By Siobhan Hughes
WASHINGTON--Aetna Inc. Chief Executive Mark Bertolini, who is among a dozen chief executives meeting with U.S. President Barack Obama later this week, on Monday warned that companies are preparing backup plans that include layoffs if the White House and congressional leaders are unable to reach a deal to avoid the combination of tax increases and spending cuts known as the "fiscal cliff."
"The American people are going to suffer because we'll lay them off--because we know how to respond to these kinds of situations," Mr. Bertolini warned at a Wall Street Journal CEO Council event.
The comments come seven weeks before the Jan. 1 date on which spending cuts and tax increases take effect. Mr. Obama and U.S. House Speaker John Boehner (R, Ohio) last week each defended their competing plans for resolving the budget fight, even as they opened the door to a potential compromise. Mr. Obama meets with Democratic and Republican congressional leaders next Friday--after he has received input from executives and labor leaders.
The Congressional Budget Office has warned of a recession if leaders fail to act. Mr. Bertolini--who said in an interview that he is presenting contingency plans to his own board in two weeks--used Aetna as an example of how real-world layoffs could be set in motion.
"We have contingencies built in and as we watch the economy develop, we make decisions along the way: Do we release capital expenditures? Do we open up hiring?" he said. "Our goal so far is to freeze headcount until we know where the economy is headed."
But a contraction in the economy could set in motion a damaging chain of events. Mr. Bertolini said that a 1.7% contraction in gross domestic production translates into a 1% increase in unemployment--and an increase in medical costs of 100 basis points. That is because workers simultaneously receive layoff warnings and notifications of their right to stay with their current health plans for a certain amount of time. The result is that people rush to the doctor before they lose health insurance, driving up health insurance costs.
"It's a huge issue," Mr. Bertolini said. So far, Mr. Bertolini said that monthly reports on the number of people in group health plans that it offers has reflected "slow leakage, less employment--but it's been pretty steady, so it hasn't been like 2008, 2009."
He said that if Congress and the White House dawdle, "meanwhile the economy is going to react." He said that "a lot of companies are going to pull out their contingency plans and start taking action." He said that businesses are different from politics, where accountability comes only with election cycles and not from boards of directors.
"If I'm not acting on those contingencies, I get fired. No election, I get fired," Mr. Bertolini said.
Mr. Bertolini said that Mr. Obama "needs to improve his relationship with the business community in order to get the economy growing again." He also said that Mr. Obama needed to expect that "a lot of people get angry at first because they don't want to hear the bad news that's coming their way. But if they hear it and they see a plan that you're making progress along the way...they get it."
He said that businesses were still mindful of the lessons of the financial crisis.
"Businesses have never sat on so much cash as they're sitting on now--and there's a reason for that: they're worried about where the economy's headed. What we don't want to be is caught in a situation like we were caught in 2008 where we're worrying about where the economy is going and how to keep our businesses afloat."
Mr. Bertolini is part of a group called "Fix the Debt," which has supported the 2010 deficit-reduction package designed by Republican Alan Simpson and Democrat Erskine Bowles, which called for a combination of tax increases and spending cuts to reduce the deficit. He said that changes to Medicare and Social Security had to be a part of any solution.
"The solutions are--it's the retirement age; it's means-testing Social Security and Medicare; it's a whole host of things that are known; understood all part of Simpson-Bowles work. We just need to get the leadership."
Mr. Bertolini said he was concerned that Congress and the Obama administration might come up with plan to deal with the automatic spending cuts that take effect next year by pushing off a solution until the end of 2013.
"What scares me a little bit...if we just say by the end of 2013, we'll get something done relative to the debt, then we're going to have a 2013 that looks a lot like 2012, and maybe worse...so we kick the can too, which is holding back" on spending.
He said that "it's a bit like the 21st century version of the castle gates getting closed during the plague: We'll just close it up and we'll hold on until we find out were the economy's headed and then we'll make our decision."
-Write to Siobhan Hughes at email@example.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires