Do you have a clue as to the total cost to your employer for your health insurance? When most employees pay at least some portion of their monthly premium, the general impression is that the employer probably pays "the other half."
But in most cases, the employer is paying a major share.
Here are some examples of what the total cost of an employee's medical insurance premium can be for me, a small-company owner with 25 employees: At Blue Shield, the annual cost for a 35-year-old is $2,616. For someone age 55, the total annual cost is $6,132. This is for a Preferred Provider Plan (a PPO pretending to be an HMO) that has a deductible of $2,250 and that limits the choice of doctors and hospitals to a group that has negotiated a fee package.
Since the deductible of $2,250 must be paid with out-of-pocket cash until the policy begins to pay anything, I, like many employers, now offer to pay (self-insure) whatever expenses fall within the deductible. On the average, in my experience, the cost of picking up the deductible has been about 60 percent of whatever the total exposure might have been for all the employees and dependents covered under the plan. On average, I'm paying $1,350 of the deductible amount (60 percent times $2,250.) The total annual cost for the 35 year old is $2,616 plus the $1,350 for a total of $3,966.
For the 55-year-old, we have total annual premium costs of $6,132 plus the $1,350 for a total of $7,482. In larger companies, there is one premium amount based on the average age, but it is constructed using rates based on age brackets.
If we include an employee who is covering a spouse and children, the total cost for the 35-year-old (including the employer's average cost of the deductible amount reimbursement) is $9,698. For the 55-year-old, the total annual cost is $15,186. If these costs rise by what some have said could be as much as 30 percent for companies renewing their plans, we'll be looking at $12,607 for the 35-year-old with a family and $19,741 for the 55-year-old couple with children.
The average employee doesn't realize how much these costs impact and limit the rest of their compensation - or, for that matter, the cost of the products or services they are trying to sell. Most employees don't understand that from the employer's perspective, what it pays for health care is simply a component of their pay, so that big hikes in premiums have an impact on employee salaries.
The numbers above should disabuse anyone of that misimpression, and it should help us understand why salary increases won't be all that forthcoming if America doesn't get control of its health care costs. For someone making $40,000 who is 55 with children, this increases their cost to the employer by 50 percent. Imagine what this does to discourage the creation of a new job.
What's also maddening is that 30 percent of the money is spent on administration. California law only requires insurance companies to spend 70 percent on actual medical services. By comparison, the administrative cost for the Veteran's Administration health care program is 5 percent.
If it does nothing else, the forced transparency of the new health care legislation will launch what will be an epic battle between the medical community, insurance companies and the government. As they bludgeon each other into submission, the result in whatever form it takes should reduce insurance premiums by at least twice what some of us will expect to pay in additional taxes.
Given the above numbers, and examples set by other countries, there is plenty of opportunity to save money.