The Kaiser Family foundation has a new edition of their annual report on employer-sponsored health benefits. Here’s a link (PDF) to the summary.
The survey finds that the average premium per employee for single coverage is $3,383 per year; for family coverage, it is $9,068. For single coverage, employees pay $508 a year (15 percent of the total), with employers paying $2,875 (85 percent). For family coverage, employees pay $2,412 a year (27 percent of the cost), with employers paying $6,656 (73 percent).
But since insurance premiums are but one form of compensation, one can argue that the total “employer” and “employee” contributions are as good as cash when discussing worker pay. In my book, $9,000 a year is a lot to pay for insurance; it’s enough, in fact, to make me wonder if the money is being wisely spent.
By contrast, I took a trip over to ehealthinsurance.com and plugged in some numbers for a hypothetical family: husband (age 42), wife (40), daughter (15) and son (12), living in Chicago.
The plan with the highest annual premium: a BlueCross plan with $20 office visits, $0 deductibles, and no coinsurance. Premium? $15,075.
Too rich? How about a PPO that comes up midway through the list of plans offered through this website. It’s got a $0 deductible, but a coinsurance of 20 percent, and the price for an office visit goes up to $30. Premium: $9,144 per year.
Wow. Ok, let’s try something else. Go cheaper. Another BlueCross plan. Of course, you have to put up a substantial deductible–$5,000 per year, though the coinsurance remains at 20 percent. You pay all for all office visits up to the deductible, then 20 percent after that. Premium: $3,684 per year.
That’s roughly 55 percent of what an employer pays for insurance each year, and 40 percent of employer/employee payments, or a savings of 60 percent, or $5,384.
Now, do you think it’s possible to come ahead with this plan, or something like it? Certainly. But it requires changing your thinking about the role of health insurance.
In reality, most most health policies mix insurance–seeking protection from the unpredictable–with an expensive, pre-paid purchase arrangement.
As is the case with auto insurance, you can get a less expensive health insurance policy if you accept a higher deductible–that is, rely on it for catastrophic events (for autos: a crash; for health: major unexpected surgery) and not for routine ones (for autos: oil changes and new tires; for health: bouts of the flu).
Will a catastrophic-only health insurance policy make sense? Won’t a $5,000 deductible be just too much for most people to deal with? Before saying yes, consider the following.
Most people won’t incur massive medical expenses each year, so say that the employer and employee team up for this lower-cost plan. Take half of the cost savings, or $2,692 (5,384 divided by 2), and put it in an employee raise (since the money being spent was on compensation, already). Take the other half and put it in a tax-free account (a medical savings account) and let that grow tax free. That’s an incentive to be a wise healthcare consumer. As a bonus, within two years, there will be enough money stored up to pay off the deductible if it maxes out–something that won’t happen every year, or even every two years.
An even better approach, of course, is to get the employer out of the equation, and take the cash. We don’t have “car maintenance organizations,” and depend on employers to provide auto insurance; why should people depend on them for something even more valuable?
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