A Near-Term Solution For Health Insurance Costs
Conditions are also painful at the small-business end of the corporate spectrum. There are perhaps as many as 45 million U.S. citizens who don’t have any health care insurance, largely because over 50 percent of small business owners can’t afford to offer any health insurance to their employees. And, at many other small firms, the insurance that is offered is too expensive for many employees to subscribe to. As health insurance costs have risen - on average, 12.5 percent per year from 1997 with no forecasted relief in sight - there are two clear patterns that have emerged:
• For every 10 percent increase in insurance costs, 1.3 million adults lose their employer sponsored health insurance, according to a study by the University of California-Berkeley.
• Employee deductibles, co-pays, and share of the total health insurance expense are all rising. The average employee contribution for a family insurance plan in 2004 rose to $3,156, or 32 percent of the total cost ($9,862), from $1,670, or 25 percent, in 2000 (total cost $6,680).
Shifting higher health insurance costs to employees can only go so far. Is it any wonder that more employees are:• Forced to drop the insurance that might be offered to them by employers each year.
• Not participating in company 401K plans, even with matching dollar inducements, because they can’t afford to save after paying higher medical expenses.
• Putting their children on state Medicaid insurance programs instead of company plans.
Small business faces higher health insurance costs per employee than big companies because of: lack of buying clout; higher administration costs per employee; and more sensitivity to state insurance mandates. The most populous and liberal states have been the most "progressive" in trying to mandate the best and broadest insurance coverage for all their citizens/voters by getting state-based firms to pay for it. For small businesses in these states, this means: paying super high insurance premiums; dropping coverage altogether; going out of business; or relocating jobs out of the state if possible. Because the unintended consequences of mandates are dropped insurance coverage and disappearing jobs, 12 states are in the process of rolling back their mandates to become more business friendly.
HSAs: The Only Business â€˜Solution' On The HorizonWhat health savings accounts (HSAs) are and the details about how they work can be found at many Web sites - just Google health savings accounts (check out the HSAs/Wellness tab at www.merrifield.com). Because it is easy to get lost in the details of HSAs, make sure that you don't miss these underlying concepts and trends:
True Savings From HSAs?Where is the free lunch with HSAs? When employees are spending their own money for outpatient care, they start asking and negotiating with doctors about what are the minimally sufficient, cost-effective solutions. More generic drugs are prescribed. Nice-to-have diagnostics get waived. Both insurance companies and doctors are starting to offer discounted premiums and fees respectively that reflect the reduced cost of not having third-party paperwork costs for the first $2,500 of care that is paid with credit cards out of HSAs.
The best, most mature proof for savings from HSAs comes from South Africa where HSAs have been legal - in a more expansive form than the U.S. - for 11 years. Here are some key questions with the short answers that I gleaned out of a fascinating testimony that drew significantly on South Africa's experiential outcomes. For more information, go to www.ncpa.org/prs/tst/JCG_Testimony.pdf.
1. Will HSAs control costs? Yes.
2. Will HSAs encourage people to forgo needed care? No, they've increased in several studies. Policies that provide first-dollar coverage for annual checkups and hospitalization while applying all other outpatient care costs to the deductible are a big reason for this.
3. Will HSAs only appeal to healthy, young, single, and/or wealthy people? No. U.S. enrollees show broad demographics and even counter-intuitive averages.
4. Will HSAs encourage employers to reduce benefits? No. Employers don't need an excuse to cut benefits or raise the employee's cost for insurance. They have to provide the best competitive compensation/benefit package that they can afford to attract and keep good employees.
5. Will HSAs force patients to pay retail prices while HMOs pay wholesale? No. HSAs can be part of provider networks that get network prices, and cash-only doctors are sprouting up to offer the same services that network providers do for dramatically lower prices due to the absence of network overhead costs.
ConclusionsIf companies look at the full cost of their employees and flow as much of their health insurance dollars through employee HSAs as possible, good things can happen. We shouldn't underestimate the power of employees wanting to save their own tax-free dollars or of the speed which health suppliers will change to meet consumer needs empowered by HSAs.
Because employees all along the personal health spectrum will have instant motivation to be incrementally more healthful and more savvy medical shoppers, they all have a chance to save money by shopping for sufficient solutions. To help employees become incrementally more healthy, every company regardless of size should start a simple-to-scale wellness program with the goal of creating a wellness, total-health productivity culture. It's possible that, in a few years time, offering HSAs will become an expected option and a necessity for luring the most responsible, health conscious employees from other employers that also have HSAs. Because HSAs have better total tax and spending characteristics than IRAs and 401K plans, they may well become the preferred vehicle for most employees to save.
But, why stop at empowering employees just for health care spending? Why not ask the employees to become "engaged" in creating better service value propositions for the right core and target customers in the right target customer niches? If employees could understand the chain of connections between their efforts, better service value, better customer retention, and bigger bonuses, they could help to make it happen. Otherwise, most employees simply don't care about saving the company's money to improve return on investment. They don't realize that company profits reinvested per employee per year is the cost of their having a secure and expanding career. Teach them so they can appreciate, play, and win in the game of business too!
Bruce Merrifield is president of Merrifield Consulting Group Inc., Chapel Hill, N.C. For more information, call 919-933-7474, e-mail email@example.com, or visit www.merrifield.com.
Publication date: 07/25/2005