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Large companies weigh cost of dropping employee health benefits
Old 05-05-2010, 11:58 PM   #1
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Large companies weigh cost of dropping employee health benefits

"If you like your insurance, you can keep it"

Wrote another blog post tonight regarding CNN's article on large companies that are considering dropping employee health benefits to lower costs.

Original CNN link: AT&T, Verizon, others, thought about dropping health plans - May. 5, 2010

My commentary:

Quote:
As reported by CNN, large corporations such as Verizon, AT&T, Caterpillar, and surely many others are going to be facing a difficult and far-reaching business decision in the next few years. Namely, should they continue offering health benefits to employees, or stop offering the benefits altogether and pay the penalty required by the Patient Protection and Affordable Care Act (PPACA)?

These same companies have already reported billion-dollar charge-offs required by the new law due to changes in the way retiree benefits are taxed. Now, they are weighing their options on dumping health plans altogether. When the health exchanges open in 2014, hundreds of thousands of employees will be able to choose any health insurance policy that is offered. Currently, many of those people would not be able to obtain their own health insurance.

So the million dollar question (or in this case, several billion dollars question) becomes…do they want to continue offering health benefits, an ever-increasing burden on the company, or dump the plans and (likely) give employees a substantial raise (as would be required in a competitive market)? Verizon’s average expenditure was over $8,000 per employee last year. By the time 2014 rolls around, that number may become $10k, $12k, or maybe $14k, or higher. If they simply get rid of health benefits and offer employees a raise, that is a fixed cost that the company has control of at all times, and may make for a very tempting consideration. The tax penalty these large corporations would pay for not offering health benefits is $2,000 per employee (another fixed cost, versus an escalating cost), or somewhere in the range of 15-30% of what most corporations currently pay for employee health benefits.

Pay particular attention to the following items noted by CNN:

“Both Caterpillar (CAT, Fortune 500) and Verizon believe the requirement to allow dependents to remain on their parents' policies until age 26 will prove costly. Caterpillar puts the added expense at $20 million a year.”

Now that children are allowed to stay on parents’ policies until age 26, the parents in many scenarios will face no extra cost to keep all of their children on the plan. A common example would be a parent with three children, let’s say ages 5, 15, and 24. Under a group plan, a “family” can have one child, five children, or fifteen children and pay the same rate. Since the parents would continue to pay for the youngest child for many more years, they have no reason not to drop the other children (again, the cost is the same). This drives up claims rates for group plans as more services are utilized, in turn costing the company and the employees more money.

“What does it mean for health care reform if the employer-sponsored regime collapses? By Fortune's reckoning, each person who's dropped would cost the government an average of around $2,100 after deducting the extra taxes collected on their additional pay. So if 50% of people covered by company plans get dumped, federal health care costs will rise by $160 billion a year in 2016, in addition to the $93 billion in subsidies already forecast by the CBO.”

Recipe for disaster? You bet.
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Old 05-06-2010, 06:25 AM   #2
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Remind me again: what is the military budget (including extra funding for the wars) this year?

Personally, I would be happy to see the employer funded structure collapse. The system is broken as it stands and nothing short of a completely annihilated system will force all the parties to the table for a real discussion.
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Old 05-06-2010, 08:16 AM   #3
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Originally Posted by brewer12345 View Post
Remind me again: what is the military budget (including extra funding for the wars) this year?

Personally, I would be happy to see the employer funded structure collapse. The system is broken as it stands and nothing short of a completely annihilated system will force all the parties to the table for a real discussion.
+1
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Old 05-06-2010, 08:19 AM   #4
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Personally, I would be happy to see the employer funded structure collapse. The system is broken as it stands and nothing short of a completely annihilated system will force all the parties to the table for a real discussion.
Yup.

But only one side in this debate has even attempted a solution to the problem. The other side (read dgoldenz et al.) can only throw stones or propose solutions that only help healthy people. So "coming to the table" won't do much unless both sides are serious about the problem.

If dgoldenz wants to be helpful he could explain how his preferred health care system would provide for the chronically sick and elderly. I'm all ears.
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Old 05-06-2010, 08:20 AM   #5
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Surprise. There will be some unintended consequences and higher costs to employers and employees.

We need some more help from our gvmt. Just like they helped us with credit cards.

- Stay tuned for energy policy and imiigration reform.
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Old 05-06-2010, 09:23 AM   #6
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Yup.

But only one side in this debate has even attempted a solution to the problem. The other side (read dgoldenz et al.) can only throw stones or propose solutions that only help healthy people. So "coming to the table" won't do much unless both sides are serious about the problem.

If dgoldenz wants to be helpful he could explain how his preferred health care system would provide for the chronically sick and elderly. I'm all ears.
Get rid of co-payments, make coverage guaranteed-issue with a 24-month waiting period for pre-existing conditions. This will avoid people jumping on and off plans. No first-dollar benefits except preventative care. Require minimum deductible levels be tied to income. Get rid of the tax-exempt status of employer health benefits. Offer a 150% tax deduction up to a given limit for contributions to a health savings account (current law is a 100% deduction). Limit non-economic damages on malpractice lawsuits.

I'm not on any political side, I'm on the common sense side. So there's a start.
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Old 05-06-2010, 09:24 AM   #7
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But only one side in this debate has even attempted a solution to the problem...
...that you find anything other than DOA.
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Old 05-06-2010, 09:33 AM   #8
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Originally Posted by dgoldenz View Post
Get rid of co-payments, make coverage guaranteed-issue with a 24-month waiting period for pre-existing conditions. This will avoid people jumping on and off plans. No first-dollar benefits except preventative care. Require minimum deductible levels be tied to income. Get rid of the tax-exempt status of employer health benefits. Offer a 150% tax deduction up to a given limit for contributions to a health savings account (current law is a 100% deduction). Limit non-economic damages on malpractice lawsuits.

I'm not on any political side, I'm on the common sense side. So there's a start.

My only issue is with the elimination of co-pays... if the person does not have any money in the game, a lot of extra services will be used... everybody knows the rules and will play the system...

I would say that there should be a deductible amount of 'whatever'... and then you pay a percent (based on income if you want) of the next 'whatever' amount and then you are fully covered after that....

So, if you really have a major problem, you will not go broke... but you will be paying for the services that you use in normal times... not the full amount, but a small percent...

The rest I can live with...
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Old 05-06-2010, 09:35 AM   #9
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Yup.

But only one side in this debate has even attempted a solution to the problem. The other side (read dgoldenz et al.) can only throw stones or propose solutions that only help healthy people. So "coming to the table" won't do much unless both sides are serious about the problem.
Uh ok.............
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Old 05-06-2010, 09:36 AM   #10
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My only issue is with the elimination of co-pays... if the person does not have any money in the game, a lot of extra services will be used... everybody knows the rules and will play the system...

I would say that there should be a deductible amount of 'whatever'... and then you pay a percent (based on income if you want) of the next 'whatever' amount and then you are fully covered after that....

So, if you really have a major problem, you will not go broke... but you will be paying for the services that you use in normal times... not the full amount, but a small percent...

The rest I can live with...
Agreed. Co-payments are the single biggest driver of over-utilization of services. If there were no such thing as co-payments, you would probably see a 25% drop in expenditures within a year.
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Old 05-06-2010, 09:36 AM   #11
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So, if you really have a major problem, you will not go broke... but you will be paying for the services that you use in normal times... not the full amount, but a small percent...
Hmm -- paying for small stuff out of pocket but being protected against catastrophic losses.

Sounds a little bit like -- dare I say it -- "insurance"...
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Old 05-06-2010, 09:43 AM   #12
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Originally Posted by brewer12345 View Post
Remind me again: what is the military budget (including extra funding for the wars) this year?

Personally, I would be happy to see the employer funded structure collapse. The system is broken as it stands and nothing short of a completely annihilated system will force all the parties to the table for a real discussion.

I also see the gvmt run health system (medicare) broken even worse...
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Old 05-06-2010, 09:45 AM   #13
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Agreed. Co-payments are the single biggest driver of over-utilization of services. If there were no such thing as co-payments, you would probably see a 25% drop in expenditures within a year.

Maybe I misunderstood what you were saying... are you saying the insurance company should not co-pay or the individual should not

As an example... you have to have a procedure done that cost $2500... who pays? and how much?
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Old 05-06-2010, 09:51 AM   #14
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Maybe I misunderstood what you were saying... are you saying the insurance company should not co-pay or the individual should not

As an example... you have to have a procedure done that cost $2500... who pays? and how much?
You pay, up to your deductible. I think you are confusing co-payments with co-insurance.

Co-payment = fixed cost for service, like a doctor's office visit being $20 or ER visit being $100
Co-insurance = percent you pay after the chosen deductible
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Old 05-06-2010, 09:54 AM   #15
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The other side (read dgoldenz et al.) can only throw stones or propose solutions that only help healthy people. So "coming to the table" won't do much unless both sides are serious about the problem.
Here we go again...It's an instant replay of "the other side" and why "they" are responsible for everything that is wrong with the world.

I think the OP asked a valid question about the potential cost implications to employers, this might have been an interesting discussion about how this could affect companies employment policies, pension benefits for retirees, and their bottom line market performance, but it only took three replies before the political blame game started.

Unfortunately, I predict an early demise for this well presented thread...

...and I'lll be watching this one from the sidelines.
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Old 05-06-2010, 09:57 AM   #16
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Originally Posted by brewer12345 View Post
Remind me again: what is the military budget (including extra funding for the wars) this year?

Personally, I would be happy to see the employer funded structure collapse. The system is broken as it stands and nothing short of a completely annihilated system will force all the parties to the table for a real discussion.
Defense budget 664B
Defense.gov News Release: DoD Releases Fiscal 2010 Budget Proposal

2010 Budget Deficit 1.56T
Obama's 2010 budget: deficit soars amid job spending | Reuters

--- Eliminate all Defense spending - still 900B annual deficit.----

Medicare Cuts - make it difficult for people to find Dr. taking patients.
Doctors Get Reprieve From 21% Medicare Payment Cut (Update1) - BusinessWeek
amednews: Louisiana cuts physicians' Medicaid payments :: Aug. 17, 2009 ... American Medical News

New Health Care Bill cost 94B/year
Health Care Reform Bill: Cost, Details, Changes Released

New Health Care Bill cost 94B/year - Sure it will...
The Real Cost of Health Care Legislation | The Weekly Standard

Here is what will happen over the years.
- Companies will drop employees health care
- Government will pick up the employees and over time increase the fees and decrease the payments for services
- Government Health Care will expand and costs will increase - payments for services for be decreased
- Taxes will increase on companies and the rich to attempt to pay for it.
- Many (?) Dr. will not take Government Health Care Patients - payments do not cover costs.
- Insurance Companies will provide two types of coverage - 1.Gap ins - pay difference between what the Gov't pays and the Dr. bill & 2 Full coverage (no Gov't payments involved)

There are different levels of broke.

I'll be OK - the next generation will probably be OK, after that they are screwed.
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Old 05-06-2010, 10:10 AM   #17
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Originally Posted by dgoldenz View Post
Get rid of co-payments, make coverage guaranteed-issue with a 24-month waiting period for pre-existing conditions. This will avoid people jumping on and off plans. No first-dollar benefits except preventative care. Require minimum deductible levels be tied to income. Get rid of the tax-exempt status of employer health benefits. Offer a 150% tax deduction up to a given limit for contributions to a health savings account (current law is a 100% deduction). Limit non-economic damages on malpractice lawsuits.

I'm not on any political side, I'm on the common sense side. So there's a start.
A couple of thoughts . . .

You don't discuss price discrimination. How much will a chronically ill person pay for coverage? If it is set by the "market" they won't be able to afford coverage. If you provide subsidies it starts looking much more like the law we have.

I'd also say that a 24 month waiting period probably isn't going to get young healthy people into the pool. If it doesn't then you might have to consider an individual mandate to control costs, in which case it starts looking much more like the law we have.

Eliminating employer deductiblity would cause even more companies to drop coverage than under current law. Considering this is something you've raised in this thread as a criticism of the law we have, you might either reconsider your criticism, or reconsider this part of your answer.
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Old 05-06-2010, 10:12 AM   #18
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[QUOTE=Westernskies;933705][QUOTE=Gone4Good;933653] The other side (read dgoldenz et al.) can only throw stones or propose solutions that only help healthy people. So "coming to the table" won't do much unless both sides are serious about the problem.
Quote:

Here we go again...

I think the OP asked a valid question about the potential cost implications to employers,
And I've (repeatedly) asked how people who oppose the current legislation would deal with the chronically sick and elderly . . . and I've never seen a response. It's easy to criticize. It's harder to offer realistic solutions.

The reason I ask is because when you start working the problem from this direction it becomes pretty clear that something similar to our current legislation is needed. It's easy to provide low-cost health care to young healthy people. It's really hard to deal with the sick and elderly, which is why most opponents to this legislation avoid the topic altogether (see the alternative legislation proposed as a classic example).
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Old 05-06-2010, 10:15 AM   #19
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You don't discuss is price discrimination. How much will a chronically ill person pay for coverage? If it is set by the "market" they won't be able to afford coverage. If you provide subsidies it starts looking much more like the law we have.

I'd also say that a 24 month waiting period probably isn't going to get young healthy people into the pool. If it doesn't then you might consider an individual mandate, in which case it starts looking much more like the law we have.
Easy. We can eliminate underwriting by ensuring that ALL folks, including the young and healthy, are in the pool. Even insurers have gone on the record as accepting this, but *everyone* into the pool is needed or else it blows up with adverse selection.

How do we do that? For one thing, the penalties need to be stronger. They weren't strong enough in Massachusetts and they aren't strong enough here. I think the penalty for being non-insured should be at least equal to the lowest-cost plan available to someone of that age. If a healthy single 26-year-old man doesn't get coverage, and the cheapest individual plan available for them is $2,800 a year (for example), that should be the penalty. Doing this removes all incentives to not purchase any insurance.
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Old 05-06-2010, 10:17 AM   #20
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A couple of thoughts . . .

You don't discuss is price discrimination. How much will a chronically ill person pay for coverage? If it is set by the "market" they won't be able to afford coverage. If you provide subsidies it starts looking much more like the law we have.

I'd also say that a 24 month waiting period probably isn't going to get young healthy people into the pool. If it doesn't then you might consider an individual mandate, in which case it starts looking much more like the law we have.

Eliminating the employer deductiblity would cause even more companies to drop coverage (which I don't have a problem with) but is something you've raised in this thread as a criticism of the law we have.
There would be no price discrimination, everyone would pay the same rate varied for age and smoker status (but of course, smokers will lie and say they are non-smokers when there is no penalty if they get caught). Same way group insurance works now.

There would be no 24-month waiting period for people with prior coverage, same way it works now too...under the reform bill, there is no penalty for dropping coverage and picking it back up later. If you continue to have in-force coverage, you will never be denied coverage for pre-existing conditions. If you drop your plan (say, for more than 63 days, similar to current law), you would be subject to a new 24-month waiting period.

I am 100% in favor of getting rid of the employer-based health system as it serves absolutely no purpose. That only works if you have a sustainable system to buy from on the private market though, not when you have a mish-mash of the two with a ton of regulations thrown in on top. Instead of having employers pay for health plans, have them contribute to a health savings account with no tax to the employee and let them buy their own insurance with whatever benefits they see fit. Then the employers can know their fixed costs each year without having to worry about rate increases killing their bottom line. Too many employers are only able to offer one or two plan choices, whereas the individual market has many more options.
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