Since employees are actually the people that pay for the cost of health insurance (through the reduction of wages otherwise received), it stands to reason that they be allowed as much choice as possible when it comes to selecting a benefit plan provided by their employer.
Personally I don't think it is possible to have "too many choices". Unfortunately for small groups (25 to 250 employees) in most cases plan benefit choices are limited to two - sometimes three at the most. Usually there is an HMO, a PPO and now some sort of high deductible or consumer driven plan.
The problem in most cases right now - at least in the 11 states in which I do business - is that the premium differential between these current choices are very minimal. And this means that employees have very little control over their total compensation.
What we need to see is a plan design that has very significant premium differentials and true risk management options. We need more choices so that employees can really generate control over how much of their compensation is taken as taxable wages or tax favored benefits.
Because the small case market has limited options in this regard, we have taken to trying a new approach - with some limited success thus far. Our latest idea is to establish a single "base" plan with the lowest possible premium and significantly reduced benefits. If possible we make this base plan one that qualifies for and HSA (assuming the premium savings will justify it).
For employees that wish to little or nothing in premium share, they now have that option. They can take the extra risk and deal with it as they see fit. Where we have a qualifying plan in place, they may establish an HSA if they wish to do so. Otherwise, they pay for claims from their existing resources as needed.
For those employees that cannot tolerate the risk we offer "gap" coverage. These plans provide benefit coverage to fill in the gaps from the new high deductible or catastrophic comprehensive plans sponsored by the employer. The premiums are pre-tax under Section 125 and in most cases we can eliminate pre-existing condition provisions by meeting participation requirements.
The idea here is pretty simple and straight forward. We want employees to have a real choice in how they each take their compensation and handle risk. This is really no different that what employees must do for their automobile and homeowners coverage. Why not let them do the same with health insurance?
RAM
Tuesday, January 30, 2007
Monday, January 29, 2007
The Employee Pays for Everything
One of the great mistakes we all make (myself included) is to refer to benefits as paid for by the employer. Indeed, much of the tax law refers to "employer provided benefits".
This is quite misleading in that it establishes and reinforces the idea that employers pay for these benefits - when in all but the most extreme cases, this is never the case. The employee pays for benefits through a reduction in wages they would have othewise received.
Countless studies now show this to be true. Any of you that have worked with the challenge of annual double digit rate increases for health insurance premiums know that the decision comes down to how much wage increase will need to be sacrificed to pay the higher premium, or in the alternative, how deeply the benefits will have to be reduced to keep the premium at the same level. Either way the employee is the one that pays - not the employer.
I w0n't argue that there are certain exceptions to this - Google and Microsoft come immediately to mind. They can afford to pay the highest salaries and provide the best benefits and they must do so to compete for the highest level of employees. But they are the exception that proves the rule.
The tax code is the major driver behind this misleading situation. The tax preference for employer provided health care is now the largest single tax break available to Americans - exceeding retirement contributions and the personal mortgage deduction. It is the only tax preference that exclueds BOTH the employer and employee contributions to FICA, and is not taxed at any state or federal income tax level. (All of this while Medicare and Social Security are in financial crisis.) This is clearly a "behavior modifyer" that exacerbates the pressure on the demand side of the equation and drives up the cost of health care and health insurance.
President Bush's latest proposal goes right to the heart of the matter. While he retains the tax preference on an individual basis (not my favorite solution but at least he levels the playing field for those folks that don't have insurance provided by their employer), he eliminates it from the employer side of the ledger. This is a major move toward "Total Compensation" where employers simply pay people for the job they do. Under this proposal employees would have a great deal more choice and say so in how they spend their compensation. This proposal puts the focus squarely on the fact that employees earn all compensation - and redicrect it as they each see fit on an idividual basis. And yes, the FICA breaks remain but that is a topic for another discussion. The key here is that we get a much clearer recognition that employees pay for everything - one way or the other.
This is quite misleading in that it establishes and reinforces the idea that employers pay for these benefits - when in all but the most extreme cases, this is never the case. The employee pays for benefits through a reduction in wages they would have othewise received.
Countless studies now show this to be true. Any of you that have worked with the challenge of annual double digit rate increases for health insurance premiums know that the decision comes down to how much wage increase will need to be sacrificed to pay the higher premium, or in the alternative, how deeply the benefits will have to be reduced to keep the premium at the same level. Either way the employee is the one that pays - not the employer.
I w0n't argue that there are certain exceptions to this - Google and Microsoft come immediately to mind. They can afford to pay the highest salaries and provide the best benefits and they must do so to compete for the highest level of employees. But they are the exception that proves the rule.
The tax code is the major driver behind this misleading situation. The tax preference for employer provided health care is now the largest single tax break available to Americans - exceeding retirement contributions and the personal mortgage deduction. It is the only tax preference that exclueds BOTH the employer and employee contributions to FICA, and is not taxed at any state or federal income tax level. (All of this while Medicare and Social Security are in financial crisis.) This is clearly a "behavior modifyer" that exacerbates the pressure on the demand side of the equation and drives up the cost of health care and health insurance.
President Bush's latest proposal goes right to the heart of the matter. While he retains the tax preference on an individual basis (not my favorite solution but at least he levels the playing field for those folks that don't have insurance provided by their employer), he eliminates it from the employer side of the ledger. This is a major move toward "Total Compensation" where employers simply pay people for the job they do. Under this proposal employees would have a great deal more choice and say so in how they spend their compensation. This proposal puts the focus squarely on the fact that employees earn all compensation - and redicrect it as they each see fit on an idividual basis. And yes, the FICA breaks remain but that is a topic for another discussion. The key here is that we get a much clearer recognition that employees pay for everything - one way or the other.
Sunday, January 28, 2007
This should be fun
Hello - and welcome to RAMdom Musings, my blog for just about everything one can imagine on the subject of employee benefits for small employers. My name is Richard A Matthews (hence the incredibly clever name of the blog) and I have been designing, selling and servicing employee benefit plans since 1973.
We will define small employers as those with 25 to 250 employees. And the topic of employee benefits will include products, strategies and 21st Century solutions. Health insurance will play a major role of course, but many other topics will be addressed in detail. In particular we will focus on plan design strategies and administrative solutions that help employers attract and reward quality employees in a Web 2.0 world.
Though I may correctly be identified as a "one trick pony" based upon my approach to problem solving (much more about that shortly), I will post on all sorts of ideas that are germane to the vision expressed above. In the meantime, click onhttp://www.dmcollc.com so you may get better acquainted with me and my organization.
RAM
We will define small employers as those with 25 to 250 employees. And the topic of employee benefits will include products, strategies and 21st Century solutions. Health insurance will play a major role of course, but many other topics will be addressed in detail. In particular we will focus on plan design strategies and administrative solutions that help employers attract and reward quality employees in a Web 2.0 world.
Though I may correctly be identified as a "one trick pony" based upon my approach to problem solving (much more about that shortly), I will post on all sorts of ideas that are germane to the vision expressed above. In the meantime, click onhttp://www.dmcollc.com so you may get better acquainted with me and my organization.
RAM
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