Why Do Employers Accept ‘Tariffs’ on Health Care?

President Trump’s tariffs on steel and aluminum entering the United States has grabbed national attention and been met with both optimism and frustration.

Many companies have hailed the move as a way to level the playing field on the cost of raw materials creating equitable competition.

Others have argued that tariffs will increase the price of foreign steel and aluminum in the short term but cause a long-term increase to prices on domestic and foreign steel and aluminum as we’ve historically witnessed with other raw goods such as sugar.

Depending on the nature of your business, raw materials or commodities can be a massive line item on your company’s balance sheet. A large scale disruption in the supply chain for these raw materials or commodities will inevitably present an opportunity to either capitalize on a competitive advantage or pose a considerable threat.

However, for years employers have been accepting huge “tariffs” on a commodity that is almost always one of every company’s biggest expenses, its health plan. In the fully insured space, the medical loss ratio as outlined in the Affordable Care Act serves as a means to level the playing field. Insurance carriers are mandated to pay out 80 cents or 85 cents of every premium dollar collected from their clients.

These failed strategies have resulted in escalating costs and “tariffs” or high renewals for employers across the country.

Will employers accept the tariffs on steel and aluminum as a fact of life and let the market for these raw materials drive their business into the ground? I sincerely doubt it, but it’s what’s been happening with health plans for decades.

The health-care supply chain is driving massive increases to operating costs for employers nationwide and yet insurance professionals repeatedly advise clients to take the least bad option while providing little or no meaningful long-term strategy to solve the problem.

The proposed merger of Cigna and Express Scripts is yet another megamerger in a long series of vertical integrations of the health-care supply chain designed to return value to their shareholders, not reduce expenses for employers.

What is perhaps most frustrating is that while employers may not be able to control the tariffs imposed by the government on their raw materials, they absolutely and indisputably can manage the health-care supply chain to reduce a major operating expense while enhancing benefits for their employees.

Small pockets of insurance professionals across the country are doing this every day and tying their own compensation to their ability to back up claims that seem impossible to the rest of their industry.

Employers who are able to manage the health-care supply chain can create the free cash flow necessary to manage the near and long-term implications of the proposed tariffs on their raw materials and gain a competitive advantage over their competitors who do not.

Copyright 2024 The Business Journal, Youngstown, Ohio.