My recent post on my health insurance rates brought some interesting comments. I’d like to respond to a few and share some further thoughts.
I presented my renewal rates for the last five years. They have varied in the amount of increase, but the trend is higher rates, increasing considerably faster than inflation. During that period, the number of employees covered ranged from eight to 20, and the demographic mix varied as we hired and fired people of different ages and family configurations. My policy is an H.M.O. provided by Keystone Health Plan, which is a subsidiary of our local Blue Cross. We kept our plan roughly the same over those five years, meaning we had the same coverages, deductibles and co-pays.
In 2007 we looked very carefully at switching to Aetna. The company promised reductions in rates of more than 20 percent, but after submitting our employees’ personal data, the rates turned out to be almost identical to what we were paying Keystone. So we stayed where we were to avoid the hassle of switching. My conclusion: If the plans cover the same geographic area, you won’t see much difference in rates from different companies for comparable policies. The prices are driven by the costs of the local hospitals and doctors.
One of the things I dislike most about buying health insurance is not knowing the extent to which the demographics of my workers affects the rates. We are ostensibly part of a group: the American Institute of Architects, Philadelphia Chapter. I joined the group as an adjunct in the early ’90s specifically to buy health insurance. I let my membership lapse after one year, but I still see the A.I.A. mentioned in the quotes I get. I don’t know whether the rates I am quoted would be identical to the rates quoted others in the A.I.A. I presume that some portion of my cost is tied to the health and behavior of my workers. This is the way all of the other insurance I buy works — there are audits of our behavior and credit for a lack of claims.
However, those credits are stated explicitly in my unemployment, worker’s comp and general liability quotes. I’ve never been shown comparable data in the health insurance quotes. Although I don’t do so, I imagine that many small-business owners who offer health coverage discriminate against older workers. I do know that my oldest, sickest worker, whose wife also had serious health issues, left the company in September, and my insurance rates dropped 20 percent soon after. Correlation? No way to know. It’s hard to avoid concluding that I would be better off hiring younger and healthier workers.
Many of my initial ideas on how to treat workers, and what kind of benefit package to offer them, were heavily influenced by the viewpoint presented in Inc. magazine in the late ’80s and early ’90s. This is when I first hired employees. I was young and impressionable, and the magazine consistently recommended liberal treatment of employees — flex time, health benefits and a light-handed management style were presented as the best ways to get the most from your people. All of that sounded reasonable at the time and conformed to my liberal political leanings, so I have run the company that way since then. It’s only recently that I’ve started to wonder how much money that approach cost me. I don’t recall seeing a magazine called Hard-Hearted Boss on the newsstand back then, but I’d probably be wealthier if I had. It’s not the norm in my industry to provide generous benefits or very many benefits at all. I’ve failed to show a profit in most of my 25 years in business. High labor and benefit costs undoubtedly contributed to that record.
As a business owner, I’m tired of being the one to fund the dysfunctional health care “market.” I don’t buy my employees car, house or life insurance. The disconnect between the consumers of health care and the providers, and the political clout of doctors, means that costs cannot be contained. Meanwhile, it’s an ever growing administrative and cash flow problem for me. I want this off my plate.
On to the comments:
From JBleep: I love the statement “I pay two thirds of the cost for health care.” Truth is, the workers earn the money Paul is talking about. He can shaft them, which is common business practice in the U.S.A. these days, or he can do the right thing and return a portion of their earnings in health care benefits.
Insurance is part of a package of pay and benefits that is offered to the workers. Like it or not, I have the power to unilaterally change the amounts any time I feel like it. Of course, I have to suffer the consequences if I do. I offered the benefits in the first place because I wanted my people to be able to live a middle-class lifestyle, so that they would stick with the company over the long run. When the company isn’t profitable, I need to take a long, hard look at all of my costs. Whether the employees deserve their pay or not becomes irrelevant. They work hard, and so do I. But they haven’t had to reach into their own pockets to cover payroll. They haven’t paid rent, or bought machines, or materials or advertising. When ballooning insurance rates eat into the funds required to keep them working, health care is on the table.
More from JBleep: Without the workers, Paul would have no business.
Wrong. Without the workers, I would have a different business. One of my main competitors has no workers, no shop, no store — just a Web site and a phone. He outsources everything to low-wage shops wherever he can find them, in the United States, Canada and Mexico. That’s a perfectly good business model, and he seems to be quite successful. I, on the other hand, spend a great deal of time, money, and heartache providing those “good jobs” that you hear so much about. High-wage, high-skill manufacturing for people who didn’t graduate from an Ivy League university. I get e-mails every day from factories in the Far East who can provide product that I could easily sell. I keep the factory going for lots of reasons, but if it gets too hard, I have options.
From Ann S: It might be more cost effective to give your employees a sufficient raise to cover the cost of buying their own coverage on the health insurance exchanges starting in 2014.
I’m eagerly awaiting those exchanges, although for the life of me I can’t see how they will be any different from existing Blue Cross (or other allegedly nonprofit) plans. Until someone starts throttling back doctor and hospital charges, there’s no magic way to bring costs down. At the same time, I’m cognizant of the need for people to be insured. I do it now mostly because I want my employees and their families to have access to health care when they need it. But if reasonably priced plans appear, I will give them serious consideration.
From wts: Wouldn’t some of his skilled employees leave for more secure jobs if he didn’t offer insurance. Doesn’t the security of insurance help his employees focus on their jobs instead of worrying about the untreated child at home?
They might, if my competitors offer better benefits. But they don’t. I do agree that insurance is essential for my people with children, and that is one of the main reasons I keep offering it.
From Clemmie: I believe we would have a much stronger and more stable work force – and as a result, a stronger and more stable country – if ALL employers in ALL industries were required to provide standard health insurance to ALL employees.
What about the unemployed and their dependents? I think we would have a more dynamic labor market if health care were decoupled from employment, and employers would be better off if they didn’t have the administrative and cash-flow burden. And once people started paying for their health care themselves, you’d see more attention paid to bad behavior and more political pressure for the government to reign in costs.
From DW: I wonder if those who insist that health care should be part of any benefits package have ever been employers or have had to pay those premiums?
I’d bet they have not. It is easy to spend other people’s money. Try rounding that money up yourself, and you end up thinking differently.
When the year ends and I have my wage totals, I’m going to calculate whether I qualify for the tax credit. That should be an interesting exercise.
Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside of Philadelphia.
