New thinking for employers and HR directors
By Robert Hopper
Hopper Insurance Services
Courageous and forward-thinking employers and HR directors can adopt new thinking that will help fix our health care system. In a perfect world employers could simply pay an additional salary to their employees and let them use those extra funds to buy their own individual health insurance. Certainly, Detroit automakers would love to get out of providing their expensive health plans in order to be more competitive with foreign automakers that are not shackled with the same employee and retiree health costs. Unfortunately, polices from both the federal government and insurance companies discourage this from happening.
- The federal government allows substantial tax deductions for employer-purchased health insurance, but does not allow that generous deductibility to people who buy their own individual insurance.
- Insurance companies can decline health insurance for individuals due to medical conditions, while with employer-sponsored health insurance everyone is accepted -- regardless of health status.
Part 1: Offer a core benefit
Employers could offer a core benefit to their employees that protects workers from large and unexpected medical bills. This core benefit retains 1) the tax deductibility of employer-sponsored health insurance, and 2) keeps the guarantee issue for all employees, regardless of health status. One good option might be an HSA-qualified high deductible health plan with a $3,000 deductible for individuals ($6,000 for families). In the case of a $250,000 medical bill, with this coverage, the most an individual would pay is $3,000 and the most a family would pay is $6,000. Companies that want to offer richer benefits could offer lower deductible plans, such as $1,500 or $2,000; employers with leaner budgets, on the other hand, could offer plans with $3,500 or $4,500 deductibles with embedded deductibles for family plans.
These high-deductible health plans are among the most affordable plans because they are pure insurance, based on the concept of "all for a few." With insurance, a large pool of people pay a small premium each month to protect the few who do incur major medical expenses as high as $100,000, $250,000, or even $500,000. If insuring the large expenses were the only responsibility of insurance companies, premiums would be more stable; much as it is in the way that home and car insurance don't have annual rate increases that average near 10 percent per year.
But our current health insurance system is much more than traditional insurance. True, a large pool of people pay a premium, but an equally large number use that pool of money to pay for office visits, lab test and prescription drugs. That's not all for a few, but rather all for all. When it comes to smaller medical bills, we have a "bill-payer" system -- not insurance.
In order to gain greater control of health insurance premium increases, employers would be wise to return to pure insurance for large expenses, and provide options on how employees can finance routine and expected medical bills.
Part 2: Give cash to employees
The average family health insurance policy costs around $12,000 a year for a traditional HMO or PPO plan, while the cost is closer to $8,000 for a high-deductible health plan. What if the employers pass on those premium savings to employees and let employees decide how to use that money? That's a radical thought; yet, in today's hard economic times, it may make great sense.
Give each employee options
- Employers could provide employees the premium savings as additional salary! (Yes, give the employees the money -- it is part of their total compensation.) Employees would pay routine and expected medical bills from their checking or savings account. And in today's hard economic times, additional income might be perceived as a better benefit than co-pays, especially for healthy employees.
There is one caveat: In a perfect world, giving money to employees as salary sounds good, but there are tax consequences for the employer and employee, as well as considerations for workers' compensation and unemployment insurance. This option would require guidance from the employer's tax advisor. The intent of this option is to make sure employees really know that health insurance is part of their total compensation; as taking the money in cash makes that clear to the employee. Yet, due to all the complications, the next option might be a better way to go.
- Employers could give each employee a defined contribution, such as $100 per month, then the employee directs the employer to put that tax-free money into a health savings account. The employee can use those HSA dollars to plan and save for current and future health care expenses, including those for retirement.
- Employers could give each employee the same defined contribution of $100 per month, yet those employees who prefer a traditional health plan can ask their employer to apply that money to the cost of a traditional HMO or PPO. Here's the key: by giving employee money first, employees will understand how much it costs to get low deductible and co-pays.
We know that in the individual marketplace, people who are spending their own money rarely buy the rich benefit plans offered by employers. In my practice, most opt for affordable high-deductible health plans and health savings accounts. And Michael McCallister, President and CEO of Humana Insurance would concur. He said at a Consumer Directed Health Care Conference in Las Vegas, May 2007: "Employers, you are over-insuring your employees. You are buying plans they would not buy for themselves."
I suspect if employers empowered employees with a core benefit and cash, a surprising number of them would choose cash instead of copays.
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