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Benefits likely to get tighter, premiums to climb higher

As I See It

In the post-World War II economic boom, U.S. employers searched for ways to bind employees to their jobs.
If my recollection is accurate, the Internal Revenue Code of 1954 first allowed employers to furnish health insurance tax-free to their employees. This provided an opportunity to build employee loyalty on a tax-favored basis since the company could tax deduct the cost without the employee having to report the income. In those days, group health insurance was fairly inexpensive and providing it became standard practice in corporate America.

Large companies also began offering their employees retirement pensions. The combination of health insurance and pensions did the trick of increasing stability in the workforce. In the 1950s, it became the mantra of middle America to find a good job and stay with the company until retirement.

A little problem with the plan

But there was a glitch in the pension plan arena.
Pensions, as opposed to profit sharing and 401(k) plans, promised the retiree a fixed retirement benefit regardless of how the economy performed. The glitch was that many of the pensions were unfunded, meaning that no money was set aside to pay the pensions. Without funding, pensions were merely entries on the employer’s books.

This situation reached a tipping point in the 1960s when Studebaker, the automobile manufacturer, fell on hard times and filed for bankruptcy protection. The move left thousands of long-time employees with nothing.

Outrage over the Studebaker event led to the passage of the Employees’ Retirement Income Security Act (ERISA), which was signed by President Gerald Ford on Labor Day, 1974. That act required that, henceforth, pensions be funded and the adequacy of the funding was subject to government oversight by the Pension Benefit Guarantee Corporation (the PBC). This was the beginning of the end for pensions in America and opened the door for the arrival of 401(k) plans.

Changing corporate philosophy

ERISA also signaled the beginning of the end for an entire philosophy across the board in corporate America.
Increasingly, employers have taken less and less financial responsibility for the well being of their employees. Pensions, which were based on an employee’s salary, were replaced with 401(k) plans with employees contributing to their own retirement. The retirement benefit is based entirely on performance of the earnings of the plan.

This change of philosophy toward responsibility for the employees financial well being served the business community well when healthcare costs began to escalate a few years ago. Because the demise of pensions were a crack in the armor, it was easy for employers to change their policies to pass along some, or all, of the cost of healthcare to their employees.

The cost of health insurance has become increasingly untenable for many companies. When I first launched a business in 1976, our secretary’s salary was $700 a month and her health insurance was $35 a month, or about 5% of salary. At current rates, employee health insurance now costs more than 23% of average salaries here at the Mississippi Business Journal. It’s a long way from a fairly nominal 5% to a very significant 23%.

Where is trend going to take us? For the foreseeable future, employees will increasingly be required to shoulder more and more of their healthcare costs. Benefits will be less generous and premiums will be higher. The word “fringe” implies something outside the mainstream, an add-on. Twenty-three percent or more of salaries, when added to the 8% Social Security and unemployment taxes paid by employers, is far beyond the definition of fringe.

Long-term, something’s got to give. Should health insurance premiums continue to increase by 10% to 15% annually, while prices and wages are increasing at 3% to 4%, eventually health insurance would consume our entire paycheck. The answer is very simple, and very foreign at the same time.

We are going to have to take responsibility for ourselves and become healthcare consumers with a stake in the cost of our treatment. We operate with the deeply ingrained, and erroneous, assumption that our healthcare costs are a matter to be settled between the insurance company and the healthcare provider. This attitude will soon fall by the wayside. When no one is watching the cost, the healthcare providers will raise prices and the insurance companies will raise premiums and the consumer will take it on the chin all the while believing that someone is watching out for his interests.

What are the options?

Employees at the MBJ chose to reduce benefits and raise deductibles in order to avoid increasing the premium when our group health insurance came up for renewal earlier this year.
Now, two of my prescriptions that had required a $20 co-pay each now costs $50 apiece, and I find myself wondering if I really need the drugs. Regardless of whether or not I choose to continue the medication, the point is I am becoming a more aware consumer as the cost is increasingly coming out of my pocket. That is the very essence of what is needed to check the rampant escalation of healthcare costs across America.
What will be the ultimate outcome to our healthcare debacle?
One of two scenarios will occur. One, we will all become better consumers of healthcare and make the providers hold the line on cost or, two, we will decide that healthcare is a right of all Americans and government will be tasked with providing it.

Not that I’m advocating controlled healthcare, but 65% of all Americans are already subject to managed care in some form or other. Medicare, HMOs, Medicaid and other cost-controlled programs protect the majority of insured patients. How much longer can the unprotected 35% of us carry the load?

Thought for the Moment

Some people give time, some money, some their skills and connections. Some literally give their life’s blood. But everyone has something to give.— Barbara Bush

Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at cpajones@msbusiness.com.


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