Should Businesses Provide Health Insurance to Their Employees?
Should Employers Provide Health Insurance?
Intro:
Over the past years, as health care costs have increased, so have health insurance
costs for businesses and individuals. In return, the number of Americans without health
insurance increased by 1.4 million between 2004 and 2005 growing the number to 45
million. (1) It has become such an important issue that Americans are more concerned
with the cost of their health care costs than losing money in the stock market, paying their
mortgages, being a terrorist victim or even losing their jobs. (4) There are many
approaches one could take to this debate and I have chosen to investigate whether
businesses should provide coverage to their employees and dependants or not.
History of the issue:
To better understand most issues, it is beneficial to first look at what brought on
the dilemma. Health insurance as an employer offered benefit dates back to just after
World War II when it was first offered as a loophole in the new “socialism” mentality of
the government allowing it to be a tax deductible fringe benefit. With businesses
growing and turning healthy profits, they used this benefit as lure to attract and keep good
workers and their plan worked and has been used for this reason since then. Shortly after
this boom, President Truman proposed a government provided health care plan but the
Republicans in Congress disagreed and similar debates continue more than fifty years
later. (2) Unfortunately for all uninsured citizens in most states, the general policies have
changed very little and health insurance premiums are deductible for businesses but not
individuals. (19)
Though the current administration has proposed and even passed multiple
healthcare policies, there is little proof that our country will get away from the
expectation that businesses will provide more coverage than the government or
individuals who pay out of their own pocket for health insurance. Some specific policies
that have recently been passed or discussed by the President are Health Savings Accounts
(HSAs), allowing health insurance to be more portable, helping small business and
individuals to pool together for better group rates, and making the pricing within the
industry more transparent. (1) This has been and will most certainly continue to be a
priority for all elected officials at both the state and federal levels.
Business Owner Perspective:
A recent survey conducted by the University of Wyoming shows the top reasons
that employers provide health insurance as a benefit and listed “because employees want
it” (73% noted this as a reason) as the single most common answer selected. The second
and third most popular reasons were to help recruit the best people (58%) and to reduce
turnover (49%). Other common responses included it’s the employer’s responsibility,
reduces absenteeism, increases productivity, and improves morale. (5)
That same University of Wyoming employment survey found that the number one
reason employers did not provide health insurance coverage as a benefit was it was too
expensive (76%). Others on the list were too much paperwork, not required by law, too
high of employee turnover, and it doesn’t fit their industry or the workers. (5)
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Based on the answers provided by these employers, it would be safe to assume
that if there was a solution offered at a lower price, more employers would provide this as
a benefit. Ironically, “lower costs” was not noted as an idea to entice employers to
provide coverage. Most owners suggested better tax breaks or the ability to pool together
with other business owners to get more competitive group rates. A separate Blue Cross
survey found that 75% of small businesses would strongly consider start offering benefits
if there were additional tax benefits offered on insurance premiums. (20)
Also ironic was, “to lower employee turnover” was listed as a reason to offer this
benefit, and yet high turnover was listed as a fairly common reason (42%) as a reason not
to provide this benefit. This could be due to the nature of certain types of industries such
as hospitality, restaurant or retail which typically experience higher turnover than other
industries.
It’s not just entry level jobs that are experiencing a lack of employer subsidized
health insurance. A study released by the Commonwealth Fund found that more than
40% of Americans who earned between $20 thousand and $40 thousand annually did not
have health insurance for at least part of 2005. This number has increased significantly
from a rate of 28% just four years prior. Also, 67% of all uninsured people live in a
household with at least one full-time worker. (6) This research suggests that even those
that are considered “middle America” and working full time cannot always get a health
plan provided by their employer.
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New Options:
To help relieve small businesses with the administrative costs which they attribute
their inability to provide coverage, professional employer organizations or PEOs have
been created to manage health insurance benefits. These PEOs offer plan selection,
enrolment, management and act as a mini off-site human resource department. They are
able to pool together employees from multiple businesses and gain more bargaining
power than the business owners they represent. By outsourcing this human resource
function, a PEO near Chicago (Employco) was able to keep 2006 premium increases to
3% compared to their 2005 rates. A Kaiser survey found the national average for all
employers to be near 9.2% for last year. (7)
Over the past three years, Health Savings Accounts or HSAs have allowed
employers to provide their employees with the option to control their own health
spending and savings for health related costs in a tax shielded account. These accounts
are typically set up to fund high deductible policies with the option for an employer to
contribute to this account similar to a fixed contribution retirement account. Of the small
businesses that have enrolled in these low cost plans, 33% did not previously provide any
benefit. (3) Not only is this a plan for small businesses, but 73% of employees at large
Fortune 1000 companies were found to be interested in a defined contribution plan into a
HSA. (16)
Another method employers have used to keep costs down and remain able to
provide health insurance as a benefit is through wellness programs. In a case where a
business owner was threatened with a 40% increase in rates, the owner implemented a
wellness plan and saw only a 15% bump. The cost of the program more than paid for
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itself in the first year. Another business owner offered $1.500 gift cards to employees
who reached a certain BMI and offered smokers a trip to Las Vegas if they could kick the
habit within a certain time-frame. (7)
The Concern:
Small businesses (typically considered any business with fewer than 50
employees) have arguably been hit the hardest in the area of health insurance benefits.
They have typically been unable to offer the same mental, dental, and chiropractic care as
their large business counterparts. Small business owners typically face much higher
administrative costs per employee which allow fewer of their contributions to actually go
towards the insurance premiums. In addition to that, in most states they can be required
to have each employee screened in a pre-approval physical or questionnaire in order for
the insurance company to better asses the risk of the small group. Larger businesses
provide a much larger number of employees which makes the risk assessment easier to
predict expenditures on the group policy. (15)
Surprisingly, small and large businesses health insurance premiums outlays are
similar to each other. Other than the higher internal administrative costs, the annual
outlay per employee was found to be similar for single and family coverage. The
difference between the plans is in order to keep their costs in-line with bigger businesses,
small business owners have chosen to offer policies with less favorable deductibles, copays, and annual maximum out of pocket limits. (15) Not only do small businesses
provide lesser coverage, they also pay less of the total costs. On average, they cover 64%
of the premium costs compared to 76% covered by larger firms. (12)
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Even though providing health insurance is typically considered a small business
issue, an example of a big business that has been blamed for contributing to the problem
is Wal-Mart. In the 12 states that collect data on employers whose workers use taxpayerfunded healthcare programs, Wal-Mart was the number one employer in 11 of them. It
currently provides health insurance coverage to less than half of its 1.4 million
employees. In addition to that, their benefits make up an average between five or six
percent of their total payroll compared to the national average which ranges between 10
and 20 percent. (10)
It has affected other employers in other negative ways through strikes in an
attempt to keep coverage and premiums the same. Last year, 100,000 union employees
working for SBC Communications went on a four day strike in an attempt to keep their
healthcare benefits the same as they had been in the past. They, like many employers
across the country had seen premium increases of 14% since 2000. (11) With rate
increases such as this, businesses not currently providing coverage are less likely to start
offering this benefit to their employees. If they do choose to do so, they are inclined to
be clear up front that their share of responsibility may change and that premiums will
increase. By doing so, they almost make a joke of the program and employees will
continue to seek out coverage through other avenues. (9)
Trends in Costs:
Even though as many as 90% of employers provide health insurance, it is not
necessarily exclusively offered through employers. Between 2000 and 2003, the
percentage of Americans receiving their coverage through an employer has dropped from
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64% to 61%. (17) A large percentage of the people not receiving health insurance are
working for the smallest businesses. With 10 or less workers, 36% of employees are
without insurance. This ratio improves with the size of the business. With 10-24
employees the number improves to 28%, 25-99 it improves to 21%, and between 100 and
499 workers, it is 16%. (17)
The cost of health insurance is not the same amount everywhere in the US. It has
been perceived that health care is less expensive in rural areas, a study in Health Affairs
states that people living in rural states pay more than those in urban states. For example,
the average premium for employees in California was $2,800 compared to $4,000 in
Wyoming. In addition to that, employees living in rural states who tend to work for
smaller businesses had to pay deductibles in 50% of the cases before policies took effect
whereas only 40% had to pay a deductible at the larger firms more commonly found in
urban settings. (8)
The Health Insurance Portability and Accountability Act (HIPAA) has also added
costs to all businesses offering any time of health insurance plan. Though its original
intentions were to increase confidentiality and protection to consumers, it ultimately
created additional costs to healthcare providers, insurers, and thus patients. (9) Due to the
strict policies and compliance demands, it is much more expensive to “self insure” a
health plan due to the additional documentation, policies, and monitoring systems needed
to comply with HIPAA. These costs are new for both the insurance companies and
health care providers and the costs associated with this have ultimately been passed onto
the consumer in the form of higher medical charges.
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Uninsured employees cost everybody money through tax dollars spent on their
care. Last year, the federal government spent over $100 billion on uninsured residents.
In addition to that, hospitals provided $34 billion in uncompensated work. Another $37
billion was spent on uninsured by either private or public funds. Lastly, $26 billion was
paid for health care with out of pocket dollars.
(13)
Not only do the public and health care institutions have to pick up the tab for
billions in services received by uninsured patients, the care they are receiving is more
expensive. As many as 20% of uninsured Americans have been using emergency rooms
as their primary care health plan compared to the 3% of insured patients. (13) The ER is a
more expensive way to handle most physical ailments. In addition to that, the uninsured
have significantly less preventative care performed and thus require more expensive
treatments down the road that could have been prevented. In return, they ultimately
experience higher mortality rates.
Cost shifting, most commonly associated with charging the insured more to cover
the less than break even payments received from Medicare and Medicaid plans is also
needed to compensate for the 6% of admissions made up of uninsured patients. When
little or no payment is received for these services, the price for these services is increased
so that those with insurance will make up for the lost revenue. It is estimated that
insurers paid 120-130% of the break even point, just to cover the lesser payments
received from government health plans and the uninsured. (14)
With increasing wages and retirement benefit plans, health insurance has become
more difficult to remain a fully funded priority when putting together a full benefit
package. From 1991 to 2005 the costs to employers for total compensation increased by
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12%. In comparison, the costs of all benefits increased 18% and the cost of wages
increased 10%. Roughly half of the benefit increases were divided between retirement
and healthcare benefits. (18)
Conclusion:
There is currently no law that states health insurance must be provided by an
employer or one that states everybody must carry health insurance. Unfortunately to
those without jobs or jobs in certain industries, there doesn’t seem to be a major shift
towards individual policies being the way to be pay for healthcare in the US. Currently
97.5% of unionized workers and 85% of non-union workers are provided with some sort
of health care plan. (10) It would be interesting to see what type of policy we might have
in place if this 1940’s tax break would have included home insurance or auto insurance
instead. It has forced many businesses to be in their primary industry as well as the
health insurance business as this cost increases and cuts into their bottom line. Proof of
this is that more than $1,000 of every new Ford vehicle (11) and $1,500 of every GM
vehicle (4) is associated with the cost of providing healthcare to their employees. This is a
clear example of how we are all affected by this issue, even if you work for an employer
who provides 100% coverage with no cost to you. One way or another, these costs will
trickle down to you the insured employee or the the business owner.
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1. Is it right to bribe employees with “wellness plans” or offer discounted health
insurance to employees with a certain BMI?
2. Should there be different standards on what is an acceptable health insurance
benefit between different industries? I.E. fast food restaurant vs. financial firm?
3. Is it acceptable for a company to provide a lesser benefit to its employees because
of high turnover?
4. Within the law, is it acceptable to provide different health insurance benefit
packages to different groups of employees? I.E. higher quality plans for
physicians at a clinic vs. the nurses and other healthcare providers.
5. Is it the duty of a business to go out of its way and incur large costs for the benefit
of a few individuals who choose to enroll in an insurance plan?
6. Should employers be responsible for offering health insurance to its employees’
dependents?
7.
Should businesses offer the same insurance plans to part-time employees? How
about temporaries?
8. How long should employees be required to work before becoming eligible for
benefits?
9. Is it acceptable to provide access to a health insurance plan, even if the company
will not contribute to the premiums at all?
10. Should a small business owner consider an applicants health conditions including
if he or she smokes to avoid the group’s premiums from increasing?
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Works Cited:
1. Boehner, John. “Association Health Plans: Providing Quality Insurance to
Uninsured Working Families.” May, 2005. House Education and the Workforce
Committee Fact Sheet.
http://www.house.gov/ed_workforce/issues/109th/workforce/healthcare/factsheeta
hpproviding072505.htm
2. Klein, Ezra. “A Quick, Partially, Biblical History of Employer-Based Health
Insurance.” TPM Book Club. May, 2006. http://www.tpmcafe.com/node/28629
3. Office of the Press Secretary. “State of the Union: Affordable and Accessible
Health Care” January, 2006.
http://www.whitehouse.gov/news/releases/2006/01/20060131-7.html
4. Cortese, Denis A. MD, Smoldt, Robert K. “Healing America’s Ailing Health
Care System” April, 2006
http://www.mayoclinicproceedings.com/inside.asp?AID=2429&UID=
5. Cowan, Carola. “Reasons Why Employers May or May Not Provide Health
Insurance” “The Economist” October, 2004.
http://wydoe.state.wy.us/LMI/0904/a1.htm
6. Reuters Health. “Study Finds 40% of Middle-class Americans Uninsured for Part
of 2005.” April, 2006. With permission from Los Angeles Times 4/26/06.
www.cmwf.org
7. Hopkins, Jim. “Putting a Band-Aid on Small Firms’ Health Costs.” April 19, 2006
USA Today. http://www.usatoday.com/money/smallbusiness/2006-04-18-healthcosts-usat_x.htm
8. Reuters Health. “Insurance Plans are ‘less generous’ in Small Businesses, Rural
Areas.” May, 2006
http://www.advisory.com/members/default.asp?program=7&collectionid=950
9. Nahra, Kirk J. “Healthcare Privacy: Real Risks for all Employers Providing
Healthcare Benefits.” Wiley Rein & Fielding LLP. October, 2006
10. Nesbitt, Tim. “Wal-Mart Campaigns Against Employer-Paid Health Insurance.”
June, 2005. Northwest Labor Press. http://www.nwlaborpress.org/think_again/63-05Think.html
11. Rice, Tom, Mitchell, Daniel J.B., Marquez. “The Economics of the Health
Insurance Crisis” May, 2006. California Connected - Audio Archive.
http://www.californiaconnected.org/tv/archives/202
12. Yahoo Small Business. “Health Insurance Buyers Guide” March, 2006.
http://smallbusiness.yahoo.com/r-article-a-2027-m-5-sc-50health_insurance_buyers_guidei?aid=2027&mcid=5&scid=50&health_insurance_buyers_guide=i
13. National Coalition on Health Care. “Health Insurance Coverage.” 2004.
http://www.nchc.org/facts/coverage.shtml
14. Blue Cross Blue Shield. “Hospital Services and the Rising Cost of Health Care.”
September, 2003. http://www.fepblue.org/toyourhealth/tyhhchospitalcosts.html
15. (GAO) “Private Health Insurance: Small Employers Continue to Face Challenges
in Providing Coverage.” Government Accountability Office. October, 2001.
http://www.gao.gov/new.items/d028.pdf
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16. Ahlquist, Gary. “The Future of Employer Sponsored Health-Care.” December,
2000. http://www.cato.org/pubs/policy_report/v23n2/healthcare.pdf
17. Gencarelli, Dawn M. “Health Insurance Coverage for Small Employers.” National
Health Policy Forum. April, 2005.
http://www.nhpf.org/pdfs_bp/BP_SmallBusiness_04-19-05.pdf
18. “Employee Compensation: Employer Spending on Benefits has Grown Faster
than Wages, Due Largely to Rising Costs for Health Insurance and Retirement
Benefits.” Government Accountability Office. February, 2006.
http://www.gao.gov/new.items/d06285.pdf
19. Greenberger, Scott S. “State Health Insurance Debate Looms Expansion: Doubts
Remain as Some Ignore Coverage.” Boston.com news. December, 2004.
http://www.boston.com/news/local/articles/2004/12/06/state_health_insurance_de
bate_looms/
20. Kent, Hoover. “Small Business is at Center of Health Insurance Debate” Charlotte
Business Journal. January, 2004.
http://www.bizjournals.com/charlotte/stories/2004/01/26/newscolumn2.html
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