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Welcome to This Week in Benefits, a new biweekly podcast from Mployer Advisor, the company that is changing the way employers search, evaluate, and select insurance advisors online.
In each episode, our team will bring you the latest news and industry updates in the world of employee benefits. We’ll break down top headlines, bring you interviews with top industry insiders, and highlight market trends and stories we’re following.
In case you missed Episode 2, click here to listen and here for the show notes.
Date: April 20, 2022
Episode Title and Number: Season 1, Episode 3
Episode Title: The CFO Perspective on Rising Inflation and Concern Over Healthcare Benefit Expenses
In this week's episode, Weller Emmons (Mployer Advisor's VP of Operations) joins us once again to provide an update to a previous episode and discuss a new study from Mercer where CFOs nationwide cite healthcare benefit expenses as a top concern.To listen to Episode 3 of This Week in Benefits, click here.
Episode 1: Why the Justice Department is Suing to Block UnitedHealth Group's Latest Acquisition
The CFO Perspective on Health: New Survey Results
Full Mercer Report: The CFO Perspective on Health
Graph from Federal Reserve Economic Data (FRED)
Abbey Dean: Hi everyone, and welcome to a new episode of This Week in Benefits, a podcast from the team at Mployer Advisor where we explore and discuss all things employee benefits. I'm your host, Abbey Dean, Mployer Advisor's Head of Content, and thanks so much for being here today. Today I will be again joined by Mployer Advisor's, VP of Operations, Weller Emmons, to discuss an update to a recent news item from a past episode and walk through the findings of a new survey released by industry giant Mercer. If you want to follow along or peruse any of the articles we're discussing while you're listening in, be sure to check out those links in our show notes at the bottom of the episode. And now here's my conversation with Weller. Hey everyone, I'm sitting with Weller Emmons, the VP of Operations for Mployer Advisor Weller. Thanks for joining us again.
Weller Emmons: Thanks for having me for another update.
Abbey Dean: I know it's been what, one episode since we last spoke, so it's time to bring you back.
Weller Emmons: Well, it's a very fluid space. So things are continuing to change.
Abbey Dean: Indeed. Okay. So for everyone who tuned into our first episode we did, we devoted it to why the Justice Department has made the decision to sue to block United Health Group's $13 billion acquisition of Change Healthcare. I would recommend going back and listening to that episode, but we also have an update about its current status. Weller, would you like to give a quick overview and then describe what the update is?
Weller Emmons: So I'm sure everyone is aware, UnitedHealthcare is attempting to purchase Change Healthcare. The deal was initially announced in January of 2021 and was initially expected to close in the second half of 2021. Obviously, we are past that date. And the reason that the deal has dragged out is due to some concerns rates by the AHA, which later GA pulled the DOJ into the deal to review antitrust concerns. So DOJ officially filed a suit, antitrust suit against the acquisition in February of 2022. The acquisition was then pushed to be completed by April, 2022, and we are now mostly through April and today we are now finding out the acquisition is now going to extend at least until December of 2022. In addition, there will be a trial that will review the antitrust claims that'll begin in August of 2022 and last approximately two weeks. And the evidence that comes out of that trial will probably make or break this from my antitrust perspective.
Abbey Dean: Do you have any feelings or guesses about what may or may not come out of the trial or what could happen?
Weller Emmons: I would expect a deal of this magnitude to be highly contentious on both sides. As I mentioned on the last episode, I think there's some political leanings that would probably prevent this from occurring, but United Health is a very large company and there is some merit to the benefits they're claiming as part of the acquisition. It'll be interesting to see what the final outcome is, and I would tend to say that's not going to happen, but who knows.
Abbey Dean: Right, we only can predict so far into the future. One thing that I thought was interesting that I'll share with everyone, Change Healthcare and Optum said in a quote that: "The DOJs attempt to block the merger is without merit and serves only to delay improving the experience and outcomes for all participants in the health system." Weller, when you hear that, not to go back to the first episode too much, but what's your reaction?
Weller Emmons: Like I said, I think there is merit to those claims that greater data and resources will allow United Healthcare to do some things they were previously incapable of doing as they didn't have those data assets that change healthcare does. I think that's totally correct <laugh> on the other coin, they almost get too much data and information from this acquisition where it'd be unfair to the other insurers in the space and other providers in this space as well. So it's great they'll have all the data for them and probably bad for everyone else.
Abbey Dean: So today Weller and I will be discussing the findings from a new survey Mercer released this month titled "The CFO Perspective on Health." This report is based on a survey done between January and early March of this year. It had about 115 respondents, 81% of whom are CFOs, and the rest hold finance or accounting positions where their duties include healthcare budget oversight. It's also worth mentioning for anyone interested in the total breakdown that about a third of the responding organizations had fewer than 500 employees. 47% have between 500 and 1000% and 19% have 5,000 or more. So this is a study that Mercer conducted to better understand the full impact of inflation in the healthcare sector, especially as the list of healthcare cost drivers continue to climb. It's also important to say that at the time of this recording, it's about mid-April that inflation is currently sitting at 8.5%.
So it should be said that this is the highest inflation that many sectors of the economy would've experienced in the past 40 years. So early on in the report, the authors of this study note that while health benefit cost growth accelerated somewhat last year, the full impact of inflation in the healthcare sector has been dampened by provider contracts that lock in prices for multiple years. However, as those renew, we could begin to see "eye popping price increases that would coincide with greater claims volatility as well."
So basically what Mercer has done is given us a glimpse into the minds of CFOs across the country and their perspectives on issues related to healthcare budgets. So the study also discusses sustainable cost increases, evaluating cost management initiatives, and so on. But the primary reason I asked Weller to join me here today, obviously aside from his excellent podcast voice, is to provide context about the current state of the economy and how this will affect industry leaders in the coming weeks and months ahead. This study Weller and I both found and sent to each other separately. then shared with the team. Weller, what was it about this study that struck you, and why do you feel like it's important for us to discuss today?
Weller Emmons: So as everyone is probably aware, inflation is skyrocketing. We're not going to get into the politics as to why, but it is sitting at a pretty recent high of 8.5%, especially over the past 20 years is or so is bounced around 2% to 3%. CFOs are starting to fill that pain and it is causing a lot of issues and having a lot of organizations rethink their financial metrics and labor and supply chain, et cetera. And traditionally, healthcare costs have been a very large line item on the operating budget.
And what's really interesting is since inflation started skyrocketing a few months ago healthcare inflation has maintained kind of relatively where it's normally been in the 2% to 3% range and knowing that with everything else is going on, the CFOs in the study, nearly 69% of them said that inflation and healthcare costs was a top five issue on their mind. 16% of the CFOs said it was a top three issue on their mind, and most interestingly, only 2% said they didn't care about <laugh>. So it seems that a lot of CFOs are concerned about healthcare cost, and I don't even think the healthcare inflation has really started to occur yet. So the problem may even get worse in the coming weeks and start coming months.
Abbey Dean: Well, this is a recent study. This is quite a quick snapshot of CFO's feelings. This was taken between January and March, and we were just saying even now that seems to be things have changed so quickly that we really still don't have a full grasp of how everyone's feeling about the issue.
Weller Emmons: I mean, if you even go back a little bit further to last year the federal Chairman of the Federal Reserve Jerome Powell was saying inflation was a transitory thing. And in the past few months he started to change that tone toward now inflation seems to be more of a concern for the Federal Reserve. And even in the past month or two it's continually gone up. So even though this study was conducted in January through March, it's already April, we're seeing inflation be even higher than those numbers. So I'd be curious if you could re-poll these CFOs instantaneously if even more would think this issue was a top five or top three issue.
Abbey Dean: And then I think one of the reactions we both had was that it felt like we were kind of surprised that more CFOs weren't more concerned about these numbers straight away too. Right?
Weller Emmons: Yeah like I said earlier, this is healthcare is the second largest item on a lot of people's operating budgets. And historically, I'm going to go down a little bit of economics, rabbit hole here. Healthcare inflation has exceeded the inflation the normal inflation in front of the country. So if you go back to 1948, the average inflation of the country has been about 3.5% and medical inflation has been about 5.3%. So that's a pretty big gap. Now the past 20 years or so after Paul Volcker kind of tamed inflation the numbers have changed a little bit, but you're still seeing medical inflation at 3.6% and overall inflation at 2.2% only in the past year or so has medical inflation really lagged overall inflation. And I think there's a very discreet reason for that, which is a lot of the insurance and reimbursement contracts are both year.
And so those contracts have not renewed or rolled over since this new inflationary environment has occurred. Now, many of those contracts should be coming up for renewal soon, and the hospitals are having a severe economic pinch with increased expenses both from a supply chain and their employees are wanting increased wages to battle inflation for their everyday lives. Now, if their reimbursement is locked in at pre-negotiated contracts, their revenues staying flat, their expenses are going up, and their margins are getting reduced, the hospitals going to be very aggressive, I believe, in the upcoming insurance contract reimbursement negotiations on increasing the reimbursement to catch up with inflation and maybe even surpassing it to pay back some previous lost money. And if we know that medical inflation has typically exceeded normal inflation and it's just like one or two year kind of abnormality, then we should definitely expect in the future that medical inflation is going to come back and exceed historical inflation.
Now, the comeback to what all that means is this cost is going to be passed back down to the insurers to the employers and maybe potentially to the employees. So everyone's seeing an increase in prices. It's a very competitive labor market right now, and the CFOs really don't have the bargaining power to push on the cost back to their employees or else the employees will resign to go find another job and so on and so forth. Everyone is aware of the Great Resignation that's occurring right now. So many CFOs are in a bit of a tough spot because they're going to have be handed increased prices, and they really have nowhere else to pass the cost along to.
Abbey Dean: Okay. So if CFOs are in a tough spot, then where does that leave them? What are the next steps?
Weller Emmons: Well, this is where I think a very seasoned and talented benefits broker could come in and advise them depending on the plan types that the company currently has or is interested in exploring. There would be different strategies and tactics that the company can implement to try to contain their cost, and a seasoned broker can illuminate those strategies and help them figure out a way to absorb all those additional costs or potentially not have them at all.
Abbey Dean: So at the end of the Mercer survey, the studies authors sort of come up with a list of offensive and defensive strategies for CFOs to confront this issue, which you guys can read about on your own. But one of the sort of resounding concluding statements was that to do nothing is a very bad idea that they need to take action in some way. Weller, would you agree with that?
Weller Emmons: Yes. I mean, I think this only going to get worse, and as inflation continues to pop up, CFOs are going to have to deal with this issue now. It's just not going to go quietly into the night. Their strategy and tactics for dealing with it, there's a multitude that a good broker can advise them on. But I would encourage that every CFO should be reaching out to their broker and every broker should be reaching out to their CFOs to start planning around how they're going to tackle this issue.
Abbey Dean: Okay. Thank you so much for your insight and expertise, Weller.
Weller Emmons: Thank you, Abbey. Thanks for having me. Looking forward to coming back soon.
Abbey Dean: Well, that wraps up today's episode. Thanks so much to everyone for tuning in today, and of course, thank you to Weller for all of his insights. Now, if you have not yet, please subscribe to the podcast and leave us a review. You can even leave us a voicemail message if you would like to suggest ideas for future episodes or have follow-up questions about any of the news stories or issues we've discussed in past episodes. Thanks again for listening and we will see you next time.
Thank you for listening to this week's episode of This Week in Benefits, brought to you by Mployer Advisor. Mployer Advisor is changing the way employers search, evaluate, and select insurance brokers. Our intuitive platform connects employers and employees to get great benefits and insurance plans by providing employers with actionable data to easily evaluate and select the best advisor for your company's specific needs. To learn more about Mployer Advisor and our suite of products, please visit our website at mployeradvisor.com and tune in next time. Thanks.
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