WhiteCoat

Mandated Employer-Paid Health Insurance

employer-insurance

Among many “changes” advocated by President-Elect Obama is a plan for mandated employer-based health insurance. I can’t find a clear description on exactly how the plan is going to work (the plan is outlined on Obama’s site here, and there is a NEJOM summary here), but there are many opinions out there on what the effects of the plan will be. See posts at Hot Air Blog, The Health Care Insurance Reform Blog, The Cato Institute, and John Goodman’s Health Policy Blog

I’m all for changing the current system, and I’m committed to giving Obama a chance to turn things around, but is mandating that employers pay for insurance going to improve healthcare in this country? I admit that I haven’t taken an in-depth review into the pros and cons, but in principle, I think it’s a bad idea. Reminds me too much of the “Hats” post I put up last year.

If you’re an employer whose bottom line is hit by a tough economy and you’re now forced to spend additional money to either “pay” a percentage of your payroll into a national plan or to “play” by purchasing “health insurance” for your workers, what are you going to do?

You’re going to find the cheapest way out.

If I were an employer faced with this directive, I’d probably do one or more of several things:
1. I’d have to fire some of my employees to cut the amount of money I was required to spend on insurance.
Now think about the repercussions of employers having to decrease the number of employees. Those former employees will have difficulty finding another job because most companies are downsizing because of the poor economy and to avoid paying extra for insurance for their employees. The former employees then end up sucking money out of the system by applying another mandated insurance plan called “unemployment insurance.” Instead of maintaining productive employees who contribute to the economy, mandated insurance will create out of work employees who take out of the economy.
2. I would purchase the cheapest insurance I can find.
As in “Yeah, I’ll take that $100,000 deductible plan right there.” Hey – the mandate says you have to purchase insurance, it doesn’t say what kind of insurance you have to purchase. Exclusions for pre-existing conditions? So? Five thousand dollar policy limit? Big deal. Only pays providers three cents on the dollar so no provider will accept patients who have that type of insurance? Who cares? According to the mandate, insurance is insurance … right?
3. I would consider whether or not to cut my remaining employees’ wages to offset the cost of the insurance I am forced to buy.
Depends on how far my company is in the black. If I’m having trouble making payroll and the economy is bad, where do you think the money is going to come from? Now consider the real-world impact. Employees who haven’t been fired will effectively receive less income so that employers can pay for the least expensive insurance they can find. In essence, the mandate is forcing the employees to pay for crappy insurance.

Who wins?
Not the States. They’re going to lose out with all the extra people using programs for the indigent because they are unemployed. Bigger drain on the system and I don’t know too many States that want to throw more money into social programs – most are trying to figure ways to cut back.
Not the employers. They’re losing money by being forced to purchase insurance for the employees.
Not the employees. The ones who haven’t been let go are probably going to get paid less so that their employers can afford to pay for mandated health insurance – health insurance that probably won’t cover them for very much in the “real world.”
The only winners are the insurance companies. They sell more policies, and if they make the policies very inexpensive but with huge deductibles, low policy limits, and multiple exclusions, they probably will have to pay out very little on those policies. Cha-ching.

No problem.

President-Elect Obama is a smart guy. He and his staff will then just create more rules for the mandated employer-paid health insurance so that employers can’t game the system.

So …

In addition to the employer mandated insurance the government would also have to require …
mandated maximum insurance premiums so that employers don’t go out of business trying to pay for it
plus …
guaranteed acceptance of enrollment so that insurance companies can’t cherry-pick healthy patients while excluding the chronically ill patients who will use so much more health care resources
plus …
mandated maximum fees that the healthcare providers can charge so that those who provide the care don’t gouge the insurance companies
plus …
mandated provider acceptance so that doctors and hospitals can’t refuse patients care to patients because the insurance doesn’t pay enough.

Oh … wait. We already have something pretty close to that.

It’s called Medicare.

Picture credit: American Medical News

P.S. Anyone want to go in on starting up an insurance company?

16 Responses to “Mandated Employer-Paid Health Insurance”

  1. I like employer-mandated insurance a lot better than government-run health insurance for everyone, but I’m still a bit skeptical that it would work.

  2. sleepyboy says:

    Wouldn’t it be best to look at Mass. as an example of if such a system would work and what it’s effects would be?

  3. marcia says:

    Sigh. Someone has to pay for it, and no one seems to like any of the options.

    I have three suggestions:

    Make having insurance mandatory for everyone, so the young, healthy people can’t opt out of the risk pool and leave only older, chronically ill patients to skew costs.

    Create non-profit insurance companies to compete with for-profit insurance companies. Make the CEO’s work for a reasonable amount of money, get rid of bonuses, and toss shareholders out the window.

    Renegotiate medication costs with the pharmaceutical companies so we’re not paying 20x the rate other countries are for the same products, and prescribe generics whenever possible.

    There. Fixed. (No, I’m not really that naive)

  4. scalpel says:

    “Make having insurance mandatory for everyone.”

    A required expense is essentially a tax. And if it’s going to be mandatory for everyone, that means the healthy low income 20-somethings (who mostly voted for Obama) would face a tax increase. So while it might be mandatory for them to have insurance, I doubt it would be mandatory for them to pay for it (such as through a payroll tax) during the Obama administration.

    So, more income redistribution. Yay.

  5. marcia says:

    Well, what then, Scalpel? We’re back to no one liking any of the options. How do we pay for health care?

  6. scalpel says:

    I’ve already written pages on the subject, but basically I would disconnect health insurance benefits from employment altogether, restrict Medicare eligibility and allow balance-billing, thereby restoring free-market principles to the system. The federal government, rather than striving for comprehensive coverage for all, should only attempt to guarantee basic preventive healthcare benefits and long-term benefits for those who can’t qualify for traditional insurance. The chronically ill don’t need “insurance,” they need someone to pay their medical bills for them.

    Insurance should be considered as financial protection against unexpected disasters instead of a discount plan for chronic care. Only when people have more of their own skin in the game will costs go down.

  7. Pamala says:

    I think if this nation actually focused on preventative health care we would find that health care wouldn’t cost as much. Instead people head to the ER or Doctor only when things are at their worst which costs more. Frankly I’m a bit peeved that my daughter, of no choice of her own, doesn’t qualify for private insurance because of her disorder. And say tomorrow my husband’s work decided not to provide insurance anymore she doesn’t qualify for any state or federal coverage because we aren’t dirt poor. Our options should my husband lose his insurance are to get divorced, and that way I can go on welfare, or for him to quit his job and get one paying 70K less than he makes now. We can’t afford my daughter’s medications or doctor’s visits either so we can’t pay out of pocket. So what do we do?

  8. Health insurance provided by a company is the cheapest insurance an employee can buy at this time (see below), because the company provides it tax free.

    As insurance costs go up, it would be best for the employee if the company paid all of the insurance cost, offset by decreasing the employee’s salary in the same amount, without having the employee pay anything after-tax for the insurance. This would be the most tax-efficient way for the employee to get the insurance that he wants. That is partly why a company pays all or some of the insurance costs today.

    This is an accounting game. For example, say the company is paying an employee $46,000 salary + $13,000 health insurance, for a total payment of $59,000. It is all just dollars to the company; it doesn’t matter that some part is a health “benefit” and the other part is “salary”. But, the government taxes only the $46,000, seeing the $13,000 as a tax-free benefit. Only companies can buy health insurance tax free. This is a holdover from World War II wage and price rules.

    If the insurance cost goes up to $15,000, the best result would be to adjust the split on the $59,000 salary, paying $44,000 salary + $15,000 health insurance. That is $2,000 less salary and $2,000 more health insurance. The employee pays the least tax this way.

    But, most companies are not doing this. Instead, they assign some or all of the $2,000 as part of the “employee paid” portion of the health insurance cost. I will guess why.

    Employees are rejecting the high cost of health insurance without understanding what is really going on. They wrongly see the “employer paid” part of the insurances as a gift, instead of rightly seeing it as part of their earnings (part of what they control). Somehow, insurance benefits are just a gift that “good” employers provide. They want the insurance, but they don’t want less pay.

    The companies are squeezed by insurance costs that are rising faster than real salary, and can no longer maintain the myth that all of the insurance is a gift/benefit. So, the path of least resistance is to say “we are not lowering your salary, but you will have to pay some or more of your insurance”.

    This is not tax efficient, but it is good overall. People have respect and concern for what they earn and spend. This could move them to a better understanding that they are earning and paying for everything they receive, insurance “benefits” included.

    A company can deduct ordinary and usual expenses that are needed to operate; it doesn’t pay tax on what it spends to stay in business. Individuals are the “little companies” of the economy. We should be able to deduct the insurance costs and medical expenses that are ordinary and reasonable to keep us in business. Then, we could choose the amount and quality of our insurance independently of corporate bosses and plan administrators who have their own incentives different from ours.

    —-
    Why do I say above that the employee is earning his insurance benefits as part of his true salary? Because the company sees health insurance cost as the cost of having an employee. Competition for jobs is a competition to pay employees for their productivity. If the cost of health insurance disappeared from company responsibility, salaries would rise in competition to capture that decreased cost as increased salary.

    That is the big factor that distorts the discussion about personal health insurance. The public assumes that purchasing their own insurance would come out of their current salary. In fact, salaries would rise in the amount that companies currently pay for health insurance, giving employees what they need to buy the insurance personally. Except for taxes.

    When companies pay $13,000 (per year) for an employee’s family health insurance, it is a usual expense to the company, and it is not taxed as income to the employee. It is deducted “before tax”.

    When an individual buys health insurance personally, he is not given a tax deduction, and the insurance cost is paid out of net income after tax. That is a large difference. That $13,000 policy paid by the company out of gross (pre-tax) income, would cost the individual $17,333, that is $4,333 (1/3rd) more in pre-tax income if the individual is in the 25% tax bracket.

    By the way, the McCain health insurance proposal was badly explained, and misunderstood. He proposed giving a $5,000 tax credit to cover the tax incurred on health insurance purchased by individuals. This would have made the typical $13,000 family policy pre-tax.

  9. C. says:

    First, to be upfront I didn’t read through all the comments. That being said, I am an employer who pays full freight of my own insurance and 80% of my employees. I am guessing that not every state has such a program, buy NY has Healthy NY which provides for affordable health insurance for individuals, families and small biz. I also know MA mandates health insurance and provides a sliding scale and above a certain salary, insurance is offered through a state negotiated program like NY with private insurance companies. My sister had Mass Health and the coverage was/is comparable to any corporate provided insurance and with a private insurance co. My insurance is exactly the same policy that was offered at my former employer at a 1/3 the price. So, it’s possible to have affordable insurance.

  10. Nurse K says:

    Just a little note–this plan includes mandating that insurance companies cover pre-existing conditions at an “affordable rate” which means insurance companies will be forced to “insure” (it’s not insurance if you already know going into the agreement that you’ll be losing money) people at a loss, further keeping the healthy, working 18-24 year olds (who make up the highest portion of the uninsured) out of the market.

    I still like the idea of group insurance plans not associated with employment, such as the YMCA agreeing to provide you with a private health insurance plan at a group discount rate if you go to the gym 2-3 times per week or something like that. Currently illegal, BTW. Let’s try some stuff like this before “forcing” businesses to provide insurance in the middle of a friggin recession. It’s better to be employed and uninsured than both unemployed and uninsured.

  11. marcia says:

    Why is it illegal to offer insurance through an organization like the YMCA? There are other groups that provide this benefit to association members.

    Or are you saying it’s illegal to tie insurance coverage to specific health maintenance criteria, like working out 2-3 times a week? I think it sounds like a good idea, but would be a real headache to enforce, especially on a large scale.

  12. Dr. T says:

    Sorry for my bad english and writing a bit offtopic, but maybe you understand my point if you want.

    I’m from Finland and so I’ve got a bit different point of view. We’ve got both public healthcare for everyone and private sector for those with enough money or insurance. Our total heathcare costs are only about half of US costs per person but results are much better than you could expect. Maybe patients have to wait to get care or we don’t have the latest technology but no one is left untreated.

    I’m working in public health center and we see clearly that private sector orders laboratory tests that are useless or used to protect against lawsuits or patient wanted that every test is taken. Private health centers get profit of every test and maybe private doctors try to please patient because for them a patient is a customer. In public health centers we just do our work and quite often we can say that all needed tests are already taken and there’s no need to test more. We have also “national authority for medicolegal affairs” where patients can complain. That’s one reason why lawsuits are rare in Finland. Or is the difference in healthcare costs due to lower BMI? ;)

    I know it’s not so simple but could you explain better the difference in healthcare costs in Finland and US? http://www.kff.org/insurance/snapshot/chcm010307oth.cfm

    However my opinion is that US and Finland have one problem in common. Our politicians should determine what is the level of healthcare everyone gets even if they don’t have money.

  13. The DP says:

    In Switzerland they have a system that works well (IMHO)- the employer is forced to pay what they call “accident insurance.” For example, if you break your arm, your employer insurance pays for 100% of all medical care and fees (taxis to the doctor) relating to the accident, even if you broke it skiing. Likewise, your employer’s insurance reimburses your employer for the days you take off sick recovering from the accident. I agree that forcing employers to pay all insurance is troublesome, but having employers pay accident insurance would reduce a lot of the drama surrounding lawsuits and workmans comp issues. The only problem with this system is when you have chronic issues relating to an accident because it can turn into a question of insurance companies throwing the ball back and forth- for example, I tore three ligaments in my ankle last year, have had ongoing physiotherapy and in the interim changed employers. Due to changing employers, I took the decision to switch my physiotherapy to my personal health insurance and pay a 10% copay to avoid paperwork involving my old company. However, some private plans can refuse to pay for what they consider should be paid for by your accident insurance, which was definitly my case, but my private plan decided to do it anyway. Had it been a car accident involving hospitalization, I am sure my private insurance would have forced me to file a claim with my old employer’s accident insurance due to the higher cost.

    Basic insurance (what welfare would provide in the US, e.g. shared rooms, public hospital etc) is mandatory and if you can’t afford the 300 month base fee, you can apply for government assistance. Only the truly indigent and chronically ill have “free” health care which is paid for by a government agency. The rest of us have private plans and all healthcare is reimbursed after the 10% copay by law. Unemployed people have to add their accident insurance to their private policy but sometimes get subsidized unless they are on unemployment.

    Not a perfect system, but better than the US. Honestly, one of the reasons I won’t move back to the US is because I see what happens to people who are injured and sick- they lose their jobs. Scary to me.

  14. Doc99 says:

    “It’s called Medicare.”

    Medicare will be bankrupt by 2019.

    Exactly my point.

  15. ERP says:

    I like the idea of insurance companies paying for all pre-existing medical problems on the condition that all people are mandated to buy care. Yes, Scalpel, it is like a tax – but a USEFUL tax that goes towards something many people need. Most young healthies would have to buy only a catastrophic care plan and it would be cheap for them – likely under 100 bucks a month. Companies should offer such plans as well as more comprehensive ones. This would help pay for all those with chronic problems.
    I too am skeptical about Obama’s plan but am certainly not ready to let “the free market” decide anything as important as health insurance.

  16. me says:

    @Andrew Garland: I sincerely doubt that employers would raise salaries by the amount they wouldn’t have to pay in health insurance premiums. Sounds great in theory, though.

    Everybody has to be covered, no exclusions, no exceptions. Let invincible 18-24 year olds opt for only catastrophic coverage, and allow everyone the opportunity to buy insurance at a reasonable cost. Allow reimportation of US-made drugs packaged for foreign markets that are sold for fractions of what we pay here. I don’t buy Big Pharma’s sob stories about research costs – the feds give universities an awful lot of research money that ends up benefiting drug companies, and patenting me-too molecules (Claritin – Clarinex, Provigil – Nuvigil, et al) cannot be as costly as claimed.

    I can buy private health insurance only through the state high risk pool. I pay a hefty premium to obtain negotiated rates (i.e. avoid the self-pay tax), and avoid the exclusions incurred if/when I get a job where the employer offers health insurance. Damned if I do, damned if I don’t.

    The market is nowhere near free today, and the insurance, pharmaceutical, and other industries pay to keep it that way.

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