Businesses and employees pay dearly for health benefits

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Print this page by Bernie Niemeier

Open enrollment for the renewal of employee benefits is a rite of fall for most companies.  It’s important because in addition to affecting the next year’s income statement, the employee portion of benefit costs can be a major family expense.

This year our company’s insurance broker set up a meeting to go over next year’s rates.  As we sat down to look at premium changes, I immediately was set back by a whopping 29 percent cost increase.  Ouch!

This is definitely not about the magazine’s insurance broker or even about our insurance carriers; they will be neither named nor blamed.  As we say in Virginia, “They are good people.”  Our brokers did their homework, checking the rates of other carriers and didn’t find much difference.  When it comes to meeting the needs of employees, our insurance carrier has done a great job of taking care of our folks and their families.

Not too long ago when I used to sit on the corporate side of the budget table, large increases in benefit costs were pretty common.  It seems like they have been rising at two to three times the rate of other business expenses for a decade, maybe even two decades.  In a large, public company environment, the budget impact of these increases is certainly frustrating.  In a small business environment, they are downright painful.

Most companies have been forced to pass along an increasing portion of benefits expense to employees.  This has occurred not just with health benefits, but in other areas as well.  401(k) plans arose in the 1970s as a replacement for defined benefit pension plans.  Pension plans had been around since the 1800s, but as average life expectancies increased, they simply became too expensive.  Today, they are vanishing from the private sector.

The same trends are affecting health-care plans.  Today’s labor market has a higher percentage of older workers who are retiring later and living longer.  Stock market volatility in recent years has lowered the value of many retirement plans, forcing many older employees to keep working.
Increases in average pay haven’t exactly been stellar over the past few years.  For many families, insurance is absorbing most of, perhaps even more than, their annual pay increase.  Under such circumstances, it is no wonder that consumer spending remains stubbornly anemic.  This is not good for the economy, and it’s not good for business.

In 1970, Nobel prize-winning economist Milton Friedman wrote an article for The New York Times Magazine titled, “The Social Responsibility of Business is to Increase its Profits.”  The central idea was that the payroll growth associated with running a successful enterprise is the best way to put money back into the economy.  Business best performs its social duty, Friedman argued, by not taking politically charged positions on social issues.  Friedman’s thoughts make good business sense, especially in times when partisan rhetoric dominates our political landscape.  It really isn’t the role of business to fund social policy.

One of the roles of government is to provide a social safety net for members of the population with legitimate needs.  Much like education, public safety, roads, bridges and other projects for the common good, tending to the needs of the unfortunate is a sort of social infrastructure.

When it comes to the current system of health care in the United States, business is paying a high price.  Care is provided regardless of a patient’s ability to pay, and the cost of unpaid bills is passed along to paying customers, the vast majority of whom are employed and insured.  Businesses pick up the lion’s share of the cost through higher health-care premiums, as do employed workers through their share of these premiums.

The insurance premium increases that business owners have seen are not new.  Much of the planned health-care reform law passed by Congress last year does not go into effect until 2014, so today’s premium increases aren’t really the result of that legislation.  They are the result of a system that has been broken for a long time; an arrangement that shifts a legitimate social role of government onto the back of businesses and workers.

While the wisdom of certain aspects of the pending reforms are debatable (for some even to the point of challenging their constitutionality), throwing out all reforms and staying with the current system is not a workable solution. Let’s not continue with the bad economics that got us into this situation in the first place.

Business is not a replacement for government, nor should it be.  This is a time when everyone needs to shoulder their own legitimate responsibilities and stop looking for someone else to pay the cost. 

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