After thirteen months of official recession, the U.S. economy had lost 3.6 million jobs, and the new monthly unemployment numbers are in excess of 500,000 jobs per month and climbing. The time is coming when employees will prefer job security to costly health insurance plans.
The State of California has instituted twice-a-month furloughs for some 200,000 state employees; that trend will likely extend to county and city employees and may even reach into the employer market, as well.
In his inaugural address, President Barack Obama characterized a role we all need to take: "It is the kindness to take in a stranger when the levees break, the selflessness of workers who would rather cut their hours than see a friend lose their job
which sees us through our darkest hours." Maybe the italicized text above should read: the selflessness of workers who would "rather accept lower cost health insurance benefits than see a friend lose their job."
Obama's message was one of taking responsibility, creating change and making tough decisions. It may be time for company presidents, CFO's, HR directors and employees to make changes that will require belt tightening to preserve job security.
Reduce rich benefits to insure job security
Employers should consider reducing health insurance costs as a way to ensure job security for their employees. Instead of offering rich -- and expensive -- insurance plans that pay all the routine and expected expenses (except for small co-pays), employers could offer insurance plans that focus on providing protection from large medical bills and let employees use health savings accounts to plan and save
for routine and expected medical bills. Self-employed people -- who pay for their own
health insurance -- already use this HSA strategy.
The HSA strategy for saving jobs
Step 1: Replace expensive traditional health plans with more affordable HSA-qualified high deductible health plans. For example, employees would receive a $3,000 deductible health plan; the employee pays for all expenses up to $3,000 and the insurance company pays for expenses more than $3,000. The insurance plan provides a free annual exam.
How does this compare to a traditional plan? If you read the policy booklet, you discover that both plans have a $3000 out-of-pocket maximum
. So for big expenses -- the $30,000 hospital bill or the $250,000 cancer treatment -- both plans provide equivalent protection. The traditional HMO or PPO plan provides low co-pays and deductibles for routine and expected medical bills, and these first dollar benefits add 20 percent to 50 percent to the cost of insurance premiums.
Step 2: Instead of sending that additional premium to insurance companies, the employer can retain those dollars and make a nominal contribution to each employee's health savings account of say $50/month ($600/year), in essence paying the first $600 of health care expenses each year. Coupled with the free annual exam, the average employee will have nearly $1,000 in health care expenses covered at no out-of-their-wallet expense.
*Note: In the past, when our economy was healthy, I recommended employers contribute a minimum of one half of the deductible to the employee HSA. But in hard economic times, employers may only be able to make a nominal HSA contribution.
The employee is responsible for costs between the $600 deductible and the $3,000 out-of-pocket maximum. The roughly 20 percent of employees who have ongoing expenses will know that the maximum they will pay for doctor visits, labs, x-rays, medications and hospital bills is about $2,400/year or $200/month. Employees can plan and save for those expenses by using payroll deduction to put additional tax-free money into their HSA.
Jobs saved or stimulus to business
Listed below are the published small group premiums for Anthem Blue Cross as of January 1, 2009 in three major geographic areas of California. To keep the math easy, premiums are based on a single employee in the age bracket 40-49. The two plans are the well-liked PPO $20 plan and the equally popular $3,000 deductible HSA-compatible plan.
|Location ||PPO $20 ||HSA plan $3,000|
|San Diego ||$519 ||$285|
|Los Angeles ||$655 ||$358|
|San Francisco ||$509 ||$280|
|Average ||$561 ||$307|
Note that the traditional plan averages $561, while the HSA-compatible plan averages $307. For simplicity sake, let's round the premiums to PPO costs $550 per month and the average HDHP costs $300 per month, yielding a net savings in $250 per month, or $3,000/year/employee.
With that kind of savings the employer can afford to put some money into the employee's health savings account. If the employer puts $50/month -- or $600/year -- into the employee's, the premium savings is still $200/month or $2,400/year/employee. Employers who are not feeling the pinch of the hard economic times can put more money into the employee's HSA.
Savings for small companies
- 10 employees @ $2,400 per year = $24,000 in savings
- 30 employees @ $2,400 per year = $72,000 in savings
- 50 employees @ $2,400 per year = $120,000 in savings
Here is the money that can be used to prevent to prevent layoffs and furloughs, as well as to provide a stimulus for business owners to invest in their future.
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