There is a good chance that in five years most Americans won't have the same health insurance. The escalating cost of health care coverage has left 46 million Americans without insurance and 25 million more underinsured.

In 2007, health care spending in the United States was $2.4 trillion, or $7,900 per person, according to an analysis published in the journal Health Affairs. This number represents 16 percent of the U.S. economy and is forecast to grow to $4 trillion by 2017, or 20 percent of the U.S. economy, according to the Office of Management and Budget. The United States spends 52 percent more per person than the next most costly nation-Norway. There is little debate that health care reform is necessary, but how to change the current system?

Importantly, can home builders afford not to enter the debate?

The Obama administration has made health care reform one of its top priorities. It proposes sweeping health care reform, including provisions that do the following:

  • mandate employers to provide or individuals to obtain health insurance;
  • provide subsidies for the middle class;
  • increase insurance regulation; and
  • implement a government-run health care plan-the Health Insurance Exchange-that will compete with private insurance providers.

These proposed reforms have been codified in H.R. 3200, known as America's Affordable Health Choices Act of 2009. The cost of the plan is expected to be $1.5 trillion over the next decade. To date, only $630 billion of the needed funds to finance the reforms have been identified. Part of these funds will come from additional taxes imposed on businesses and the repeal of current federal income or payroll tax breaks.

As currently drafted, H.R. 3200 would require that employers provide health insurance to their workers or pay a "fee"-aka tax-to subsidize government coverage.

Small businesses with a payroll that does not exceed $250,000 annually are exempt from this employer responsibility provision. Businesses with a payroll more than $400,000 annually would be required to pay a fee equal to 8 percent of the average wages paid during any given year.

Payments are made into the National Health Care Trust Fund. This new tax, or some equivalent, combined with ongoing health care costs, will hit small businesses, such as home builders, particularly hard.

How will the home building industry deal with these added costs? At a time when the average cost of a home is declining and the number of homes being built and sold has dropped dramatically, this additional cost of doing business could be the difference between viability and bankruptcy. Here's yet another challenge facing the industry as it struggles to recover from the most wrenching downturn in decades.

Builders will be forced to evaluate whether they can afford to provide health insurance for their employees. Builders will have to choose whether to provide health insurance to their employees or pay the tax to support the federal government health care provider.

Either way, a new layer of expense is likely to fall on the industry. How can builders rethink their existing operating model to deal with this added cost? Passing the cost to home buyers, which is a challenge in our current economy; further reducing head count; and subcontracting, also known as outsourcing in some industries, are all possibilities.

Outsourcing may not be the answer for all home builders, but a re-evaluation of the core capabilities of any organization can identify areas that can be done as effectively by a third-party supplier as in-house staff and, possibly, at lower cost.

Areas to consider for outsourcing include land acquisition and development, home design/architecture, sales and marketing, accounting, human resources, and technology. Each business needs to critically evaluate and identify its best capabilities and should keep these in-house. The noncore capabilities can then be outsourced with a significant reduction in overhead and employee cost.

Phil Whitcomb is president of AH&P Investments, a partner of AgoraRetail Advisors LLC, and acts as president of Promethean Structures. He may be reached via e-mail at phil.whitcomb@gmail.com.