For 15 years, I have taken pride in paying the full cost of health insurance for every full-time Palisades Hudson employee who wanted it. This month marks the last time I will do that.
Beginning in October, our 20 employees will make their own decisions, and their own arrangements, regarding health coverage. They can stay on our company’s plan, but they will have to pay the entire cost — ranging from $574 to $683 per month — themselves, through payroll deductions. Though I am raising everybody’s salary by $3,000 per year, or $250 per month, as a partial offset to the loss of company-paid health coverage, those who remain on the company plan will have a significant new out-of-pocket expense.
Some will undoubtedly make other arrangements instead. A few can elect to be covered under a spouse’s or domestic partner’s plan. In New York, where a state law already requires insurers to cover family members through age 29, some may be able to join a parent’s plan. These staffers may end up benefiting from the pay raise.
My employees could opt to go uninsured. The new federal requirement for all adults to have insurance or pay a penalty does not take effect until 2014. I hope nobody makes this choice, but they are adults, and the decision now is in their hands.
Our employees in Florida and Georgia have checked out the market for individual insurance. In those states, they may be able to purchase acceptable, if not ideal, coverage with the $250 per month raise I am giving them. There are adverse tax consequences, which we may address later with some type of flexible benefits program, but our workers in those states need not take a big economic hit to stay insured.
New York is another story. It has a broad range of mandates for individual insurance policies that make such coverage in the Empire State very expensive. Our Scarsdale staff is likely to find that the company plan, expensive as it is, is cheaper than individual insurance even for a healthy young adult.
My actions are not coming as a surprise to anyone. I wrote in this space in March that the Affordable Care Act, which was enacted later that month, is likely to make health coverage anything but affordable for those who actually pay the bills. I have no desire to stand next to the tracks in order to watch this train wreck unfold at close range. Though the most significant impacts are delayed until 2014 and beyond, I have no guarantee that the law at that time will make it economically practical to change my company health plans. So I am making the changes now.
When they wrote this year’s legislation, policymakers had a choice: They could emphasize near-universal coverage, or they could emphasize controlling costs. They opted for near-universal coverage. As a result, business owners and higher income Americans (many of whom, like me, are one and the same) will soon pay an array of higher taxes to finance the broader coverage that President Obama and congressional Democrats mandated.
So I now find myself responsible for paying for health insurance for more than 30 million strangers. Yet the cash needs of my business, which is growing despite the difficult economy of the past few years, are not going to decline. Nor are my personal financial commitments going to decrease. The only way to make financial room for those 30 million strangers is to stop paying for insurance for the 20 people I work with every day.
Politics mandated that Obama and his fellow Democrats at least pretend that their legislation will constrain runaway spending. The new law’s very name is part of that pretense. But there is little in the actual legislation that has any real prospect of controlling spending; instead, the law attempts to control premiums by fiat through new regulations and oversight. Government may be able to prevent insurers from pricing policies in ways that make sense, but it can’t force them to operate at a loss. The other shoe, in the form of higher premium prices or a rollback of the new law’s mandates, is certain to drop. Higher prices are the more likely outcome.
I am not the only employer reaching this conclusion. AT&T, Verizon, Caterpillar and Deere have all contemplated dropping their health benefits as a result of the health reform legislation. About 63 percent of businesses intend to shift a higher percentage of premium costs to employees in 2011, according to a survey recently released by the Washington-based National Business Group on Health. The survey included 72 companies that employ more than 3.7 million people. In most cases, the change will likely be a gradual one rather than an immediate move from fully employer-paid health care to fully employee-paid health care. But, over time, companies around the country will probably reach the same endpoint that I did. It is far easier for a small business owner like me to make a drastic change than it is for a global corporation.
The law’s supporters will portray employers like me as bad guys who are using the new law as a smokescreen to make changes we wanted to make anyway. Though the accusation is false, it has a germ of truth: Runaway health insurance costs have been a burden for every business that pays them. Every sensible manager has at least considered steps to stem this financial hemorrhage. Many of us were just holding on so as not to disrupt employees’ lives while we waited for policymakers to do something.
Now they have done something, and it only made the problem worse. There is no longer any reason to wait.
Want to blame me for cutting my employees’ health insurance? Go ahead. Just keep in mind that the only power I have is to sign checks. I did not create our broken system, and I am not the one who wasted an excellent chance to fix it.
September 1, 2010 - 12:13 pm
Larry:
you make a well reasoned and passionate explanation of the mess that health insurance and health care ( two distinct animals – in my book ) are likely to become under Obamacare. The one thing I think you don’t mention is that the real intent of Obamacare is to destroy the private health insurance system leading to the final end game of single payor – national health care. To those who wanted single payor all along the only way they could make it happen was to totally lay waste to the system that exists. I hope they all get serious medical problems and then need to call upon what they created.
September 1, 2010 - 12:15 pm
What employers and individuals wanted from health care reform was both increased access and cost control. Health reform will grant access to many new insureds and it will do away with some of the most egregious practices of insurers. But it won’t control costs because the law hardly addresses where the runaway costs originate, doctors, hospitals, pharmaceutical companies and other “providers”.
Pity.
Employer-based health insurance has no chance to control costs. Only single payor (like Medicare) or entirely socialized medicine would have a chance to control costs. At present, those alternatives have proven unpalatable.
However, runaway costs will ultimately prove even more unpalatable. As a consequence, those who railed against single payor or socialized medicine may well one day become the most ardent proponents of these ideas.
I often wonder if the authors of health reform purposefully did not address the cost curve in order to hasten the day when some form of government-run health care became the only obvious answer to the social ill that health care has become.
David Walters
September 1, 2010 - 7:10 pm
So long as our devoted public servants (DPS), including all members of our malfeasant Congress, overweening Executive, and irresponsible, unaccountable Judiciary –not to mention metastasizing bureaucratic satrapies of every stripe– insulate themselves from any consequences of their Statist enterprise, so long will the benighted American polity suffer economic, medical, and pension ruination in short order.
Founders warned against just such elitist power-grabs in 1787; Jefferson formulated his Bill of Rights as a preventive measure; and now if anyone can find one high-school senior or Ivy League quota-baby who has ever heard of Hamilton, Madison, or Jay, please let us know.
September 1, 2010 - 8:58 pm
Editor’s Note: The David Walters whose comment appears with this post is not related to David Walters, CPA, who is a client service manager in the Fort Lauderdale, Fla., office of Palisades Hudson Financial Group LLC.
September 2, 2010 - 11:31 am
No form of medical insurance can control costs. We see that truth in every country or state that has universal healthcare. The only way to cut costs is to limit service. Or to stop creating new and better drugs, therapies, and medical equipment. What else is there? We could reduce the pay of medical people, but I expect that wouldnt improve care at all, nor would it attract the kinds of specialists most people want to do business with.
Costs are costs, and as hard as we pretend we can make them go away, we cant. We can do some things to reduce personal costs, like have the option of higher deductibles or be able to opt for major medical only; but as sensible as those things might be, they wouldnt pay the freight for all those for whom medical insurance or treatment will be absolutely free.
The pity is that employers ever got into the business of providing medical insurance in the first place. It has complicated employment AND insurance, and has created the fiction that individuals arent really responsible for themselves in this regard.
September 2, 2010 - 11:35 am
Mr Walters seems to have the answers: its the fault of the medical/insurance/pharma troika that costs are so high. Do I hear the clink of gold from the legal community here at all? Do I hear anything about peoples demands for every possible treatment known to science? No, of course not.
And single-payor will solve it all. Where is the evidence of this solution? The UK? Canada? France? People seem to have the idea that healthcare in these countries is free instead of its being paid for via their very high income and other taxes. And even then its not enough. Treatment and access are in a constant state of reduction. In France, where 25% is taken off the top of any income, only 75% of medical treatment is paid for by the system. People either pay the other 25% out of pocket or buy personal healthcare insurance for that unpaid-for 25%.
Ah, yes access. On paper, it sounds wonderful. Not so wonderful if you cannot get a doctor or a hospital bed. Not so wonderful if after making a connection with a doctor it can take months or years in Canada to find a primary physician if you dont already have one you need a specialist and cannot THEN find one taking patients anywhere near where you live. Not so wonderful if you finally get an MRI and are then told it will be months before it will be read. Just be patient, that tumor may not even be malignant!
I dont know what the answer is to any countrys healthcare system; but its annoying to hear people spouting off when theyve obviously done no research at all, nor have they known enough people in these universal systems to have any knowledge of what access actually means. And doesnt mean.
October 22, 2010 - 10:39 pm
Mr. Elkin, you don’t mention what specifically about Obamacare is leading you to make this decision. Have premiums gone up? How much? Is there a reason you are doing this now and not next year or the year after?
You mention that many other employers are facing the same problem of increasing health insurance costs. If you could share some of the details of the employer’s decision-making process, I think it would be a valuable contribution to the debate over repeal of Obamacare.
October 26, 2010 - 11:34 am
A few weeks after I wrote this post, Oxford Health Plans proposed a 23 percent rate increase if we renewed our existing plan for another year. Oxford covered our non-New York employees, plus a few in New York. All of them dropped our health coverage this month. As I expected, some of the Southern employees bought individual coverage (for little, if any, net cost after considering the raise I gave them), while others moved onto spousal or parental plans.
Many of our New York employees did the same. Also, our staff did its own research and found a Blue Cross/Blue Shield high-deductible plan with a much lower out of pocket cost. At their request, we added that plan as an option this month. Several New York staff who would have otherwise gone uncovered opted to use the Blue Cross plan. A few, myself included, have stayed (for now) with our HealthNet plan, whose rates are not scheduled to change until February.
Overall, employees who had access to coverage from other family members got a cash raise. Those who changed plans ended up in about the same position. A few who have stayed on HealthNet are paying out of pocket. The firm’s health care costs dropped from six figures to virtually zero, which is money we can use for other things. Nobody, to my knowledge, is without coverage entirely.
As i explained in the original post, I acted now because I saw no reason to wait. Costs were clearly going to go higher. I was not doing the firm or its workers any favors by committing an ever-increasing sum to health care when they could, and would, make other choices about how to use the money if given a chance. Waiting also would expose the business to a political risk if Congress decides to impose steeper penalties on employers who drop or reduce health-care benefits, even if the money is redirected into other forms of compensation.