Public option will NOT automatically cause most companies to drop insurance.

There are exceedingly few companies in the United States today that are required by law to provide insurance for their employees.  So why do they do it when it is such a huge expense?

Companies provide insurance benefits to compete in the labor market.

No matter what the unemployment rate, sooner or later companies have to hire new employees.  When they do, it doesn’t matter whether there are three employees available or three hundred… no company wants the 3rd best.  They compete for the best.  They don’t always win the competition, but they try to.

When was the last time you met an electrical engineer with ten years of experience who would even consider working for some fly-by-night company that doesn’t offer medical benefits?  Or a Director of Advertising.  Or a Senior Database Security Analyst.  Or a Vice President of Finance and Accounting?  Or a District Manager of Food Service Operations?  Or a damn good Administrative Assistant?

To compete for the best talent, companies have to offer the most competitive compensation packages, and in today’s world that means health insurance as a benefit is mandatory.

Now, if a company is paying 15% of its payroll to provide insurance and it finds that it can stop doing that and pay just an 8% penalty… of course it is going to want to do that.  But it is only going to be able to do that if workers find that option to be competitive.  If the best quality employees, the ones with the most choices and options of where to work, feel that the public insurance and private insurance are equally as good, but their out of pocket cost is $300 a month for the company that provides private insurance (because of the employer contribution) but $900 a month for the company that makes them use the public option, they will work for the company that offers them the private insurance.  Until, or unless, the company not offering insurance pays them the $600 a month in cash to make them whole.  Likewise, if the out of pocket costs are the same, but the public insurance turns out not to be as good as the private insurance, the best employees are going to either demand to be compensated financially… or flat out refuse to work there.

If it turns out that the public option insurance is as good as the private insurance, and that after paying the 8% penalty and whatever amount they have to pay employees in cash to continue to be competitive it is still economically beneficial for them to do that… well, that will be the proof of the pudding that government can do it better!  We should all applaud.  The employees will be happy, the company will be happy, the taxpayers will be happy… everyone will be happy except the insurance company CEO that can no longer command a $10 million a year annual salary.

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7 Comments

Filed under economy, health care, healthcare, labor, Politics

7 responses to “Public option will NOT automatically cause most companies to drop insurance.

  1. Randy Rouda

    I’m expecting this to work an awful lot like the best companies’ cafeteria plans. Basically, “We will put up to $$XX in the kitty for you to spend on any of the following. They then offer enough health insurance coverage to be competitive in teh workplace. The “Public Option” would then just be one of the choices. Ya like Blue Cross, we’ll pay the premium. Ya like Medicare Plus, we’ll pay the same amount to them. Ya want to throw in Dental, we cover X, you cover the rest. Some companies will just offer Medicare Plus in their cafeteria plan. If it’s decent coverage at a reasonable price, people will be happy to work there. If not, then they will lose talent until they figure it out.

  2. William Capra

    I’m not sure you’re right here. It depends on what’s in the “public option.” On the face of it, we’re told that the overhead for Medicare, including fraud, is in the neighborhood of five or six percent. We’re told that the overhead for commercial insurance is in the neighborhood of 20 to 40 percent. All things being equal, a Medicare-type plan could undercut private insurance.

    As an employee I would be delighted to have my employer pay into Medicare for me, rather than private insurance (or pay me to pay into Medicare — adjusting for the tax difference).

    Additionally, there’s the hassle-factor. So long as my doctor and I follow the rules, there’s no argument with Medicare. I get services, they pay. Not so with private insurance that devotes huge resources trying to avoid payment.

    The two big catches are: a) how the presently uninsured will be handled, and b) how rates will be set.

    a) If the currently uninsured are randomly parceled out to all possible insurance companies, then the risks are fairly shared. The insurance companies can be expected to do everything they can to try to get only the young and healthy, leaving the older and sicker to the public system. That obviously breaks the public system.

    b)If the private insurers can offer varying rates based on age or pre-existing conditions, then, once again, the public system breaks.

    Taking the two together, the public system gets the oldest and sickest and charges undesirable rates or suffers huge losses.

    I think there are solutions, but they involve either eliminating private health insurance (save as a “Medigap”- type of policy, or removing the insurance company’s ability to select clients, set rates, restrict payments and rescind policies. In which case they can only compete on service.

    Obviously, in all cases, the selection of insurance companies by employers (rather than employees) must end. Also, obviously, all clients must be in one common pool, rather than the multiplicity of pools used by the insurance companies today.

  3. Yellow Dog

    I’m not saying it WON’T mean the end of private insurance. I’m saying it won’t automatically mean the end of it.

    There is an argument out there that says if a company can get out of providing health insurance by paying an 8% tax on payroll, and that is less than they pay for insurance, then they will do that at their earliest opportunity.

    What I’m saying is that if cost was the only factor in the decision, no companies today would provide insurance. We do not hold a gun to their head today. They provide because the employment market demands it.

    Who knows whether private companies will be able to compete. They certainly won’t on their current assumptions, but it is those assumptions we’ve decided don’t work. There are lots of clever entrepruenuers here. To say that none of them can find a way to compete… I think that’s an ugly, ugly slam against the capitalist system. Perhaps it won’t be blue cross that competes, but red cross. Who knows. If they caanot provide a quality service at a competitive price, then good riddance and thank god that we DO have government to step in where markets fail.

    But it won’t be a decision made on the basis of price alone. It will be made based on value delivered.

  4. William Capra

    In my opinion, any health insurance model that depends on employers is fatally flawed. The basic reason is that a job; any job is inherently temporary (even if you work for one company all your working life [and who does THAT any more?], your relationship with the employer ends at retirement). Your health, however, if permanent.

    With an employer-based system, if you lose your job (for any reason) your health-care ends. COBRA delays the inevitable, but doesn’t really change anything (not even counting the cost of COBRA).

    No insurance company can legitimately be asked to take on “pre-existing conditions” (exception: system startup, or children of policy-holders). This would be like seeking to buy fire insurance while your house if burning.

    Let’s say I have a job with insurance. I develop a chronic condition. I leave my job. I lose my insurance. How do I ever buy new insurance? Who will have me?

    Unless, of course, gov’t regulations become so rigid that the insurance companies essentially become agents of the gov’t. I suppose that might work.

  5. The Yellow Dog

    It baffles me why the Chamber of Commerce isn’t adamantly insisting that corporations be barred from providing health insurance to employees. If it were prohibited it would no longer be a competitive factor, and they could truly find their way out of the healthcare morass they are in. I will never understand why they don’t insist on this.

    Of course, I also don’t understand why employees haven’t risen up en masse and demanded to be paid cash to go buy insurance with rather than have it handled through their employer. Who the hell wants their boss’s boss within a football field of their health?

  6. William Capra

    Because of the tax protection. If insurance costs me $8K more than my current “contribution”, and I’m in the 28% incremental tax bracket, then paying me the $8K nets me only $5,760. Which leaves me with a bill of $2,240.

    You have to figure out a way to make transition from the tax-free health premiums enjoyed by some to the non-protected premiums suffered by those who pay their own.

  7. I highly enjoyed reading this blogpost, keep up writing such exciting articles!

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