however, place greater ing number of CEOs still say hackers—notinformation security survey conducted emphasis on regulatory compliance. employees—are the culprits who shouldby CIO magazine, CSO magazine, and be targeted. However, CEOs believe morePricewaterhouseCoopers, CEOs, CIOs Perhaps the most interesting finding con- so than their security counterparts that(chief information officers), and CISOs cerns a change in perception with regard their organizations are secure and have(chief information security officers) or to the source of security threats—an area experienced few attacks.CSOs (chief security officers) differ in their that the survey has tracked for five years.attitudes about business security matters. Today, CIOs and CSOs say former and So, how can these differences be rec-The survey concluded that many CEOs are current employees are more likely sources onciled? The survey data leads to whatfar more confident about their companies’ of security attacks than outsiders are. And is perhaps a counterintuitive conclusion.security than their information technology they report that email and abused user While information security strategies need(IT) and security leaders are. accounts are the most common methods to include technical approaches, such of employee attacks. This change, however, technical approaches may not lead to theTypically lacking in-depth technical knowl- does not suggest an increase in corporate whole solution. More extensive or wideredge with regard to IT, CEOs naturally crime over the past few years. Rather, it information sharing between an organiza-have different perspectives on information points to possible cracks that have devel- tion’s top executives could turn out to besecurity from those of the executive team oped in information security infrastructure, equally if not more important.members who manage these functions. and it indicates a greater awareness of theEven so, CEOs and CIOs are on the same changing nature of security attacks. PricewaterhouseCoopers View winter 08
  10. 10. View points Operational excellence Joining the consumer conversation If you think surfing the Web is better suited consumer conversation, along with more How companies better understand their to the home office than to the corner one, traditional customer information, into its customers and markets think again. operations. Millions of Internet-savvy Engage with 2% consumers are now able to (1) instantly customers 6% Consider this scenario. Your company provide feedback via email and text via the Web recently launched a product, and the messages, (2) deeply discuss products 39% 53% buzz surrounding the innovation has been and services on message boards, and rising steadily. Shortly after the launch, a (3) broadcast their opinions on blogs hazardous defect was detected. You do and social networking sites. This largely the damage control drill—recalling the untapped chatter constitutes consumer product, reaching out to the media, and conversation—reflecting the attitudes, gauging customer reactions through your behaviors, and intentions of consumers.1 Monitor customers’ 3% call center and focus groups. You hope online behavior and 9% your collective response is enough to The massive volume and rapid pace of preferences 31% minimize damage, but you’ve overlooked online activity make getting a handle on this one important thing: online consumer fertile ground problematic. Hiring the right conversations. Damage was brewing in people and finding the right tools to analyze blogs and message boards as angry con- 57% business intelligence based on consumer sumers dissected your product’s downfall conversation are critical. According to and debated alternatives. If only you had PwC’s Management Barometer, which reg- been listening, your company could have ularly surveys senior executives on crucial Mine open-ended responded proactively. 3% business issues, 31 percent of respondents comments from 13% monitor their customers’ online behavior on service and The world of digital communications a regular basis. Fifty-three percent say their support calls 42% is burgeoning, and for any business to companies use online devices to engage succeed, it must embed this kind of digital with their customers.2 42% A consumer electronics company real- ized the benefits of this approach when its new product was not selling as robustly Understand views 3% as expected. Through analyzing online of key influencers 12% consumer conversations, the company (advisory boards, discovered that many customers thought experts) 55% the product was incompatible with other 30% brands. After the company changed its marketing campaign, the product went on to become a top seller. As this example demonstrates, compa- Collect and analyze 2% nies that engage in digital conversation observations by 3% 14% by analyzing and integrating the findings employees who with other customer data, and, ultimately, interact with or by embedding this intelligence will be well observe customers positioned to drive business transformation 81% and gain competitive advantage. 1 PricewaterhouseCoopers, How Consumer Conversation Will Yes No Not certain Not applicable Transform Business, January 2008. 2 PricewaterhouseCoopers Management Barometer: Consumer Source: PricewaterhouseCoopers Management Barometer: Conversations, January 2008. Consumer Conversations, January 20088 PricewaterhouseCoopers View winter 08
  11. 11. Global mobility International assignmentsEconomic crime North American companies reported having Money doesn’t always make the world go been asked to pay a bribe in their home ’round. Organizations are discovering thatThe business of bribes region, as opposed to 21 to 54 percent of it takes more than high salaries to attract companies doing business in E7 countries. the best potential candidates to interna- Interestingly, the survey also found that tional assignments. companies asked to pay kickbacks were more likely to lose deals to competitors that Recent studies we have undertaken sug- were not asked to pay bribes. gest that the nature of global mobility isThis is the deal your company needs to changing.1 Whereas in the past, busi-secure a position in a vital emerging mar- Why do businesses that succumb to nesses were interested mainly in hiringket. In the middle of negotiations, you’ve bribery suffer losses? The study suggests experienced staff from the West, today’sbeen asked to grant a “commission” to that organizations known to be ethical are expatriates are being recruited from aroundsecure the contract. Should you pay— less likely to be approached with requests the world. They include younger, less ex-just this once? for illicit money. Corrupt individuals prefer perienced workers, who serve for various to deal with companies whose ethical lengths of time. In fact, in an effort to re-According to a recent PwC study on global standards are ambiguous. In addition, duce costs, a growing number of organiza-economic crime, corporate bribery rarely business relationships based on illegal tions have developed program alternativeshas positive results. transactions are not likely to focus on qual- to the traditional expatriate assignment. ity and price—an indicator that the market Almost half the companies we surveyedFor our 4th Biennial Global Economic Crime is not operating according to competi- employ permanent transfers; about 20Survey, we interviewed more than 5,400 tive norms. And companies in the E7 that percent send employees on short-termcompanies in 40 countries and found that had implemented effective anticorruption assignments; and a small percentage usecompanies in E7 countries (Brazil, China, controls and strong, clearly understood virtual staff where the employee doesIndia, Indonesia, Mexico, Russia, and ethical guidelines said they suffered up to not relocate but has responsibilities forTurkey) reported higher incidences of being 50 percent fewer incidents of corruption a foreign office.asked to pay a bribe.1 Only 3 percent of than other companies. Changes are also occurring in the area of In short, the study supports the old adage staff incentives to move abroad. It’s no1 PricewaterhouseCoopers 4th Biennial Global Economic Crime that honesty is the best policy when doing longer enough to simply increase salaries orSurvey - Economic crime: people, culture and controls, 2007. business in any market. provide other monetary perks. Employees want a total package that delivers a cul- tural education, keeps spouses happy, and sets out reasonable career expectations.Lost business opportunities in emerging markets The costs of sending employees and their families abroad are high. If an employee isPercent of companies surveyed80 unhappy in the new environment, he or she 71 70 can jeopardize an overseas project. By im-70 66 proving the help that employees get prior to 6360 58 Companies and during their international assignment, asked to pay50 45 47 a bribe and lost companies can maximize their investments an opportunity in the development of global talent.40 31 Companies30 never asked 23 21 to pay a bribe20 18 17 18 and lost an 14 opportunity10 8 6 Source: 0 4th Biennial 1 International assignment perspectives: Critical issues facing the Brazil China India Indonesia Mexico North Russia Turkey Global Economic globally mobile workforce, PricewaterhouseCoopers, July 2007. America Crime Survey PricewaterhouseCoopers View winter 08 9
  12. 12. Cover storyHealthy choices?PricewaterhouseCoopers View winter 08
  13. 13. What election-yearhealthcare reform proposalsmean for the future ofemployer-sponsored healthinsuranceBy Sandy Lutz, Benjamin Isgur, and Jeffrey Gartland As the presidential campaign reaches a fever pitch, candidates on both sides of the aisle are promulgating their positions on every- thing from fiscal policy to the war in Iraq. One of the most closely followed public debates centers on healthcare reform. Although all voters have a vested interest in the discussion, voters who are also employers may be most affected by its outcome. If you are an employer, spiraling healthcare costs are eating away at your bottom line. According to the US Census Bureau, 177 million Americans rely on employer-sponsored insurance for their health coverage. At 16 percent of the US economy and growing, healthcare is big business—maybe even your business. Moreover, the health plan options companies offer have become key factors in employee recruitment and retention. Current (and prospective) employees are asking a number of questions. How comprehensive is the existing coverage? How many choices do I have? How much is it costing (going to cost) me? Can I do better elsewhere? It’s no wonder, then, that healthcare consistently ranks as one of the top domestic policy issues on the minds of Americans and that during election years healthcare policy becomes a focal point. (See Figure 1.) Employers, employees, and politicians alike agree that the system is not sustainable and that there is no clear path ahead. As one might expect, Democrats differ from Republicans in their respective approaches to healthcare reform. Generally, Democrats favor broader and more immediate changes through legislation, while their Republican counterparts focus primarily on changes to tax policy as the means of transforming the system. PricewaterhouseCoopers View winter 08 11
  14. 14. However, all of the major candidates agree For US businesses, too, the significant income for tax and payroll purposes. In fact, that a single-payer model is not tenable and cost of healthcare is a major concern, one recent study found that employees that going forward, our healthcare system particularly when one considers that would rather receive thousands of dollars will continue to be a public-private partner- while just 61 percent of US businesses in employer-sponsored insurance benefits ship. Just what that partnership will look offer health insurance to at least some than the same amount in additional salary. like is the key question. And top of mind for employees, a whopping 98 percent of (See Figure 4.) employers is cutting through the election- large businesses (those with 200 or more year hype and determining what it really workers) do the same.3 Employers typically The future course for employer-sponsored means to the future of their businesses. spend upwards of 10 percent of payroll insurance may depend largely on the on health insurance for their workers. (See policies initiated by the next president of Scoping the problem Figure 3.) Taken in aggregate, that’s a huge the United States. A new leader will help number—nearly $600 billion, according to decide important policy questions con- Healthcare spending has been increasing at the US Department of Commerce’s Bureau cerning covering the uninsured, improving about twice the rate of inflation, absorbing of Economic Analysis. the quality of care, and using taxes and a larger and larger share of both employers’ other mechanisms to fund coverage. Pro- profits and workers’ salaries. (See Figure 2.) It wasn’t always that way. Employer- posals run the gamut from mandating that For employees, healthcare cost is the top sponsored insurance was introduced dur- all employers provide coverage to doing financial concern facing American fami- ing World War II as a relatively inexpensive away with employer responsibility alto- lies, ranking higher than home ownership, way to recruit and retain employees in a gether. The major differences among the energy costs, debt, retirement savings, and tight labor market where wages were frozen possible approaches involve the following college expenses, according to a recent by the federal government. Americans broad categories: employer mandates, Gallup Poll.1 The problem is compounded quickly became accustomed to healthcare government and worker responsibility, because the high cost of healthcare in the coverage as a benefit of employment. They retiree coverage, tax policy, market United States is directly related to growth in have also gotten used to the favorable tax reforms, and cost control. (For a snap- the number of uninsured people, especially treatment of employer-sponsored insur- shot of the Democratic and Republican when premium increases exceed personal ance benefits under current law, in which approaches to healthcare, see “Opposing income growth, thus making insurance the premiums are excluded from their views,” beginning on page 20.) less affordable.2 1 Gallup Organization, What Is the Most Important Financial Problem Facing Your Family Today? Gallup Poll Social Series, July 12–15, 2007. 2 Todd Gilmer and Richard Kronick, “It’s the Premiums, Stupid: Projections of the Uninsured through 2013,” Health Affairs, vol. 25, no. 6 (2006). 3 The Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2007 Summary of Findings, September 2007.1 PricewaterhouseCoopers View winter 08
  15. 15. Figure 1: America’s big concern Percent of Americans surveyed, citing healthcare as the nation’s most important problem 1991 1992 1994 1996 1997 1993 1995 2007 1998 1999 2000 2001 2002 2003 2004 2005 20063025201510 5 J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S OND J FMAMJ J A S 1992 1996 2000 2004 2008 Presidential Elections Presidential Elections Presidential Elections Presidential Elections Presidential Elections Clinton’s Task Force on National Health Care ReformSource: PricewaterhouseCoopers, Beyond the Sound Bite, 2007, based upon PwC Health Research Institute analysis of Gallup’s Most Important Problem series, October11-14, 1990 through September 14-16, 2007Figure : Healthcare’s growing 80share of consumer spendingPercent change in wallet share of 70personal consumption components 60 50 40 30 20 10 0 Medical care Services, excluding –10 medical careSource: PricewaterhouseCoopers, Beyond –20 Durable goodsthe Sound Bite, 2007, based upon PwC Nondurable goodsHealth Research Institute analysis of data –30from the Bureau of Economic Analysis,“Personal Consumption Components,” 2007 1980 1985 1990 1995 2000 2005Figure : Rising employer Figure : Health insurance trumps pay increaseshealthcare costs Employer Percent of respondents who would rather havepremium contributions as a $6,700 in employer-sponsored health insurance—share of payroll the average amount spent by employers on each employee at the time of the survey—over the same amount in additional taxable income 5% 20% 10.7% 9.8% Prefer employer- 75% sponsored insurance 8.0% Prefer higher pay Don’t know Source: R. Helman and P. Fronstin, 2006 Health Confidence Survey: Dissatisfaction with Health Care System Doubles Since 1996 2000 2003 2005 1998, EBRI (Employee Benefit Research Institute) Notes, vol. 27, no. 11, November 2006, and earlier publications based on theSource: Bureau of Labor Statistics’ Research Data Center, Employment Cost Index, data accessed from February 2006 to April 2007 EBRI Health Confidence Survey PricewaterhouseCoopers View winter 08 1
  16. 16. Figure : Employer attitudes changing on providing coverage Percent of respondents who say employers should move away from providing healthcare coverage for active employees 6% 7% Disagree 87% Agree Neither PricewaterhouseCoopers Health Research Institute, Tailoring the approach: Employer attitudes and healthcare strategies address distinct issues, 2007 Pay, play—or no way Figure 6: Overview of existing state employer mandates According to our analysis of US Census Bureau data, 47 million Americans—more Vermont Catamount Health than 15 percent of the population—do Employers that do not offer health insur- not have health insurance. Of those, a full ance, that offer health insurance only to two-thirds have a connection to a full-time some employees, or that have uninsured job; that is, they either hold full-time jobs employees must pay a quarterly assess- or are dependents of those who do. Given ment fee of $1 per day per full-time these statistics, it is not surprising that equivalent (FTE). FTE exceptions will be made through 2010. The employer assess- both of the major political parties consider ment rate will be raised at the same rate addressing the working uninsured to be a as Catamount Health premiums. high priority. To expand access to care, proposals from the leading Democratic candidates require employers to provide worker health coverage. This approach, often referred to as pay or play, encourages employers to fund employee health insurance by taxing employers that do not. The Democratic mandates strengthen and expand the employer’s role in the health- care market. Today, however, many large companies agree that employers must offer a minimum level of coverage. In a recent PricewaterhouseCoopers survey, 150 US executives at large, publicly held companies agree, with 87 percent reject- ing the notion that employers should not provide such coverage. (See Figure 5.) Since 2005, 31 states have proposed Hawaii Massachusetts a form of pay or play, and employer Prepaid Health Care Act Act providing access to affordable, mandates have already been enacted in Employers must provide health insurance for quality, and accountable healthcare employees working over 20 hours per week. Employers must enroll at least one-fourth Hawaii, Massachusetts, and Vermont. Employers must contribute 50 percent of the pre- of employees in an employer-sponsored (See Figure 6.) In Massachusetts, employ- mium for single coverage and the employee covers plan or pay at least one-third of employee ers with at least 10 workers pay each the additional portion of the premium. Employee healthcare premium costs. Penalities for worker $295 per year if they do not make contribution is not to exceed 1.5 percent of wages. failure to adhere to the mandate are $295 a “fair and reasonable” contribution to the per employee per year. cost of workers’ coverage. In this case, fair and reasonable means either enrolling 25 percent or more of full-time equivalents Employer mandate passed (FTEs) in the employer’s plan or offering to pay at least 33 percent of FTEs’ premiums. Source: National Conference of State Legislatures Universal Employer mandate attempted 2005, 2006, or 2007 Health Care Action Network and Progressive State Network, Towards Health Care for All in the States, September 19, 2007 No mandate being considered at this time1 PricewaterhouseCoopers View winter 08
  17. 17. An individual mandate could coexist with an employer mandate, potentially offering workers affordable coverage options both through their employers and in the individual market.The mandate proposals generally estab- for by the government and administered by tend to believe that existing governmentlish a minimum employer contribution. For private plans. Other Democratic proposals programs are underutilized. Rather thanexample, if an employer currently pays include (1) a new government health insur- expanding government programs, leadingat least 6 percent of payroll costs toward ance option wherein individuals could Republicans would prefer that the gov-employee health insurance, the employer purchase coverage (the program would ernment focus on enrolling uninsuredwould be exempt from any further contri- be modeled after Medicare but not funded Americans who are eligible for Medicaidbution. If the employer provides no health through the Medicare trust fund); (2) a new and for SCHIP but who haven’t signed up.insurance or pays less than 6 percent of program that would mirror the Federalpayroll, the employer would have to con- Employees Health Benefits Program and Both parties advocate changing thetribute to a public pool that brings the total make the same private insurance options individual’s role in the healthcare system.contribution up to 6 percent of payroll. The enjoyed by federal employees available Democrats would start with an individualpublic pool would then subsidize coverage to all Americans; and (3) the development mandate—that is, with a requirement thatfor the uninsured. of a national health insurance exchange individuals procure health insurance similar that would set standards for participating to the requirement in many states thatGenerally speaking, Republicans do not plans and facilitate the purchasing of individuals procure automobile insurance.support this approach. They oppose individual coverage. An individual mandate could coexist withadditional federal regulations on the health an employer mandate, potentially offer-industry and specifically reject mandates. Republicans support proposals that would ing workers affordable coverage optionsThey counter that an employer mandate strengthen the individual insurance market both through their employers and in themay not be effective unless the penalty is by extending to that market some of the individual market. Individual mandateshigh enough to make purchasing coverage favorable tax treatment that is currently could be supported by new rules likeattractive. Some critics add that mandates available only for employer-group cover- guaranteed insurability and communitymight cause employers to hire more part- age. Strengthening the individual market rating, which consist of pricing everyonetime or temporary workers who would not would not only provide tax support in a given geography the same, therebybe subject to mandates. for people who do not have access to creating a large pool that spreads the employer coverage; it would also offer risk. Together, guaranteed insurability andChanging government and worker roles more insurance-product choices to community rating facilitate portability of employees who currently are limited to just insurance—something both parties agreeBolstering or diminishing the employer’s one or two health plans. Also, Republicans on. A variation on this approach involvesrole in healthcare is just one lever that isbeing used to address healthcare reform.How the parties see the responsibility ofthe federal government and the respon-sibility of individuals is another key issuethat also gets at the problem—and directlyimpacts employers.Democrats generally favor expandinggovernment programs such as Medicaidand the State Children’s Health InsuranceProgram (SCHIP). Many support a newgovernment-sponsored health insuranceprogram wherein individuals could pur-chase coverage. This could benefit healthplans if the program were structured likethe Medicare drug benefit, which is paid PricewaterhouseCoopers View winter 08 1
  18. 18. Health costs600 1 billion USD is the amountemployers spend on health million Americans rely on employer-sponsored insurance million Americans, more than 15 percent of the population,insurance for their workers, for their health coverage. do not have health insurance.upwards of 10 percent Of those, a full two-thirds haveof payroll. a connection to a full-time job.PricewaterhouseCoopers View winter 08
  19. 19. Even employers that believe they have aresponsibility to provide health coverageaccess for retirees also feel there are limitsto that responsibility. an individual mandate only for children that by employers—a level that commonly is supported through expanded govern- approaches annual family premiums of ment programs. $15,000 or more. Republicans oppose individual as well as Whichever coverage proposals prevail, employer mandates. They argue that an they will affect employers. On one hand, individual mandate may not be effective public-plan options may crowd out private unless it is coupled with a severe penalty insurance if insured individuals drop their for those who do not enroll in a plan. For private coverage in favor of less expensive example, in Massachusetts—a state that government coverage. Or employers— currently has an individual mandate—the especially employers of low-wage penalty is loss of the individual exemp- workers—may decide not to offer insur- tion. However, the value of the $3,500 ance when public alternatives are readily tax exemption ranges from $0 (for lower- available. On the other hand, any plan that income individuals not paying taxes) to covers more people may have the effect $1,225 (for individuals in the 35 percent of lowering overall insurance premiums, tax bracket). Given that the average annual a trend that could benefit employers. premium cost of single coverage exceeds $4,000, the penalty might not encour- The retiree dilemma age many of the uninsured to purchase Covering active workers and their depen- insurance. In practice, a mandate would dents is one thing, but what about the likely be limited to those who can reason- burden of providing coverage for retirees? ably be expected to afford private health Even employers that believe they have insurance. Unless significant subsidies a responsibility to provide health cover- are provided for middle-income uninsured age access for retirees also feel there are people, such individuals cannot afford to limits to that responsibility. In a recent PwC purchase the level of insurance provided survey, employers were less than certain about their future support for retiree health coverage. When asked to describe their views on the topic, nearly three-quarters said retiree health coverage is placingFigure : Employer attitudes on retiree health coverage In describing your views about financial pressure on companies and thatretiree health coverage, do you agree at least somewhat with the following statements? such coverage will need to be changed Percent agreeing through reduced employer contributions and benefit caps. However, employersRetiree health coverage is placing do show strong support for assistingfinancial pressure on companies andwill need to be changed via reduced 73 employees in managing their ownemployer contributions and benefit caps retirement health and associated costs.Employers should help provide For example, nearly 80 percent supportaccess to affordable retiree health 74 providing retirees with savings accountcoverage but not necessarily fund it mechanisms, tax incentives, and accessEmployees should set aside money to coverage even if they do not fund it.during their active employment years 79 (See Figure 7.)to fund their retirement healthcare needs The parties’ proposals on retiree healthcareThere should be more tax incentivesfor employees to set aside money to 80 closely mirror their positions on increasingfund their retirement healthcare needs healthcare coverage in general. TheSource: PricewaterhouseCoopers Health Research Institute, Tailoring the approach: Employer attitudes and healthcarestrategies address distinct issues, 2007 PricewaterhouseCoopers View winter 08 1
  20. 20. Democrats would bring retirees into the sys- their own, affordable policies without help individual coverage more attractive and tem either by expanding existing programs, from employers. This approach weakens begin to disentangle health insurance by prepurchasing retiree healthcare cover- the connection between insurance from employment. age, or by using health markets to increase and employment. access. The Republicans favor tax incen- Under the Republican plan, people tives through the expansion or modification The Republican plans extend the approach who purchase coverage costing less of health savings accounts (HSAs). that President George W. Bush proposed than the deduction amounts would still in his fiscal year 2008 budget: Contribu- receive the full value of the deduction, Tax reformers and market makers tions to employer-sponsored insurance are which could influence individuals to shop included in wages and therefore subject for the most basic coverage. However, Instead of employer or individual mandates, to income and payroll taxes. In exchange, the proposal would offer few incentives to Republicans generally support changes the president’s proposal would provide low-income earners who have no or little to tax policy to stimulate a more robust a standard deduction of $7,500 for all tax income liability. The administration individual insurance market. Their theory insured individuals and $15,000 for insured estimated that its proposal would reduce is that with attractive rates and policies, families. By eliminating the tax advantages the number of uninsured by 3 million. individual consumers—especially those associated with employer-sponsored insur- Critics, however, argue that employer-pur- who are currently uninsured—can secure ance, the president’s proposal would make chased insurance might continue to enjoy an advantage over individually purchased policies because of more favorable pricing based on employer purchasing power. Republicans favor expanding HSAs, which let individuals earmark tax- exempt contributions for healthcare. By increasing contribution limits, they hope to entice more individuals to purchase insurance. Some also favor doing away with high-deductible requirements for HSAs, which would also make the plans more attractive. Opponents say the impact of such HSA changes would likely be modest, based on how changes have been received since their inception a few years ago. The HSA-eligible, high-deductible-health- plan option has attracted about 4.5 million Americans, about one-fourth of whom previously were uninsured.4 However, only about half of those with eligible plans have actually opened HSAs.5 4 America’s Health Insurance Plans Center for Policy and Research: “January 2007 Census Shows 4.5 Million People Covered by HSA/High-Deductible Health Plans,” April 2007. 5 US Government Accountability Office, Consumer-Directed Health Plans, Early Enrollee Experiences with Health Savings Accounts and Eligible Health Plans, report to the Hon. Max Baucus (D-Mont.), August 9, 2006. http://www.gao.gov/new. items/d06798.pdf.18 PricewaterhouseCoopers View winter 08
  21. 21. The individual market for health insurance There is emerging evidence to support regulations concerning employers—ruleshas not grown during the past three years, this push, and some of the employers that and regulations designed to help expandand the percent of Americans in high- have instituted wellness and prevention coverage for working Americans. Repub-deductible health plans dropped in 2006, programs have seen a clear return on their lican candidates will frame the discussionaccording to the Commonwealth Fund. investment in terms of improved worker around modifications to the tax code and productivity or reduced absenteeism. reduced regulation of the insurance indus-In keeping with the vision of expanded Employers are encouraged to create incen- try to de-emphasize the employer’s role inindividual markets, Republicans also favor tives for healthy behavior that may prevent favor of market forces.permitting cross-state selling of insurance. chronic disease. That means programs toThe reduced regulations would create promote screenings, smoking cessation, Both parties are likely to promote wellnessnational health insurance markets in which weight loss, and regular exercise. But there strategies designed to encourage healthyindividuals could purchase insurance plans are no quick fixes: Even the best employer lifestyles and to manage the epidemicfrom anywhere in the nation. Under current programs are ineffective unless people of chronic disease. In the end, however,regulations, insurance products may be commit to changing their behavior. commitment by business leaders and col-sold within a state only if the product is laborative public-private partnerships mostapproved by that state’s insurance com- The debate continues likely will help enhance productivity, reducemissioner and if it abides by the individual the number of uninsured, quell the growing As the presidential campaign seasonstate’s mandates. The Republicans pro- burden of healthcare costs, and lead to a continues, employers can expect to seepose replacing 50 different sets of state more healthy community. increased attention paid to the health-regulations with a single national standard. care debate and to the employer’s role in Sandy Lutz is managing director, Benjamin Isgur is workers’ health. Democratic candidates, assistant director, and Jeffrey Gartland is a researchReining in costs who focus on decreasing the number of analyst with the PricewaterhouseCoopers HealthProposed mandates and tax policy changes uninsured, will speak about new rules and Research Institute.focus principally on the issue of expandingcoverage for the uninsured. But controllingskyrocketing healthcare costs is anotherimportant priority—particularly for employ- Employer impactsers. To help control costs, Republicans andDemocrats alike urge an increased focus on The good, the bad, the unknownthe twin pillars of wellness and prevention, At this stage of the election, it’s still too early to assess the bottom-line impact of health-yet the parties have yet to outline significant care reform on employers. However, no matter who is elected, employers will be affected.policies promoting this agenda and the Here are a few of the potential benefits and risks associated with healthcare reform thatemployer’s expanded role. you might want to keep on your radar screen.The consensus is that while tradition- Potentially positive outcomes Potentially negative outcomesally, governments—not employers—havebeen held responsible for a population’s • Fewer uninsured people in the health- • Coverage mandates could lead tohealth, government alone cannot pre- care system may reduce both cost shift- higher costs and/or penalties.vent the spread of chronic disease. The ing and overall premium costs. • Tax credits and deductions that encour-workplace is seen as an important focal • Tax credits to purchase insurance may age workers to buy individual policiespoint for successful prevention strategies, increase attractiveness for recruitment may take away what some employersand employers are seen as being able to and retention at smaller firms. consider to be a key retention tool.influence individual behavior by providinga supportive environment and leveraging • More government spending on wellnessexisting infrastructure to offer low-cost but and prevention could benefit employeeeffective interventions. productivity. PricewaterhouseCoopers View winter 08 19

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