RSS Feed MenuOne thing I’m consistently surprised by in the health insurance debate is that nobody seems to talk about the role of the American paycheck.
As the Wall Street Journal pointed out this morning, 9 out of 10 people under 65 have group health insurance through their employer. The main distortion that group insurance creates is not directly related to taxes, though. No, it’s the premium split; the whole idea that “you” pay some percentage of the premium, and “the company” pays the rest. So if an average family group policy costs around $460 biweekly, and there’s a 25% split, only $116 of the total cost is “paid for by the employee”, and that’s what people experience.
This is all an obvious fiction. In reality, the company pays for 100% of your salary and your benefits, and they make hiring and pay decisions based on total compensation. It’s just that some compensation shows up on a paycheck, and some doesn’t.
Since the last attempt to control the cost of health insurance premiums, the HMO concept, flamed out in a flurry of complaints and lawsuits ten years ago, average total compensation has consistently risen, and paychecks have flatlined. This is a problem. But what if premiums held steady, and cash compensation rose instead? Would we all be richer? Not necessarily. Not if health care costs, particularly for the chronically ill, just shift from the hidden paycheck of company-paid premiums to the unhidden paycheck of out of pocket costs.
Is there a way around this? Well, yes. Many companies offer “cafeteria plans,” where you can take your hidden paycheck costs in paid insurance premiums or in ordinary taxable cash. Many companies offer flexible spending accounts as well, so the chronically ill can get the same generous tax deductions on their out of pocket costs that they do on their insurance premiums (although, unlike health savings accounts, they have to spend the money by the end of the year or they lose it). Put those two rather popular concepts together, and you have some pretty powerful ways to connect people to the true costs of the insurance they know and love without raising taxes on the sick. Perhaps we can even get cash compensation moving upwards again.
So, is there any reason that Republicans can’t at least talk up cafeteria plan incentives, or even mandates?
ottovbvs // Aug 12, 2009 at 3:25 pm
” Many companies offer “cafeteria plans,” where you can take your hidden paycheck costs in paid insurance premiums or in ordinary taxable cash.”
……….”Many companies?” ……perhaps you could give us a list of them because in over 20 years of senior management of companies in the US I never came across any…….one of the reasons companies pay health insurance premiums is because they want their employees healthy and happy and without family health problems weighing them down……..they’re not going to be very interested in giving cash in lieu because many of their employees might spend it at the local bar or casino or on their girlfriend…….Oohh la la….where do they find Republican “thinkers” like Mr Marier
joemarier // Aug 12, 2009 at 3:48 pm
At the local bar or casino.
balconesfault // Aug 12, 2009 at 3:54 pm
“As the Wall Street Journal pointed out this morning, 9 out of 10 people under 65 have group health insurance through their employer. ”
The WSJ should do a little more work on copy editing their editorials. Per the National Coalition on Health Care “Several studies estimate the number of uninsured Americans. According to the U.S. Census Bureau, nearly 46 million Americans, or 18 percent of the population under the age of 65, were without health insurance in 2007, their latest data available.”
I suspect what the author of the WSJ intended to say was that 9 of 10 who have insurance are covered by an employer group plan. But it is a little less than polite to just sweep that 18% who are uninsured under the carpet…
Also, if I understand correctly, there are certain tax benefits to a company paying for group health insurance, rather than simply raising wages. So the “premium split”, as you put it, exists not only between the employer and the employee … but between the employer, the employee, and the government.
ottovbvs // Aug 12, 2009 at 4:40 pm
joemarier // Aug 12, 2009 at 3:48 pm
“At the local bar or casino.”
……that’s a good one….I really laughed
ottovbvs // Aug 12, 2009 at 4:43 pm
balconesfault // Aug 12, 2009 at 3:54 pm
“I suspect what the author of the WSJ intended to say was that 9 of 10 who have insurance are covered by an employer group plan. But it is a little less than polite to just sweep that 18% who are uninsured under the carpet…”
…….Standard operating practice at the WSJ ed page I’m afraid
liv&win // Aug 12, 2009 at 4:48 pm
otto: from the IRS: What is a cafeteria plan?
A cafeteria plan is a separate written plan maintained by an employer for employees that meets the specific requirements of and regulations of section 125 of the Internal Revenue Code. It provides participants an opportunity to receive certain benefits on a pretax basis. Participants in a cafeteria plan must be permitted to choose among at least one taxable benefit (such as cash) and one qualified benefit.
Wow, you must have been on your game when you worked for all those major corporations!
Spartacus // Aug 12, 2009 at 4:57 pm
Marier wrote: “Put those two rather popular concepts together, and you have some pretty powerful ways to connect people to the true costs of the insurance they know and love without raising taxes on the sick.”
Maybe, but a knowledge of the true costs of insurance is irrelevant to the problems that healthcare reform is attempt to address. If anything, more people would likely go without insurance if they fully understood and had to pay its true costs.
liv&win // Aug 12, 2009 at 4:59 pm
“As the Wall Street Journal pointed out this morning, 9 out of 10 people under 65 have group health insurance through their employer. “
true, if you are only counting employers with 50 or more employees. It is 99% coverage for companies over 1000 employees.
The uninsured disproportionally work for small companies (under 20 employee) which provide health insurance about 48% of the time, sole proprietors, or the unemployed. Simple, effective legislation like that passed years ago in California (AB 1672) if applied to individuals and small companies, would provide health insurance access to (I estimate) 80% of the uninsured. The rest would be picked up by current public programs.
ottovbvs // Aug 12, 2009 at 5:25 pm
6 liv&win // Aug 12, 2009 at 4:48 pm
“otto: from the IRS: What is a cafeteria plan?
Wow, you must have been on your game when you worked for all those major corporations!’
………Er….. did I say I’d never heard of them?…..I said I never came across a company that had one….in your eagerness to prove your brilliance by point scoring I’d suggest a bit more careful reading of texts…..and I wouldn’t have said my last 15 years or so of working were with major corporations although I did work for some biggies earlier when I knew very little about health insurance being concerned with other things ….in all honesty I don’t know too much about them but I do know they exist….last night it was doctors committing fraud against insurers tonight another bit of intellectually dishonest point scoring….ahhh well …….. perhaps you could provide a list of blue chip companies that have embraced this type of plan since they are such a familiar a feature of the insurance market
Americans Ignore the True Costs of Health Insurance - Health Web Blog // Aug 12, 2009 at 7:42 pm
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ottovbvs // Aug 13, 2009 at 7:00 am
6 liv&win // Aug 12, 2009 at 4:48 pm
………I see you never did show up and suggest a few corporations who might be using cafeteria plans(Marier didn’t either btw)…..Could that be for the for the same reason I never came across any of them because actually they are fairly uncommon?…..I don’t know too much about them as I said but conceptually I can see they might have some value for small companies or perhaps higher earners with a particular tax situation but as vehicle for insuring the great mass of private sector employees they seem completely impractical to me……btw in your role as insurance industry advocate I’m surprised to hear you think they are a good idea….somehow I don’t see GE’s carriers being thrilled to hear Immelt had ripped up all their contracts and put all his workers on cafplans
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gg1215 // Aug 13, 2009 at 10:41 am
UPS has a cafeteria plan as do many Hospitals that I represent in my work.
ottovbvs // Aug 13, 2009 at 3:38 pm
gg1215 // Aug 13, 2009 at 10:41 am
“UPS has a cafeteria plan as do many Hospitals that I represent in my work.”
……..This is probably because large numbers of their delivery men are technically self employed……would that be the reason?
sinz54 // Aug 14, 2009 at 7:59 pm
ottovbs: As part of RomneyCare, Massachusetts now requires all employers with more than 11 employees each, to offer cafeteria plans for all their permanent full-time employees.
Cafeteria plans are being experimented with by other states on an individual state basis.
oldgal // Aug 16, 2009 at 12:04 am
A different way to make folks see it is to include the health benefits in the paycheck and deduct the insurance premium from the bank account. Unfortunately, this only works for employees who have direct deposit. I never realized the costs until I retired and start paying my families premiums out of my checking account – a real eye-opener. When it is deducted from pay it just makes no impact.