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, 2009For 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, negotiating with outside providers for cost-effective specialist care, and 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 plan 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.
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{ 11 comments… read them below or add one }
This article shows that anything that benefits the general population will get shut down by the financial sociopaths. When shut out of the transaction, their lyin’ and stealin’ ability is negated. That’s why I call the healthcare scheme Patriot Act #4. #3 was the refinancing of Wall Street, and #1 and #2 were the original so-called Patriot Acts. The Big Lie theory sure does work.
The obvious solution is to levy a higher penalty, one that is much greater than the current cost. The bottom line is everyone should be covered, and everyone that can pay premiums and/or taxes to fund health care should. Using private services and insurance companies will work fine under a system where everyone participates. The cost of our health care as a percentage of GDP is out of control. We need a competitive system where everyone is covered to get costs down. Allowing insurance companies to cherry-pick healthy folks hasn’t worked, and government insurance (Medicare) is still too costly because the gatekeepers are too lax (think fake claims that no insurance company would put up with).
Other horrible side-effects await us if the US population stays as quiet as it is now. All kinds of drug and equipment companies will lobby and bribe to get their products mandated into the system: drugs that dont work, or have horrible side-effects could become the only option after paying off the senators from CA, NY, and FL… horrible soviet-style health equipment wins the contract since the system becomes totally driven by cost (and politics). The age of manufacturers competing to get into US hospitals would be over as quality and effectiveness lose to well-deployed lobby dollars. Its difficult to imagine the increase in Washington sleezyness that will occur once the health care bill becomes law.
This Article in CFO.com is utterly schizophrenic in it’s thinking.
Rosen Resorts spends $2700/YR/Associate now,
but next year will choose to spend $750/Year paying fines.
Why hasn’t Rosen Hotels chosen to spend $0/Yr for the last 20 years?
Businesses offer health benefits to help recruit good staff.
There are lots of Stupidities in the Health Bill but,
this isn’t one of them.
This should make the US Federal Government a “To Big To Fail” enterprise.
Yep…. this will put it over the top. Imagin an entire country dependent on government for it’s daily needs. Who have we become?
Who voted for these people. You idiots are entirely off my Christmas list.
As a person who works in an emergency room/urgent care/private doc’s office, I can tell you the real problem w health care is the patients! About 75% of the patients in any of the above aren’t sick and don’t need to be there. People absolultely LOVE to be sick nowadays–all for secondary gain, (days off work, narcs, other meds, attention, disability, boredom, loneliness, entertainment, need a shower or meal or warm place to rest, have nothing to do on a holiday, hypochondiasis, etc etc etc) We have people w paper cuts come see us! Sometimes whole families come to be entertained, all with fake complaints…. We have patients who get themselves squadded in by 911 for fake chest pain, and request a taxi home after the entertainmenter I mean evaluation. Lots of patients like to fake chest pain so that a bunch of nurses and doctors scurry around for them…. It is all a big game. Patients pretend to be sick and we pretend to treat them. My current record is 10 patients in a row lying to me, but that will surely be broken… We have patients who come in 2-3 times a week to be entertained by us…. Until patients pay out of pocket for a substantial portion if not most of every single medical intervention they receive, this “something for nothing” charade will continue til it collapses…. It would be hilarious if it werent bankrupting the grandkids….
It is Thelma and Louise Economics for 2010. If you are in deep enough trouble, just step on the gas.
We need more creative thinking on health care, such as demonstrated by Frank Santos. Other companies are ebginning to figure this out as well, with excellent results. It is not obvious to me that a higher penalty should be levied. Nor, is it a universally held assumption that health care is right or an entitlement.
This is going to be another govenrment boon doggle.
And, we are all going to pay, one way or the other for the huge mistake.
I voted for the ones that I knew would not get elected. That way I could have my moaning right while not hurting the country. My question is how many companies will drop health insurance to cut costs, and to just survive? And does anyone know how soon all of this stuff will start effecting us?
• 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.
What exactly are you talking about?… We’ve just seen a process that was completely derailed by corporate interests and in which the federal government was shown to be pretty much powerless to enact as a group changes that went against the wishes of private insurance companies. Its true that the outcome is very unfavorable, but as for the reason being that the federal government is taking over and centralizing the entire health care industry – you’re in a fantasy world.
Anyone know what will happen when your surgeon cuts off you left testicle when he should have cut off the one on the right.Have you ever tried suing the FEDERAL government,go ask a military veteran to get that answer.STILL NO MENTION OF FRAUD REDUCTION. When drunks in NYC can call for a ambulance 3-5 times a week for a ride to the hospital to sleep off a drunk and cost us $300,000 a year(see NYPOST-07/12/09)with no fear of being arrested for scamming the system,SOMETHING IS SERIOUSLY WRONG!
This Healthcare issue and immigration reform that will soon follow behind it will set off a major uprising in this country and it will all be blamed on the DEMOCRATS. These criminals will soon see a courtroom when the people retake our country in a legal and I hope a peaceful manner. You may win this battle,but you are going to lose the war.I hope the effect to all of this is that we will be seeing Pelosi/Reid ith a pooper scooper in their hands cleaning up the many turds they have thrown at the American people.
This is really funny – the majority of the “comment-ors” haven’t the slightest idea as to what’s happening. If you’d really like to know what government controlled, government directed, government funded healthcare is like, well, go visit a VA hospital anytime. if nothing more it will provide you with at least a glimpse of what’s heading your way. What’s even more stunning to me though is that there is not one mention in any of the comments as to whether or not this wonderful healthcare bill is CONSTITUTIONAL!! It is so obvious that none of you have ever in your life read the constitution, articles & amendments let alone understand it and stand by it. Yes, it is a true shame especially since we spend billions of dollars each year on one of the poorest educational systems in the world. It’s surprising in a way how so many people either will not or can not see how what’s going on will be so closely similar to what the former Soviet Union had. That was better than what we have now? Please! You bunch of dummies – WHERE DOES THE GOVERNMENT GET IT’S MONEY? If you can’t answer that then I honestly know you way beyond a point of no return. Again, a true shame people can be such a mindless herd of sheep.