More Evidence that Health Insurance should be Divorced from Employment

From an NYT Blog.

January 3, 2012, 7:00 AM

Further Thoughts on Why Our Health Rates Fell

By PAUL DOWNS

Courtesy of Paul Downs.The employees of Paul Downs Cabinetmakers.

STAYING ALIVE

The struggles of a business trying to survive.

First, thanks to everyone who encouraged me to keep writing (see my last post). The encouragement was, well, encouraging. I’ll do my best to keep it real, with numbers when appropriate.

Which brings me to this week’s post, a response to the comments on my post about my health insurance rates (executive summary: they went down, perhaps because of the departure of an older, sicker worker). The comments fell into several groups. Some people wanted to know more about whether I discriminate in hiring and how I manage information about my employees’ health status. There were a lot of comments about how insurance companies set rates, and as usual, they were contradictory. And there were pleas for me to weigh in on the policy debate regarding our national health system.

Here are a few highlights, starting with questions about how I treat my workers:

From Aimee: “Kids get sick too — so what do you do exclude people with families? Or women in their 20s and 30s may get pregnant and have complications — do you exclude them? Some groups have a higher tendency towards common chronic illnesses — do you exclude them?”

I want to make this clear: I do not discriminate based on family or health status, in hiring or afterward. I hire based on ability to do the job, and the applicant pool is limited to the people who answer my ads. We’re not a big company, so our employee population does not reflect the diversity of this country. Of the 14 employees, 12 are men, with ages ranging from 24 to 50. Both of the women are over 50.

The company will buy health coverage for any employee who asks for it — and the employee decides how many loved ones are covered. The company picks up two-thirds of the cost, the employee pays the rest. Obviously, the employees’ costs vary depending on what type of coverage they choose. In 2012, every employee but one will be covered by my policies; two who used to be covered under their wives’ policies were left without insurance when their wives lost their jobs. This will increase the company’s costs by $14,848. I’m not thrilled about it, but what can I do?

From Coakl: Do you get any discounts for ensuring your workers are nonsmokers and keeping their weight in check?

Not that I know of. We have only one smoker, and the physical nature of the job tends to keep people in shape (that’s a photo of all of us above, standing in front of an almost finished table). I don’t recall being asked to provide any information about this, other than one time in 2005 when we investigated switching health insurers. Then we had to fill out a fairly detailed census form to get a rate quote (turned out, no surprise, that the rates were identical.)

I presume that insurance companies have a pretty detailed picture of everyone’s health status based on the doctor visits and prescriptions. Even if I did run programs about smoking and weight, I would have no control over my employees’ families.

From Chilling: Do your employees have any privacy in regard to their major health issues? How is it that you know who is causing your rates to go higher and lower?

They have all the privacy they want, but in a small company the reason for sick days is going to be discussed with the boss. My employees are a genial and friendly bunch, so I presume that they discuss some things with each other in the course of ordinary conversation. I don’t keep any records about health status or the reason for sick days. We don’t even have sick days per se — we give out personal days, which can be used for any reason. (We offer six in the first year of employment, with one day per additional year of service to a maximum of 16. This is in addition to six federal holidays.) I don’t actually know how our rates are set — it’s a huge mystery. In the previous post, I speculated that our rate drops were related to the departure of a heavy health care user. But I don’t know that for sure.

Which brings us to these comments about how rates are set:

From Art: The cost of your plan is determined more by the state you live in.
In New Jersey, small group plans (less than 50 fulltime employees) do not have medical underwriting. So if you had medical claims they would not affect your rates. On the other hand New Jersey takes the average age of the group and prices the plan on that. So older workers drive the price of the plan higher

This would be great if I were in New Jersey. Or maybe not. My employees stay with me for a long time, and we gain greatly from a stable, experienced, productive work force. But it’s remarkable that our system essentially puts a special tax on my company for offering people long-term employment (by charging more for older workers). If health costs keep going up, it might be cheaper at some point for me to change to younger, lower-skilled people who are replaced on a regular basis. Investing in technology would be one way for me to do this. That’s not a business model I’m eager to implement, but why does our system offer such incentives? And what if I couldn’t make a profit any other way?

From E.G. Penet: Yes, premiums are down a bit, including mine own BCBS in Michigan. However, deductibles and co-pays are going up, fast. Every good thing costs something somewhere along the line. Just wait until your employees get their bills.

It’s not clear whether you are a boss or employee, but here’s how it works for me. I get offered a variety of plans from our insurer, with different types of coverage and different co-pays. The cost of the policy to the company varies greatly with the size of the co-pay, the amount of prescription drug coverage, and whether it’s an H.M.O. or not. I choose two that I think are the best fit and that I can afford, and that’s what the employees get to choose from. I make a decision, they live with it. I’d prefer not to be involved with this decision at all, but I’m stuck with it.

From Excellency: Next time you write on the subject maybe you could explore the following possibility: You put $5,000 per year into a Health Savings Account for each of your employees insured with you and get a group account with lower premiums and a $5,000 deductible. If your employee does not use the $5,000 for health care it just accrues in his account like an I.R.A. or 401-K. If he uses it he will keep whatever portion he does not use and when he goes over $5,000 per year the insurance kicks in. Would this make sense for you as a businessman and your employees?

We were offered an option for a policy with a $6,000 yearly deductible (per family) which was somewhat less expensive than the H.M.O.: $805 a month versus $971 a month. This may or may not have been intended for us to set up an H.S.A.

Here’s why I didn’t even consider it: plans of this sort put each worker in the position of having to negotiate pricing for medical care with doctors. Those least capable of doing this will get the worst, most expensive health care. I’m an experienced negotiator, and even I don’t want to touch this.

If doctors had easily accessible price lists, it might be different. I checked my doctor’s Web site. The practice is part of the University of Pennsylvania Medical System, which I presume is a well-funded and technologically savvy organization. I searched for “pricing” in the search feature, and turned up no results. I searched “price for doctor visit” and got boilerplate about how to prepare for the first visit. There is no price information, or any indication of how to find it. How are employees supposed to negotiate pricing for an emergency room visit? If you’re filling out paperwork with a bleeding 4-year-old screaming in your arms, you’re going to sign anything put in front of you, which will subject you to whatever the hospital feels like billing you. That’s not a system I want to participate in.

And now for my opinions on current policy. I’ll keep it short. I agree with this, from MHF:

You shouldn’t have to be in the health insurance business at all. That statement has nothing to do whether I support a government backed program or not — it’s just that most business owners don’t have the knowledge/expertise to manage the health care options of a large number of people. Business owners should be running businesses not playing doctor.

Amen to that. And not only would I prefer to shed this responsibility, but think of the wave of creativity and entrepreneurship that would be unleashed if people weren’t tied to crummy jobs just to get insurance. That’s the way forward for us as an economy. Unfortunately, the existing system is too large, with too many stakeholders, for us to change. I think we’re stuck with it.

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside of Philadelphia.