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Employers Do Away With Health Insurance

November 5, 2010

It’s no secret to those of us who have worked part-time over the years: employers want to do away with health insurance to save money.  Many Americans have no health insurance, but is health insurance the real issue, or is it health care costs?  According to employers, the costs of health insurance and health care are the real issue:

“The absolute certainty about the Affordable Care Act is that for many, many employers who cover millions of people, it increases the incentives for them to offer coverage,” said Jason Furman, an economic adviser to President Barack Obama.

Yet at least one major employer has shifted a greater share of plan costs to workers, and others are weighing the pros and cons of eventually forcing employees to strike out on their own.

“I don’t think you are going to hear anybody publicly say ‘We’ve made a decision to drop insurance,’ ” said Paul Keckley, executive director of the Deloitte Center for Health Solutions. “What we are hearing in our meetings is, ‘We don’t want to be the first one to drop benefits, but we would be the fast second.’ We are hearing that a lot.” Deloitte is a major accounting and consulting firm.

“My conclusion on all of this is that it is a huge roll of the dice,” said James Klein, president of the American Benefits Council, which represents big company benefits administrators. “It could work out well and build on the employer-based system, or it could begin to dismantle the employer-based system.”

Employer health benefits have been a middle-class mainstay since World War II, when companies were encouraged to offer health insurance instead of pay raises. About 150 million workers and family members are now covered.

While the Obama camp maintains the legislation will have no impact on the availability of insurance through employers, others are not so sure.  My big question to employers is:  Why not just give the pay raise?  Paying for insurance is a delayed benefit, but outright cash might be lots more helpful.

Our economy can’t continue along the same lines of employer-sponsored benefits–look at the demise of GM, Delphi Automotive, GMAC, and the U.S. Postal service, all burdened by debt for their health care plans for retirees.  Our generation is paying for care we don’t get ourselves, but is handed to our grandparents. My generation, my siblings, my friends, all have stories of going years without health care or health care coverage–we simply can’t afford it, but Medicare and Social Security are deducted from our checks, and we can’t access those plans either.

The plan to continue employee health coverage may have its critics, but other analysts say it’s still cheaper for employers to continue paying for health insurance:

Tennessee Gov. Bredesen said last week that employers could save big money by dropping their health plans and sending workers to buy coverage in the exchange. They’d face a fine of $2,000 per worker, but that’s still way less than the cost of providing health insurance. Employers could even afford to give workers a raise and still come out ahead, Bredesen wrote in a Wall Street Journal opinion piece.

Employers are actively looking at that. “I don’t know if the intent was to find an exit strategy for providing benefits, but the bill as written provides the mechanism,” said Deloitte’s Keckley, the consultant.

A spokeswoman for the senators who wrote that part of the law says she’s confident that when companies do the math, they’ll decide to keep offering coverage.

That’s because employers get to deduct the cost of workers’ health care from the company’s taxes. Take away the health plan and two things happen: Employers lose the deduction and they’ll probably have to pay workers more to get them to accept the benefit cut. Not only will the company’s income taxes go up, but the employer will also face a bigger bill for Social Security and Medicare payroll taxes. So it’s not as simple as paying $2,000 and walking away.

“It is clearly cheaper for employers to continue providing coverage,” said Erin Shields, spokesman for the Senate Finance Committee.

Who knows how this will play out, but I, for one, hope that employer-sponsored coverage does get the boot–it certainly has crippled the economic stability of my generation.

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