Merrill Goozner wrote an opinion piece in The Fiscal Times recently explaining how “health reform could shift increases to consumers.” His piece basically speaks to employers deciding to forfeit the grandfathered status of their health plans by raising coinsurance rates in the face of rising premiums. I see a slight problem with the way he’s framed this. Because the Affordable Care Act requires insurers to pay out 85 cents worth of benefits for every premium dollar collected, insurers have a weak–albeit not absent–incentive to raise premiums. If an insurer charges $1,000 a year in premiums, they have to pay out $850. If they charge $2,000 a year in premiums, they have to pay out $1,700. They do, indeed, double their potential profit, but that’s quite different than if they were to charge $2,000, face no requirements to pay out more than the $850 and net a cool $1,150.
The point that Goozner makes, somewhat indirectly, is that employers can sidestep cost increases, or even get out of the game altogether. This is one of those things that people just don’t seem to get. **Ahem** YOUR EMPLOYER IS UNDER ABSOLUTELY NO OBLIGATION TO PROVIDE YOU WITH HEALTH INSURANCE, NOR TO PAY ANY PARTICULAR AMOUNT TOWARDS THE COST OF ANY COVERAGE THEY DO OPT TO OFFER YOU.
Sorry about that. The point is that if costs go up, or if they don’t, your employer may decide to shift the costs your way. Recessions help that sort of thing. Case in point, one of my family members was talking with me the other day about the increased amount they were going to have to pay for their health insurance. Let’s say their insurance cost $10,000 a year, but their employer paid 90% of the total. That left them paying $1,000. Well, now their employer is only going to be paying 80% of the total. That means, even if the insurance doesn’t get more expensive, they’re going to have to pay $2,000. That’s right. Their bill just doubled. So, if what you pay for health insurance goes up, don’t assume that it’s because of health reform. It could just be your employer deciding to shift a portion of their costs your way. I would say that they decided to shirk some of their responsibility, but per my statement in all caps above, it was never really their responsibility to begin with.
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Jan Baer
September 23, 2010 at 12:57 pm
Your post offers a wealth of ideas I have been considering over the past decade.I believe employer-sponsored health insurance has been a major cause of skyrocketing health care costs.At the peak of it all, 60% of Americans were covered by group plans, for which they paid, on average (according to the Bureau of Labor Statistics)15-18% of the total premium cost.Government and non-profit workers have traditionally paid significantly less for their health insurance. In the case of government, they aimed for the employee to pay 10%, but since many local governments are at least partially self-insured, it was up to the local leaders to decide exactly how much employees pay. My county's employees paid $8 per month just six years ago. And they complained about the $250 deductible!Amazingly, according to the BLS, companies reported that they had only a 72-75% "uptake rate", which means that 25-28% of their employees opted out of taking the health insurance at all, even at the low rate.I think the robust coverage people enjoyed ten and more years ago contributed to wide overuse of medical services, and at the same time, health care providers were able to increase rates dramatically because "insurance covered it" and the consumer never knew (or cared about) the real cost.Imagine how I felt when friends ran for local public office because they needed the health insurance for expensive medical services, and as soon as they were covered, went ahead with the procedures which were paid for with my tax dollars. At the same time, I pay for my own health insurance with "After-Tax" dollars. With every American-made product I buy, I am paying for someone else's health insurance. It would be nifty if every product had to list what part of the price went for health benefits!I wonder if some of the anger and fear in the health reform debate came about when employees understood at last the true value of their employer-sponsored health insurance? Did they understand what a fragile and unsustainable system we have?Are we even teachable?
Jan Baer
September 23, 2010 at 2:03 pm
I think it might be very healthy if more employers dropped health benefits entirely.It would put more people out there buying health insurance privately and gaining quite an education in the experience. By taking over this responsibility, consumers might be more selective and more responsible for their own health, and support for health care reform would undoubtedly grow. It wouldn't surprise me if there was a strong demand for that good old single-payer system after all.My guess is that most opponents of reform do not pay for their own health insurance, or have any desire to do so.But imagine the savings to the average American business! Those savings might create better export opportunities, which could lead to more jobs.If one business dropped health benefits and gained a fiscal advantage, others would follow suit.