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BoardMatters Quarterly, January 2011 - Companies’ response to health care reform - EY - United States

BoardMatters Quarterly, January 2011The early response to US health care reform: key insights from companies

Who is managing the company response to health care reform?

Questions for the audit committee to consider

  • Is management undertaking an analysis of what the overall financial effect of implementing health care reform will be on the company? Does the audit committee receive regular updates?
  • From where does the company expect the largest financial exposure to come? How does the company plan to respond?
  • How does management plan to offset the expected increase in health care costs? Will this increased cost affect broader strategic objectives of the company?
  • How will management communicate these changes to employees, the board and shareholders?
  • Is the company prepared to comply with new payroll and reporting requirements? What, if any, investments need to be made?

Companies will likely make changes to their business models and make cost reductions outside of health-care related expenses.

Six months after President Barack Obama signed the Patient Protection and Affordable Care Act into law, a number of regulations affecting health insurers and employers that offer health care coverage took effect on 23 September 2010. The historic health care reform legislation has significant implications for companies’ business, tax and strategic planning operations, and their approach to employee health care benefits.

Before the effective date, Ernst & Young LLP surveyed 381 executives from 347 companies. Respondents represented firms from 25 industry sectors, ranging from organizations with fewer than 100 employees to those with more than 250,000. The data was collected between 11 August 2010 and 14 September 2010.

Our 2010 health care reform survey report, Moving forward: companies speak out on health care reform, provides key insights about how prepared US companies are to respond to the law. The survey highlights provisions and requirements of health care reform that are top of mind for audit committees, boards and management.

Key survey findings

Who is managing the company
response to health care reform?

US health care reform is a critical business issue on the agenda.
A significant majority of respondents reported that planning for the implementation of health care reform is important, and 59% considered it very important or critical. Forty-five percent of respondents said their company’s board of directors will be involved in health care reform efforts, 79% said their organization’s CEO will participate and 87% said their CFO will participate.

Cost and compliance are key concerns for respondents.
Forty-three percent of those who evaluated the law’s effects on the cost of employee health benefits said they anticipate significant cost increases because of the law and 1% said they expect it to decrease costs.

Companies may change or eliminate health care benefit plans.
At the time of the survey, 92% of respondents said their companies were not considering discontinuing employee health care benefits. Eight percent did acknowledge that they might discontinue their benefit plans, although some respondents explained that the decision whether to continue providing benefits would depend on market norms in the future.

Communications about health care reform are challenging.
Most survey respondents said their companies had not determined what information would be included in their employee communications plans. Companies will play a central role in educating employees about their options and obligations under health care reform, thereby raising the stakes for employers’ communication plans.

 Questions for the audit committee to consider

Questions for the audit committee to consider

  • Is management undertaking an analysis of what the overall financial effect of implementing health care reform will be on the company? Does the audit committee receive regular updates?
  • From where does the company expect the largest financial exposure to come? How does the company plan to respond?
  • How does management plan to offset the expected increase in health care costs? Will this increased cost affect broader strategic objectives of the company?
  • How will management communicate these changes to employees, the board and shareholders?
  • Is the company prepared to comply with new payroll and reporting requirements? What, if any, investments need to be made?

Inside

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