The Consumer Is Not the Customer

Both parties promise to preserve one of the health care system's central problems.

Jacob Sullum | September 16, 2009

The other day, I was trying to figure out why the paycheck deduction for my health insurance was higher than I had expected. When I called my insurer to ask what the total premium was, the customer service representative said it was none of my business.

Three-fifths of Americans, the share with employer-provided health insurance, are in the same situation: Since someone else buys insurance for them, using money they would otherwise receive as wages, they are in no position to shop around and typically do not even know the true cost of their coverage. This disconnect between payment and consumption is one of the central problems with the current health care system, contributing to rapidly escalating costs, insecurity, and the general lack of choice and competition. Yet both Democrats and Republicans insist upon preserving it.

Outlining his health care reforms last week, President Obama was at pains to reassure the public that "nothing in this plan will require you or your employer to change the coverage or the doctor you have." In fact, he said employers should be forced to provide health insurance (or, alternatively, contribute to a fund that subsidizes premiums).

Obama presented himself as the protector of job-based medical coverage against those "on the right" who "argue that we should end employer-based systems and leave individuals to buy health insurance on their own." That approach, he warned, represents "a radical shift that would disrupt the health care most people currently have."

Meanwhile, the Republicans, whose last president and last presidential candidate both proposed eliminating the tax incentives that encourage employers to offer health insurance in lieu of higher pay, seem to have abandoned that idea. One of their main complaints about Obama's plan is that it would reduce the number of Americans covered through their jobs.

Senate Minority Leader Mitch McConnell (R-Ky.) warns that one Democratic health care bill "would cause 10 million people with employer-based insurance to lose the coverage they have." The Republican National Committee claims "over 88 million people" who are covered through work "would lose current insurance under government-run health care."

It's no mystery why each party portrays the other as bent on destroying employment-based medical coverage. Surveys find that a large majority of people who have such insurance are happy with it. According to a recent Zogby poll, 77 percent of Americans oppose "taxing employer-provided health care benefits."

Yet it's the tax-free status of those benefits that favors them over cash compensation, maintaining a bizarre system in which most Americans get their health insurance—unlike their car, life, or homeowner's insurance—through their employers. As a result, they are insulated from the actual price of their insurance and are more likely to have plans with low deductibles that cover routine medical expenses as well as large, unpredictable costs. In choosing among providers, drugs, and courses of treatment, they have little incentive to economize and usually do not even know the relative costs of the various options.

The artificial dominance of job-based plans, along with misguided restrictions on where insurers can sell policies and what types of coverage they can offer, has stunted the development of alternatives. Even so, the large price difference between the job-based and individual insurance markets (some of which may be due to differences in the age and health of policy holders) suggests the savings that are possible when people decide how to spend their own money: In 2007 the average annual premium for nongroup health insurance was about $2,600 for single-person coverage and $5,800 for family coverage, compared to $4,500 and $12,100, respectively, for job-based plans.

In addition to enhancing competition and controlling costs, cutting the link between employment and health insurance would relieve the insecurity that many Americans feel about going without coverage when they lose or leave their jobs. Obama is right that it would be "a radical shift"—radical in the sense that it goes to the root of the current health care mess.

Jacob Sullum is a senior editor at Reason and a nationally syndicated columnist.

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Mike in PA|9.16.09 @ 8:42AM|#

Kinda takes the consumer out of the free market equation, eh?

Obama seems to want to take the consumer out of the equation entirely.

Attorney|9.16.09 @ 8:54AM|#

Whenever I have brought up the issue of disconnecting health coverage from employment by taxing health benefits, people -- even smart people -- just don't get it. They don't believe that salaries would adjust to replace with cash the compensation that was formerly provided in the form of health benefits.

|9.16.09 @ 9:07AM|#

Rand Paul is making healthcare sense on cspan right now. Hopefully he'll smack down some idiots.

|9.16.09 @ 9:09AM|#

They don't believe that salaries would adjust to replace with cash the compensation that was formerly provided in the form of health benefits.

One intermediate measure would be to require that employers provide the health care benefit as a voucher that the employee can spend on any health insurance, with the balance placed in an HSA. Those who prefer their employer's plan can simply sign the voucher back over to the employer to spend as it was before. Those who want more choice and more portability can buy whatever they like.

The taxability of the health benefit voucher can be what it is today or be phased toward a fully taxed status. In any event, even the smallest employers -- or, indeed, the self-employed -- can offer such a health care benefit since they are no longer responsible for the expense and pain of setting up and maintaining a health plan and don't even need to pay for a health plan's entire premium.

kinnath|9.16.09 @ 9:14AM|#

Life will never be good until I can buy my health insurance from a talking gecko.

creech|9.16.09 @ 9:33AM|#

There are certain advantages to having insurance through one's employer. Clout, when coverage is questioned or denied. Also, an expert (or someone more expert than you) can comb through the plans and make sense of them
(I've got ten Aetna plans on my desk right now and I'm sure the plant workers couldn't make head nor tail of them.) Of course, buyers groups and advisors can replace the employer, and simplicity in plans would help too. Don't anyone think a single-payer government plan is the answer - it may eliminate choices but you won't understand the gobbletygook any better.

|9.16.09 @ 9:38AM|#

Both my wife's employer and mine explicitly state the out of pocket premium I pay and their contribution. As reasonably healthy adults, we chose a high deductible plan with pre-tax dollars. My objection is paying for coverage not needed - we are well past the child bearing years, for example. If you really believe either employer will adjust salary up to compensate you must be self employed.

stuartl|9.16.09 @ 9:38AM|#

But Jacob, those independent plans charge "$1,163 for persons under age 18 to $5,090 for persons aged 60-64." Clearly this is unfair (and possibly racist). Charging more for people who are likely to need more coverage is obviously unfair and un-American. Didn't you pay attention to Obama's speech?

More seriously, in this too sensible to ever happen medical utopia, I wonder if plans would develop that are akin to life insurance, as you pay in while you are young, you accrue savings, lessening the reasonable rise in premiums as you age?

Rich|9.16.09 @ 9:49AM|#

Life will never be good until I can buy my health insurance from a talking gecko.

You could do that today, but you may flunk your urine test.

Michael Ejercito|9.16.09 @ 9:49AM|#

The tradition of tying health insurance to employment started in the 1940's, when wage controls were enforced.

Attorney|9.16.09 @ 10:03AM|#

@WDC3:

If you really believe either employer will adjust salary up to compensate you must be self employed.

Employers won't do it willingly. The market for labor will compel them to.

|9.16.09 @ 10:45AM|#

There are 2 primary problems in American healthcare:
1. Artificial barriers to being a MD.Limiting supply > raising prices!
2. Consumer only indirectly pays; and usually has no idea how much he pays. Nor does he care how much it costs because "he does not pay". Dr. F said 50 years ago "there's no free lunch".

There are advantages for some companies to offer the second option of high deductible health insurance plan with a tax free employer contribution of the premium savings in a health savings account (HSA). The experience of HSAs shows that this halts, and even reverses, the rise in premiums. As well, it supplements employee savings. In spite of these benefits, many companies wrestle with the perverse disincentive that rising health care premiums mean rising tax deductions.

|9.16.09 @ 11:00AM|#

You don't need to remove the tax break on employer-provided insurance. You just need to provide the same tax break for anyone who buys it for themself. Currently, if I want to buy my own plan and I'm an employee, it comes straight out of my pocket as opposed to employer-provided plan which feels "free" to the employee.

Make individual plans on parity with employer-provided plan tax-wise and that's all you'll need to do to see a massive shift away from it. The massive shift will occur primarily because people will prefer to choose their own plans and keep their coverage after being laid off.

|9.16.09 @ 11:35AM|#

BINGO!
Sullum nails it.

|9.16.09 @ 11:40AM|#

Absolutely nmg. I would love to buy my own policy. It just ends up being more expensive because of the way the tax code is written. By encouraging businesses to provide health insurance, it is by default discouraging personal ownership.

|9.16.09 @ 12:07PM|#

Companies should at least be forced to explain the health insurance that they provide. Any thoughts? To socialist or what? I'm not saying that they should be controlled, it's more like labels on food packages, not mandates on ingredient usage.

Neu Mejican|9.16.09 @ 12:07PM|#

A first. I agree (in broad strokes) with Sullum.

|9.16.09 @ 12:39PM|#

Companies should at least be forced to explain the health insurance that they provide.

They are. Insurance companies are required to disclose the terms of coverage to any insured.

The problem is the policies are so fargin' complicated and larded up with mandates that they are hard to understand.

|9.16.09 @ 2:13PM|#

When I refinanced my house and was signing papers, a nice lady from the bank sat down with me and went thru the "highlights" of my unexciting fixed rate loan in 5th grade-level English. After she explained each point of our contract, she asked me if I understood and if I did, to initial a box.

At the time (2005) this seemed totally moronic and unecessary, but in retrospect, it may have saved someone, somewhere, a lot of misery.

It pains me to suggest this, but perhaps a similar procedure might be required when purchasing an insurance policy.

Mike Laursen|9.16.09 @ 2:53PM|#

More seriously, in this too sensible to ever happen medical utopia, I wonder if plans would develop that are akin to life insurance, as you pay in while you are young, you accrue savings, lessening the reasonable rise in premiums as you age?

I just assumed that that's what would happen in a truly free health care insurance market.

Ultimately, though, what one needs as one grows older and more likely to have health problems is the ability to accumulate wealth over one's lifetime without its being sapped by taxes and inflation. And for your children to make a decent living, too.

|9.16.09 @ 3:31PM|#

More seriously, in this too sensible to ever happen medical utopia, I wonder if plans would develop that are akin to life insurance, as you pay in while you are young, you accrue savings, lessening the reasonable rise in premiums as you age?

I just assumed that that's what would happen in a truly free health care insurance market.

It strikes me that as long as we are tied to employer centered and state regulated insurance, we won't see the kind of "brand loyalty" that would be required for this.

As long as everyone has to change insurance companies everytime they change jobs or move to a different state they'll have the same feeling of alienation from a company that isn't really their own.

I certainly know that I feel a lot better towards the insurance company that has covered my house for over twenty years than I do towards my healthcare insurance company that my employer signed up with just last year because BCBSFla raised the premiums too high.

If portability of coverage is a good thing (and I think it is) then we ought to welcome changes that will enhance it. And I believe that the ability to buy insurance across state lines and separating insurance from work will do that.

|9.16.09 @ 3:54PM|#

Employer provided insurance is an artifact of the tax laws: you get the insurance with pre-tax dollars. So the solution is easy, grant a full 100% deduction upfront for insurance and other healthplan payments.

By itself, of course, that ain't much. But it does allow you to go elsewhere for insurance without having to pay extra.

|9.16.09 @ 4:12PM|#

But it does allow you to go elsewhere for insurance without having to pay extra.

You'd also have to amend the laws limiting how the insurance companies set up their pools. Right now, individual insurance is hella expensive largely for that reason.

|9.16.09 @ 4:54PM|#

"rod stanton | September 16, 2009, 10:45am | #

There are 2 primary problems in American healthcare:
1. Artificial barriers to being a MD.Limiting supply > raising prices!"

I'm not sure I understand this argument. What are the artificial barriers? I mean you can earn an MD or DO degree--so there is no monopoly there. You can also become a primary care provider by becoming a PA or NP. So there are at least 4 pathways to becoming a healthcare provider (you can also become one of the various flavors of medical quacks, including natropaths, chiropractic, Chinese medicine, etc.). The thing limiting supply is that: a) it takes brains b) it takes a lot of hard work and c) it requires you to take on tremendous amounts of debt.

I mean, sure, I suppose the whole having to get licensed and all that is a bit of a limiting factor. And sure, in a free market, we should allow "doctors" who haven't gone to medical school or been board certified set up shop. They're not going to get any business, and whatever business they get is going to wind up suing them. The groups that band together for voluntary training standards and licensure are going to produce doctors that actually stay in business.

But there is always going to be a limited supply of doctors--or at least competent ones. There's not really any short cuts to training surgeons or even internal med docs. Sure, you could open up the market a little more for midwifes, or allow various chiro/naturopath/Chinese med docs to prescribe drugs, but again, the ones with rigorous training are going to win out in the market place, and the very nature of the training and the job is going to make it so that you don't get a whole lot of doctors.

Opening the floodgates to any idiot who wants to practice medicine isn't going to improve anything anymore than letting any idiot who wants to be an engineer or a research scientist become one. Some jobs can only be done by people on the tail of the distribution. Unless you have a magical way to equalize talent and ability across all people, it's going to stay that way.

|9.16.09 @ 6:05PM|#

|9.16.09 @ 6:21PM|#

When comparing the individual insurance to company-provided insurance, are we looking at apples to apples or apples to oranges? Employer policies, in my personal experience, have lower deductibles and better coverage. The individual policy I'd get for the same price (our employer shared the cost of his portion of our policies with us) is virtually worthless.

slutmonkey|9.16.09 @ 6:21PM|#

@TQ

You're right that most Americans (myself included) don't want any idiot to be able to call himself 'doctor' and open an surgery practice in his barn.

But I think you missed that the limiting factor is medical schools. While there are more than one medical school there is only one certification bod--that's where the monopoly exists. That body (the AMA) has purposely limited the number of schools. This means that demand for doctoral training does not meet supply which both increases the cost of medical school and limits the supply of doctors entering the workforce etc.

Anecdotally my cousin, who graduated from undergrad with a perfect 4.0, STILL had to wait a full year to for an enrollment space to open up at medical school. I'm not sure if you already read the Reason article about the AMA's involvment in restricting the number of medical schools (http://www.reason.com/news/show/135682.html), but I highly recommend it.

That article is good but not a complete picture (which is fine since it wasn't intended to be). Most of my family is in the medical industry, and hearing the frustrations from the trenches changes your perspective on healthcare. It's also informative to read this doctor's take on working with insurance and how it's impeded care. (http://www.thelandofthefree.net/conservativeopinion/2009/08/29/medical-care-or-health-care-through-the-looking-glass/)

Neu Mejican|9.16.09 @ 6:38PM|#

One thing that employer based insurance provides is for group pooling.

This seems artificial to me. The insurance company's risk is based on pooling the risk across all of their customers, yet they sell and price based on artificially defined smaller groups. They do this to maximize their potential profits, but at least on its face it seems dishonest.

But maybe I am missing something.

Mike Laursen|9.16.09 @ 7:01PM|#

I'll take janice's question since my sister's nickname is Janice, and she is taking the $20,000/month medicine for Crohn's, and for all I know janice is my sister.

Any reform legislation that includes restructuring tax incentives and other existing laws to move from employment-tied to personally-purchased insurance would have to include provisions for transitioning from one world to the other. And that would have to include making sure that people that are existing insurers can't use it as an excuse to dump people already being actively treated.

You've pointed out one of the big problems with employment-tied health insurance. It makes people desperately cling to their jobs, and employers can exploit that.

LarryA|9.16.09 @ 7:20PM|#

Mike Laursen|9.16.09 @ 7:25PM|#

And, by the way, I'd really like to get the full story on how Crohn's medicine got priced at $20,000/month. I can vouch that it really does.

LarryA|9.16.09 @ 7:28PM|#

The insurance company's risk is based on pooling the risk across all of their customers, yet they sell and price based on artificially defined smaller groups. They do this to maximize their potential profits, but at least on its face it seems dishonest.

The "smaller groups" they sell to are the businesses that have enough employees. They do it that way because the government tax laws subsidize employee plans.

If you really want to know the reason why almost any insurance company makes almost any decision, look first at your state's insurance regulations. Most of the company's decisions are made for them.

Mike Laursen|9.16.09 @ 7:36PM|#

$20,000/month

Err, year. Year. Year.

Neu Mejican|9.16.09 @ 7:54PM|#

LarryA,

That makes sense.
Seems like the place to start with reform.

|9.16.09 @ 9:20PM|#

"Anecdotally my cousin, who graduated from undergrad with a perfect 4.0, STILL had to wait a full year to for an enrollment space to open up at medical school."

With all due respect, I'm going to have to assume your cousin didn't have a good MCAT score. I find it hard to believe that a 4.0 would have to "wait" for medical school. There are a plethora of non-state funded/private medical schools that do not give preference to in-state applicants (eg the ivy league), so there are options if you are waitlisted at a state school.

TQ - I thought the exact same thing I when I read that person's post.

Alice Bowie|9.16.09 @ 10:01PM|#

One thing that employer based insurance provides is for group pooling. Though I would love to purchase my own insurance, due to having crohn's disease, it will never be possible. And since the medicine costs about $20,000/yr, a HSA is also not possible.
But, since I do get the necessary medicine, I can still work productively and not rely on medicaid or die.
So, where do people in my situation fit into your medical utopia?

Absent regulations, almost any large group could pool insurance. Your bank, for instance, could add several plans. Or your church. Or a social group, like AARP or the NRA. Or your insurance company. Or your town or city could open its employee plan to residents. Lots of options.

That is some funny shit.

As usual, libertarians want u to run to your local charity.

Do you guys remember your micro economics class?

...Businesses do not exist for the benefit of their employees. Businesses exist for the benefit of it's owners and investors...PERIOD.

So, why do you think big companies in America are Self-Insured? That is, they collect premium payments from their 10,000s employees, pay an insurance companay an administration fee, and pay for all of the healthcare needs ass covered in the plan. Why do you think big big companies do this? They do it for MONEY. MONEY. The answer to 99 out of 100 questions.

For a big corporation, Self Insurance is profitable because their group(pyramid) is bigger. And, there pyramid is void of sick people. It's especially void of catastrophically ill people that need expensive treatment since these people usually can't return to work, loose their converage, go on disability and get medicare.

One of the BIGGEST groups in AMERICA that has a lot to loose is the BIG Corporation if we go with a single payer plan.

Alice Bowie|9.16.09 @ 10:06PM|#

I'm not saying the PROFITS are a bad thing. Just wanna make u all aware of something that most of u probably already know.

Mike Laursen|9.17.09 @ 12:00AM|#

As usual, libertarians want u to run to your local charity.

Huh? From the comment where janice asked the question to your trolling comment, not one word was said about charity or philanthropy.

I really doubt any corporation is making money on insuring their employees. Can you give a source for your information on this?

Also, the word "you" is spelled y-o-u.

|9.17.09 @ 3:28AM|#

As I've been pointing out in other threads, a more subtle problem with employer based insurance is that the insurance company is going to respond to the economic needs of the employer, rather than the patient.
Once you are too sick to work, your employer has little incentive to make sure you still have coverage, and hence neither does the insurer. Which may be one underly factor behind the insurance companies efforts to boot people when they get seriously ill. If the market was composed of individuals buying insurance directly, these companies would get weeded out of the market. But once you leave your employer's business, your employer probably isn't paying attention to what happens to your health care. It's unlikely the employer would change their insurer because a former employee was badly treated. So in an employer based market, those practices don't get punished.

Alice Bowie|9.17.09 @ 8:01AM|#

Remember Mike Laursen,

Companies do NOTHING for their employees benefit that would cut into profits.

They self insure because they are big pyramids amde up of prodominately healthy young people.

They wouldn't do it if it wasn't profitable. They are not in the charity business for their employees.

Alice Bowie|9.17.09 @ 8:07AM|#

Hey Mike,

I love when I can actually use FOX NEWS as a reference. I don't know how reliable...but check it out.

http://www.foxnews.com/opinion/2009/09/16/john-lott-health-care-claims-obama/

Mike Laursen|9.17.09 @ 10:01AM|#

Companies do NOTHING for their employees benefit that would cut into profits.

That's just silly. They have to show an overall profit, but any company has an item on the expense side of their balance sheet called "employee compensation".

Alice Bowie|9.17.09 @ 11:39AM|#

That's just the truth. If you make 100,000 per year, and you're bene's are 20,000, your salary is 80,000 - (emp fica/med/payroll contributions). Ask any accountant.

Benjamin Collins|9.17.09 @ 12:33PM|#

Alice, what are you going on and on about? The only point Mike was (correctly) trying to make is that pool groups aren't dependent on employers to form them. There are plenty of non-employer groups already out there with the current set of regulations. For example - I'm a member of IEEE, and they have quite a large membership pool (> 1m). I can get a myriad of insurance plans through that organization, and other orgs can do the same thing.

And, Alice, haven't you heard of corporatism? Big corporations have quite a lot to gain from single-payer: they would no longer have to shoulder the burden of health benefits to their employees, instead letting the rest of us productive schmucks paying for them. Additionally, the bigger the corporation is, the less they have to lose because their influence over any government administration of such a system would be proportional to their size (in $'s). It's win-win: they get the benefits, they get to control them, and the rest of us pay for it. Yay progressive corporatism!

Alice Bowie|9.17.09 @ 12:40PM|#

Benjamin,

I didn't miss a thing. I'm ann EE graduate and a member of the IEEE. Back when I was an independent consultant, I too had the same coverage. I completely understand about BIG groups having an advantage of pooling together and creating a group plan with the insurer.

THAT IS NOT WHAT I'm talking about. The IEEE is not self-insured. Big Corporations are Self-Insured...and, they make money out of being self insured. AND I'm NOT SAYING that PROFITING off of offering Health Insurance to your employees is a BAD thing. It's just as good as AETNA getting the profits.

Given that fact, Large Corporations THAT ARE SELF-INSURED, not ALL Large Corporations (although the vast majority appear to be self-insured) have that profit to loose.

Alice Bowie|9.17.09 @ 12:48PM|#

Remember, Big Corps could just simply take their 10,000+ employees and apply with AETNA as a group, have AETNA manage the plan, collection all of the premiums (1/2 employee & 1/2 employer) and Aetna takes on all of the risk and the PROFITS. Just like the IEEE does.

That's not what's going on here. Big Companies are taking the risk and the PROFITS. Not for the benefit of the employees and to do right by Jesus...but to MAKE MONEY !!! Lots of MONEY!!!

Alice Bowie|9.17.09 @ 12:51PM|#

And, don't quote me on the following #s.

I've heard everything from 51% to 57% of ALL INSURED PEOPLE in America are covered by Self-Insured Corporations.

You don't hear much of this in the debate. And trust me, big companies are keeping this pretty hush. I don't hear about this ANYWHERE.

|9.17.09 @ 12:56PM|#

Big Corporations are Self-Insured...and, they make money out of being self insured. AND I'm NOT SAYING that PROFITING off of offering Health Insurance to your employees is a BAD thing.

Self-insured corporations in no way make a profit on the health insurance they offer to their employees.

The company pays the premiums, the company pays for the administration, the company pays the claims.

Where the hell is the profit?

The only "profit" is having a lower insurance cost than smaller companies that need to get their insurance from Aetna. But a lower cost of doing business is not a profit: It's a lower cost of doing business, just like any number of other factors of scale larger companies get to take advantage of.

|9.17.09 @ 1:05PM|#

You don't hear much of this in the debate. And trust me, big companies are keeping this pretty hush. I don't hear about this ANYWHERE.

I wish we would hear more about it. As the John Lott article you cited notes, it puts the lie to the claims that for-profit health insurance means there's no competition and no alternative.

But, as Benjamin notes above, the only way for self-insured companies to reduce their costs even more is to offload the insurance burden onto the taxpayers. They likely don't want to spoil that by exposing the health nationalizers' prevarications.

|9.17.09 @ 1:32PM|#

Big Companies are taking the risk and the PROFITS. Not for the benefit of the employees and to do right by Jesus...but to MAKE MONEY !!! Lots of MONEY!!!

Jesus wept.

All the planned parenthood abortion clinics in the country couldn't defuck your mind.

Alice Bowie|9.17.09 @ 2:05PM|#

Hi MikeP,

You have the following point in Bold wrong.

The company pays the premiums, the company pays for the administration, the company pays the claims.

They do NOT pay for the premiums. They collect the premiums from their employees. There's an illusion that self-insured companies pay an additional portion of premiums. This is paid to themselves (charge-back accounting). They do pay administrative fees to AETNA or whatever carrier, and they do pay the claims as per the terms of the policy.

We've spoken b4 on this, and I did give u something to read b4. But, think about it for a minute. Why do u think a company would do this? They could have simply not SELF-INSURED and hand all of the premiums and forego the RISK and the PROFITS to the carrier. The reason that they don't is because they have so many young healthly workers that it is worth self-insuring.

Companies don't go into their pockets and give extra bene's to their employees. If they are budgeted $100,000 for a position, all of the overhead is calculated ahead of time (including FICA, Medicare, Payroll, HEALTH, etc.) and they you are offered a salary that is less.

Alice Bowie|9.17.09 @ 2:09PM|#

TANSTAAFL

|9.17.09 @ 2:24PM|#

They do NOT pay for the premiums. They collect the premiums from their employees. There's an illusion that self-insured companies pay an additional portion of premiums.

An "illusion"? I have worked for large companies. I assure you that I did not have to cough up more than 20 bucks a fortnight for my insurance.

The companies pay the employees' wages. The companies pay the lion's share of the premiums.

And of course they do. The premiums are untaxed compensation while the wages are taxed compensation. The companies can offer the employees way more in insurance benefits than the employees can fetch with after-tax wages.

Why do u think a company would do this?

Because they are large enough to take the risk of self-insuring. The cardinal rule of insurance is not to insure what you can afford. These companies have enough cash flow and cash reserve to handle their large pool's claims.

The fact that their employees form a lower risk pool than the general population is a factor, but they certainly can bargain with Aetna on that very fact to get better terms on for-profit external insurance.

The reason they self-insure is very simple: lower costs. They make no profit on it.

|9.17.09 @ 2:51PM|#

Companies don't go into their pockets and give extra bene's to their employees. If they are budgeted $100,000 for a position, all of the overhead is calculated ahead of time (including FICA, Medicare, Payroll, HEALTH, etc.) and they you are offered a salary that is less.

Oh, I almost forgot...

Duh.

|9.17.09 @ 3:21PM|#

Well, workers might get paid more if the employer wasn't providing health insurance.

But I fail to understand what Alice Bowie is getting at, since both sides seem to be reinforcing the fact that employer-based insurance sucks for employees, whether the employer is self-insured or not.

And none of the health care proposals in congress would end that link. So we should all be on the same side on this ... all the proposals are bad. They should go back to the drawing board and write something that ends employment-based health care.

Alice Bowie|9.17.09 @ 3:46PM|#

Hazel,

The only thing bad about employer-based healthcare from a self-insured employer is that you loose the coverage once you leave.

If you are catastrophically sick, these big companies tend to have a pretty generous long term disability policy and one can go on that. Once you are disabled due to stroke, cancer, etc, you are eligible for medicare. That is bad for the tax payer but good for the employer and the employee.

Will employees pay their workers more? Maybe. But in this climate, employers prefer to outsource talent where ever possible and skimp.

The fact is that salaries have not gone up in these Self-Insured Large Corporations (which, btw, set the market for salaries most of the time) is because health care cost have gone up.

I don't think the fact that they make a profit is a BIG CRIME. So what. If you work for the company, the healthier the company is, generally, the better chance of you keep your job.

What I'm getting at, and no one seems to be picking up on (or I'm just not articulating it properly) is that Big Business would LOOSE if Self-Insured companies had to get out of the insurance business. They would NOT gain.

Big Business is Not Self-Insuring their employees for FREE. TANSTAAFL!

They collect premiums from a large healthy young group of people and pay out claims accord to a plan that the COMPANY MAKE UP THEMSELVES. And, they pay an admin fee to a Carrier.

Alice Bowie|9.17.09 @ 3:55PM|#

Maybe this would help:

It's common knowledge that the annual per capita cost per American for Healthcare is around $6,000.

What does this mean? If you take into account the following and divide by 283million people you get $6,000:

1. Premiums
2. Co-Pays
3. Deductibles
4. Other out of Pocket
5. Medicare Tax
6. Medicaid benefits
7. Medicare Benefits

-------------------------------------------

Now, let's take a big company like Bank Of AMerica. It is self insured and has 243,000.

Do u think that the per capita cost of offering these employees who are relatively young and healthy will be $6,000. No, it would be significantly lower since they don't dole out for medicare (that is taxes separately) and medicaid (from the us general treasury).

Believe it or not, collecting benefits from these people and paying their simple claims renders a profit. Remember, if they get any illness that stops them from working, they loose the benefit after 18 months. Before COBRA, you lost it instantly. And thanks to a recent law passed, one only has to pay 30% of the cost the employer claims is the premium.

|9.17.09 @ 5:08PM|#

Believe it or not, collecting benefits from these people and paying their simple claims renders a profit.

I don't believe it.

Having lower costs for an activity than someone else has does not constitute a profit. Salaries are costs, premiums are costs, administration is cost, claims are costs. There is no profit.

Alice Bowie|9.17.09 @ 6:47PM|#

So Mike, What you are saying is that Self-Insured Companies take in less in Premiums than they pay out in benefits? Think about that.

|9.17.09 @ 7:15PM|#

No, Alice. What I am saying is that self-insured companies pay their own premiums. That is kinda sorta maybe the meaning of self-insured.

Alice Bowie|9.17.09 @ 8:04PM|#

It isn't man.

Self Insured doesn't mean u pay ur own premium. It means that the company pays the cost of the healthcare (the claims).

|9.17.09 @ 8:24PM|#

And how do they do that? They charge themselves a health insurance premium as an employee benefit -- making it tax-free to them and tax-free to the employee -- and put that aside, at least for the sake of accounting and perhaps into the hands of another company entirely, to pay the claims.

At least in my case, my employer charged a token premium to the employee simply to get them to choose a less expensive or more expensive option.

In all cases, the premium is paid by the employer. Of course it is! Do you think employees would want to see $500 per month deducted off the bottom line of their paychecks?

Alice Bowie|9.17.09 @ 8:35PM|#


check that out MikeP

Alice Bowie|9.17.09 @ 8:37PM|#

and this
http://www.cdc.gov/nchs/data/nehis/Prevalence.pdf

|9.17.09 @ 8:42PM|#

Okay. Where the hell is the profit?

Yes, they could skip the part where they show the premium on the payroll and simply deduct the claims as an employee expense. But I assure you that someone in that company or the third party administrator knows exactly how much that premium would be.

Again, there are no profits even in the premiumless case. It is all costs.

|9.17.09 @ 8:47PM|#

http://www.cdc.gov/nchs/data/nehis/Prevalence.pdf

Self-insurance, also known as self-funding, refers to when an employer assumes all or part of the risks of insurance coverage. The employer puts money directly into a plan, which then pays for the covered benefits when claims are incurred rather than paying premiums to insurance companies.

Call it what you want. It is a cost. There is no profit to be had here.

Alice Bowie|9.17.09 @ 8:48PM|#

did u read this?

Alice Bowie|9.17.09 @ 8:52PM|#

OK Mike...i give up...ask someone else

Alice Bowie|9.17.09 @ 9:00PM|#

http://industry.bnet.com/healthcare/1000130/the-self-insured-healthcare-trifecta-trim-expenses-sidestep-regulation-defund-insurers/

|9.17.09 @ 9:12PM|#

Seriously, Alice. What the hell.

In none of these links is there any evidence to support your wild-beyond-description claim that companies make a profit off self-insuring.

Lower costs is not the same thing as profits!

Larger companies also save money by running their own payroll departments. Does that mean they make a profit off doing the payroll? No.

Alice Bowie|9.17.09 @ 9:20PM|#

OK Mike

The companies BREAK EVEN and even sometimes, pinches in.

|9.17.09 @ 10:27PM|#

Health insurance is a cost of having employees. The companies "break even" only by virtue of the fact that the employees produce more than they cost.

Mike Laursen|9.18.09 @ 12:18AM|#

What I'm getting at, and no one seems to be picking up on (or I'm just not articulating it properly) is that Big Business would LOOSE if Self-Insured companies had to get out of the insurance business. They would NOT gain.

You weren't articulating it clearly. (Are you a native English speaker, by the way? I am starting to suspect that you are not.)

Sounds like what you are now trying to say is that, contrary to the popular perception that corporations welcome being relieved of providing heath care to their employees, a self-insuring corporation's expenses might go up.

If that's your point, can't argue with it. Could be so.

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