Business carries a disproportionate burden of social costs
- November 23, 2009
It is hard to know what will ultimately happen in the national debate on health-care reform. As a business person, however, I have a sense that something about our current system is not right.
For years, many businesses have provided a kind of social safety net for employees, offering health care and retirement benefits. But that safety net is now in shreds.
Health care, for example, is a complicated proposition for small businesses. Many insurance providers won’t even consider coverage for groups of fewer than 50 employees. Employees in small groups have their insurance premiums individually rated according to age, gender and health history. Large companies, by contrast, are rated based upon an averaging of these factors. Small businesses also are hindered by a lack of bargaining power in the health-care market.
Companies that manage to provide health insurance soon learn that they are paying the costs of not only their employees but also the uninsured. Health-care institutions annually provide billions of dollars in unreimbursed care. Meanwhile, government payments through Medicare and Medicaid have failed to keep pace with escalating health-care costs.
The insured wind up paying higher rates to cover the cost of caring for the uninsured. The extra burden falls mainly on businesses because they are the principal providers of insurance coverage.
In addition to providing health care, many businesses have helped their employees to plan for retirement by providing pensions and 401(k) plans.
Retirement plans work well when the economy is thriving, but what happens when it is not? During the recession, many companies froze their defined-benefit pension plans and eliminated their matching contributions for 401(k) plans. These are not actions taken by choice; they have been matters of survival.
A system that requires businesses to be the social safety net for everyone is dysfunctional and destructive to the concept of value creation that is required for economic success.
I doubt that regulation or government-provided solutions could make the system more efficient. But the current situation isn’t working. The status quo is not the way forward.