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As a
general rule, DollarCollapse.com doesn’t get involved in public policy debates. Not because
they aren’t important, but because the damage has already been done.
The U.S., along with Japan and most of Europe, has passed the point where
policy fixes are possible. There’s no magic marginal tax rate or Fed
Funds rate or immigration law that will avert disaster. All that’s left
is for the current system to implode, one way or another. Then policy will
matter again, as we try to fashion a workable new system from the rubble of
the old.
But
every once in a while a policy-related story comes along that’s too
good to pass up, like this from CFO Magazine:
Farewell, Company Health Plans?
Now
that health-care reform bills have passed both the House and the Senate, some
CFOs are seriously considering whether or not to drop employee coverage.
Alix
Stuart, CFO.com | US
December 31, 2009
For
the past 19 years, Frank Santos, CFO of the privately held, seven-property
Rosen Hotels and Resorts in Orlando, Florida, has prided himself on
delivering high-quality health care to his employees in a unique and low-cost
way.In 1991 the company set up a primary-care clinic in one of its hotels,
allowing employees to get basic health-care services during their working
hours. By cutting out other primary-care options and contracting directly
with hospitals and specialists for additional services, Santos says, the
company has been able to offer a full health-care package to its 5,000 or so
employees and their families and save at least $10 million a year compared
with national averages.Beyond the basics, the company goes to great lengths
to keep its employees healthy, including offering them many wellness services,
such as exercise classes and serving only healthy foods (no French fries) in
its cafeterias.
The
current Senate health-care reform bill that passed on Christmas Eve, however,
may change all that. “There’s no incentive for someone who has a
plan such as ours to keep it,” says Santos. “We currently spend
about $2,700 per associate, but the government is going to allow us to forgo
that plan and pay $750 per associate,” he says, referring to the $750
per-employee penalty that would be levied on employers whose employees need
government subsidies to purchase health insurance called for in the current
Senate bill.
Indeed,
many other CFOs are considering the same option. “A number of midsize
employers are thinking they would drop coverage because it would be more
economical to do that, given the penalties, and the employees would still
receive coverage,” says Dean Hatfield, senior vice president and
health-practice leader at Sibson Consulting.
Larger
employers that could be at a competitive disadvantage by not offering
health-care insurance may also make substantial changes in how they deliver
it to employees. “The new rules, as proposed, are going to make group
insurance more expensive, and at the same time they’re going to make
the individual market more viable,” says Steve Wetzell, vice president
of health-care initiatives for the HR Policy Association, a group of nearly
300 large employers. “That creates the opportunity for employers to
take a hard look at going from defined benefit to defined contribution,”
similar to the widespread shift from pensions to employer 401(k)
contributions, in which employees could take a subsidy from their employer to
buy their own insurance.
Among
the proposed items that could raise the cost of sponsoring a health-care
insurance plan are $500 billion in cuts to the Medicare budget and taxes on
prescription-drug manufacturers, both of which are likely to create more
cost-shifting to plan sponsors. Under one version of the bill, plan sponsors
could also be subject to state-by-state inspections of their benefits
administration.
Meanwhile,
employers that offer more than $8,500 worth of benefits to individuals or
$23,000 to families would be taxed at 40% for the overage. Hatfield says
about 11% of Sibson clients would exceed those thresholds now, and many more
are likely to in the future, since the threshold increases, as currently
envisioned, would not match historical annual increases in health-care costs.
Santos
says he knows employees are worried about losing their current coverage and
would much prefer to continue it, but that it will be hard to justify turning
down the $8 million the company could save, net of lost tax deductions. One
compromise, he says, may be to keep the clinic open at a cost of
approximately $2 million a year, thereby continuing the primary-care coverage
and, he hopes, defraying some insurance costs for employees. But still, he
would rather see incentives in the form of tax deductions or some other
vehicle to make it economically feasible to continue the model the company
has been using.
“We
believe our model is one that can so easily be replicated among other
employers or groups of employers. If you have 500 employees, you can
negotiate very favorable discounts with hospitals and specialists,”
says Santos. “If the government would [provide an] incentive [for]
that, there could be some real cost-saving opportunities. Instead, they are
doing just the opposite.”
Some
thoughts:
- By
running an in-house clinic and negotiating with outside providers for
cost-effective specialist care, while insisting that employees take care of
themselves, Rosen Hotels is able to provide accessible health care for a
fraction of what the U.S. now spends per capita. In a rational world, this
plan would serve as a model to be emulated.
- But
instead of making such plans part of a menu that includes health savings
accounts, tax breaks for individual insurance, etc., the federal government
takes over and centralizes the entire health care industry. Bad move, which a
cynic might conclude is motivated more by a thirst for power than concern for
the welfare of citizens.
- The
cost estimates for the soon-to-be-enacted national health care bill assume
that employers will pick up a big part of the tab by continuing to insure
their employees. But based on the above that’s not likely. If the cost
of not offering insurance is one-fourth the cost of offering it, then a
business owner would be crazy keep their current plan.
- So the
first unintended consequence of this latest expansion of government power will
be vastly higher costs, as more people than expected end up in the public
plan. That means higher deficits, more borrowing, and a faster descent on the
slope that leads to the destruction of the dollar.
John
Rubino
DollarCollapse.com
Also
by John Rubino
John
Rubino is co-author, with GoldMoney’s James Turk, of The Collapse of
the Dollar and How to Profit From It (Doubleday, 2007), and author of Clean
Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit
from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall
Street (Morrow, 1998). After earning a Finance MBA from New York University,
he spent the 1980s on Wall Street, as a Eurodollar trader, equity analyst and
junk bond analyst. During the 1990s he was a featured columnist with
TheStreet.com and a frequent contributor to Individual Investor, Online
Investor, and Consumers Digest, among many other publications. He now writes
for CFA Magazine and edits DollarCollapse.com and
GreenStockInvesting.com.
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