Tuesday, January 31, 2006
Monday, January 30, 2006
"It's just a huge chunk of money for me to just throw into something that I may not really need," he says.
And as a 29-year-old single guy, he says, there are better things for him to do with his money.
"Skiing," he says. "I love to ski."
Sunday, January 29, 2006
Anyone who has ever owned a dog, or even watched a dog eat, is well aware the meal is consumed in what seems like micro-seconds. You fill the dish, set it on the floor, and before you have put away the bag the meal is consumed.
The way your dog devours his meal you would think he had not been fed in a month. Should you get too close while the dog is eating, your best friend will growl or even snap at you in an effort to keep you from (in his mind at least) taking his food away.
Once the dog has finished his meal he will look at you as if to say, in dog talk of course, “Is that all there is?”
Health insurance is the same way.
Those with health insurance, especially employer provided health insurance, tend to act like dogs.
For starters, they expect the employer to “feed” them. The employee feels no obligation to pay for their coverage and complain if they are asked to pay anything at all.
The plan is repeatedly abused by those who think nothing of going to the doctor at the slightest chill and demanding the latest “quick fix” pill they saw on TV last night.
And why not?
After all, the visit with the doc only costs $10 and the magic potion another $20.
Truth is, the office visit was more like $70 and the meds closer to $140.
They wolfed down their doctor visit & meds like a hungry dog.
But try to take away their health insurance or, GASP, eliminate copays or raise deductibles and listen to them growl.
Just like a dog and their food bowl.
Some take issue with a key to solving health insurance woes by ridiculing the idea that Americans are over-insured.
If you really want to gauge how out-of-touch employees are when it comes to health insurance, ask them how much their health insurance costs. Like asking how much they earn, most can’t tell you.
To them the cost of health insurance is how much is deducted from their paychecks each week, and how much they earn is the amount that is deposited in the bank.
In both cases, their assessment is inaccurate.
Only when they leave employment and receive their COBRA notice, do they suddenly have a bad case of sticker shock.
Are Americans over-insured? When they have no real concept of what health care costs, or how much insurance premiums really are, I would have to say yes, they ARE over-insured. When they fail to realize the key to reducing the cost of coverage is to eliminate cost items that are manageable and get back to true risk management, they are in fact over-insured.
Just like the dog that EXPECTS to be fed and growls when you try to take away his food, Americans EXPECT to have health care provided for them and growl when you try to make it more affordable.
Friday, January 27, 2006
Thursday, January 26, 2006
Tuesday, January 24, 2006
Many, many Thanks to Bob, Scott and Alan!
Monday, January 23, 2006
As noted, this is not a panacea, either, but it does offer a new, and potentially powerful, tool for small business owners to effectively manage their health care costs. I really appreciate Judy’s time, and her quick response.
Apparently, S Corporations are more popular than LLC's. Who knew?! Well, Joe Kristan at Roth & Co knows, and he has some interesting thoughts on "why." One of the reasons I like that blog so much is that it addresses fairly complex tax issues with humor and insight. And so it is with this post, as well.
Sunday, January 22, 2006
If this quote is any indication, Wal-Mart presumably will fight the law in the court of public opinion and in the judicial system. From the article we find the following "Wal-Mart notes that Maryland has 786,000 uninsured people, ''and less than one-half of 1 percent work for Wal-Mart.''
So all of this energy, and taxpayer money, is being spent in a manner that will have little or no effect on the number of uninsured in Maryland. Of course it may be that Wal-Mart reacts by reducing the work force, or cutting hours, which may lead to higher unemployment and higher numbers of people who are uninsured.
So if the Maryland legislature really want to make this stick they need to also force Wal-Mart to maintain payroll and employment levels, and forbid them to raise prices or shutter stores or withdraw from the state. While they are at it, they should probably put an addendum in their bill that makes it illegal for Wal-Mart to challenge the law in court.
What is really surprising (to me at least) is the mention of 33 states who are considering similar legislation . . . even before the law is in effect, and before it's legality is tested in the courts.
So what has happened to spur this activity?
Oh yeah, it's an election year . . .
Friday, January 20, 2006
Thursday, January 19, 2006
Why? Because they are a major employer in Maryland, one who employs about 15,000 people.
The entire state has a little over 5M citizens. They have about 2M folks who are employed, so 1 out of every 130 workers is employed by Wal-Mart.
In other words, if you live in Maryland, and know at least 130 adults, chances are somebody you know has a blue vest hanging in their closet.
So what’s the beef? (Apologies to Clara Peller)
Well it seems that some folks think Wal-Mart doesn’t contribute enough for health insurance for their employees. In fact, the people under the gold dome want to pass a LAW requiring employers of a certain size (10,000 by coincidence) to contribute at least 8% of payroll to health care.
OK, so how many employers would be affected by this law?
Uh, that would be four.
Johns Hopkins University, Giant Food, Northop Grumman and Wal-Mart.
Of the four, Wal-Mart is the largest employer and (allegedly) the only employer that does not meet the 8% of payroll threshold for funding employee benefits.
Much has been made of the fact that Wal-Mart provides (according to some) very little in the way of employee health coverage. This same crowd complains about the number of Wal-Mart workers who go without health care, or rely on taxpayer funded programs for their care.
Some have even suggested that top management take a pay cut to fund the cost of health care for their workers.
Right . . .
Here’s an eye opener.
In 2004 Lee Scott (CEO of Wal-Mart) earned $17.5M in pay including bonuses, stock options and other incentives.
The top 5 executives at Wal-Mart & Sam's earned an additional $24M in compensation for a total of $41.5M spread over 6 executives.
That same year Wal-Mart employed approximately 1.2M people (USA).
If the top executives worked for nothing, the 1.2M employees could be paid an extra $35 per year.
That doesn't buy much in the way of health care . . .
So what might happen if this bill passes?
Wal-Mart could comply with the law. In order to fund the benefit package they could raise prices. This could lead to sales erosion which could cause layoffs or store closings.
Or they could simply adjust payroll by cutting back on hours for existing employees, and maybe let others go entirely.
They could also say goodbye to Maryland, pack up and leave. Then Maryland would see their unemployment rolls swell from the current 4.5% to about 5.25%. And of course there is a loss of the tax base from the shuttered store fronts no longer paying property taxes. There would also be a loss of sales tax revenues, state unemployment taxes and who knows what other revenue sources the state would lose.
So just what is the potential economic impact of losing the states largest employer? It’s really hard to say.
But even scarier is this. If this bill passes, what’s to keep the state from lowering the threshold to say 5,000 employees or maybe 1000?
This is one area where government needs to leave things alone and be content with what they have.
UPDATE: Be sure to read Bob's follow-up, here.
Tuesday, January 17, 2006
Monday, January 16, 2006
Thursday, January 12, 2006
Wednesday, January 11, 2006
That would be the total or partial exclusion of employees and/or their dependents from participating in such a benefit plan.
But I am getting the cart before the horse . . .
Section 105 refers to a portion of the Internal Revenue Code which allows an employer to establish a welfare benefit plan for the employees and do so on a tax-favored basis. Some of the items that can be offered through a 105 plan include coverage for OTC meds, health & dental insurance premiums and coverage for out of pocket expenses such as deductibles & copays.
Most employers are aware they can purchase group health insurance, pay for it with before tax dollars, and deliver it to their employees on a tax favored basis. But many may not know they can do likewise with individual coverage and enjoy many of the same tax benefits.
The real benefit to the employer about 105 plans is their ability to set up a benefit plan on a Defined Contribution basis. Most employer plans are now structured as Defined Benefit plans where the employer chooses the benefits to be offered and the carrier quotes a price.
DC (defined contribution) plans work the opposite. The employer indicates they are willing to spend a pre-determined dollar amount on benefits and the employee is free to choose how they want those dollars to be spent. Some employees may want health insurance, others dental, and others only want coverage for out of pocket expenses.
This makes the DC plan extremely flexible and tailored to the needs of both the employer (limiting their outlay) and the employee (ability to choose benefits most wanted).
But it also makes coverage for some employees challenging in the least and unobtainable at the worst.
Group insurance carriers require a certain level of employer contribution as well as participation levels before they will issue a contract. By its’ very nature, group insurance cannot restrict coverage for employees with pre-existing conditions (and prior creditable coverage) and must accept all regardless of their health or future medical costs. An example of this is a recent client.
I was approached about finding cover for a lady with MS (multiple sclerosis) and an accompanying $1800 a month “habit” for meds that kept her condition in remission for the past 20 years. She was losing her COBRA and there was not an individual carrier to be found that would issue cover.
Group insurance comes to the rescue! She works for a business (owned by her fiancée) so I was able to secure coverage for her at an affordable $400 a month which includes $30 copays for her meds.
Such a deal!
In this case (and others like it) a Section 105 plan funded with individual policies was not an option. While this is an extreme example, it still points to the folly of suggesting the 105 is a panacea for business owners. Individual polices are almost always less expensive than group plans with similar benefits and that is a nice feature. But when the individual policy route conflicts with an employers desire to cover certain workers, the plan goes down in flames.
The real benefit of 105 plans is not so much the way the benefits are provided (individual policies vs. group policies) but the fact the employer has much more control over expenditures for the plan by establishing a budget. Using individual policies under a 105 plan is great for the writing agent because the compensation is 3x to 4x what it would be under a group insurance plan. But that same approach is also self defeating when an employer genuinely wants to provide a benefit plan for all employees, or even a select group of employees.
Monday, January 09, 2006
She goes on to observe that these states don’t really have the resources available to enforce such requirements, and concludes that small business aren’t the real targets of such policies, large retailers are.
This is an interesting post, and one that’s worth a read, but it’s really the comments section that intrigues me. For example:
“As far as our system is based on employer sponsored health insurance, I believe employers should pay for it.”
And this nugget:
“(A) policy requiring companies to provide health insurance should not be limited to big companies alone.”
Let me state from the outset that I enjoy Kate’s blog and generally find her posts to be interesting and informative.
You just knew there’d be a “but.”
Statements like “employers should pay for it” and “requiring companies to provide health insurance” reveal a stunning ignorance of how our system works:
Companies do not pay taxes, and they do not pay for health insurance.
In case you missed that, let me repeat:
Companies – businesses – pay neither taxes nor insurance premiums.
Companies do collect (sales) taxes, and pass them on to the states in which they do business. They also include any business taxes due in the price of the product or service. They pay employees a portion of their salary, and forward the balance to the insurance carrier (and/or state government).
They do not actually pay the taxes, nor the insurance premiums.
“Henry,” you ask wearily, “why is this such an important point that you repeat it 3 times?”
Because if (or when) government requires an employer to pay for health insurance, several things happen, not many of them good:
First, if the employer doesn’t already have a group plan in place, he has to either install one (assuming that this is even possible) or begin reimbursing his employees for their privately owned plans. This then requires that he set up either a Section 105 plan, an HRA, or some other qualified arrangement, none of which are free, and all of which require additional paperwork. It also ignores the problem of employees who either can’t qualify for insurance, or who flat out don’t want it.
So let’s presume that we’ve surmounted the availability issue. How does the employer then “pay for the insurance?” What many folks – including, apparently, the commenters noted above – don’t understand is that when one is paid a wage, there are really two pieces: the one we see, and the one we don’t see.
The one we see, which is our stated salary or hourly wage, is our paycheck, net of taxes and FICA and all the rest. The other half, the “hidden paycheck,” includes health insurance and worker’s comp premiums, vacation and sick days, and various other expenses associated with being employed.
Look at it this way: When Joe was hired, his employer budgeted $60,000 for Joe's compensation; $50,000 is paid to Joe as wages, and the other $10,000 is sent to the insurance company and various government agencies (and, of course, some is to defray the costs of vacation and sick days, etc).
So if the gummint insists that Joe’s employer pay an additional 8 or 10 or 12 percent toward health insurance, that’s 8 or 10 or 12 percent that Joe’s employer won’t be giving him as a raise next year. In fact, it could very easily wind up costing Joe his job altogether: his employer may decide that he’s not worth that extra 8 or 10 or 12 percent.
Ah, the Law of Unintended Consequences.
Try not to break it.
UPDATE: Chad from Tusk & Talon has some more thoughts on this subject. In-depth and interesting...Check it out.
UPDATE 2: And Elisa at Healthy Concerns also weighs in with another perspective. Good stuff. Kate herself (whose post started this whole link-fest) gets the final word (for now).
UPDATE 3: Maryland's legislature has overriden the Governor's veto. More on the implications of this new development coming up.