Consumer Focused Health

Much as people have separated church from state, the private life of an employee used to be sacred ground outside of work. Health advocates are beginning to encroach on those rights– and the end of days for employer-based comprehensive health insurance has come upon us.

In an effort to motivate workers to kick unhealthy habits, U.S. companies are hitting them where it hurts: in their wallets.

Employers who provide health insurance often use financial incentives, such as contributions toward premiums, to encourage workers to participate in wellness programs like smoking-cessation courses.

Now some employers are wielding a stick as well as a carrot. Employees at some companies who are overweight, smoke, or have high cholesterol, for instance, and who don’t participate in supplementary wellness programs, will pay more for health insurance. In extreme cases, employees’ insurance deductibles could rise by $2,000.

Remember, prior to wage freezes around WII that gave significant tax advantages to benefits over wages, most people looked to their jobs for money and paid for their own health expenditures.

The World War II wage and price freeze encourages employers to look at employee benefits as a way to improve employee morale.

Tax law changes reinforces this trend by: (1) making employer expenditures for employee benefits deductible as a business expense; and (2) not taxing as income the health benefits received by an individual employee.

At the end of World War II, the Supreme Court concludes that the term “wages” includes health care and pension benefits; and, therefore, these benefits become legitimate items for collective bargaining under the federal labor laws.

As a result, group employer-based health care coverages grow dramatically. Even the Blues aggressively market group coverages to employers. In 1940, only 12 million people had health insurance. Blue Cross/Blue Shield covered more than half of the covered population and commercial group insurers covered 2.5 million people. By 1960, more than 122 million individuals have coverage and more than 100 million are covered through group commercial (55 million) and Blue Cross/Blue Shield (58 million).

So as costs for enforcement of healthy behavior rise– and subsequently deductibles, premiums, and other costs for the unhealthy rise as well, companies will be reducing the risk pool subsidy given to the unhealthy/ sick and increasing spend on monitoring/ enforcement.

What are the implications for this? Likely companies will look for a simpler, less costly solution for their employees. Some potential options include:

• Defined contribution benefits: As the health insurance ticket rises, employers (and employees with costs passed down) will increasingly opt out of defined benefit health insurance to defined contributions to health insurance or benefits packages in general.
• Cafeteria benefit structures: Defined contribution (of resources) to any tax-free benefit package including days off/ PTO, health benefits, dental, vision, life, 401K, etc. As more young people decide to take PTO over health benefits, the transfers to the sick pool will fall apart.
• Move back to catastrophic-only plans: Truly high-deductible plans covering almost no care would bring back the retail health marketplace– likely to take some time, but the next step along the road from CDHP
• Exit from health insurance period: With rapidly escalating premiums and fewer companies offering insurance, we’d have a true return to retail health care with purchase of catastrophic/emergency only accounts. This would begin the dismantling of the comprehensive health infrastructure and indicate a shift back to primary care

After all, when the hassle of offering health and competitive advantages in recruiting are outweighed by long-term impact on the salaries and the bottom line, business will at some point drop this unappreciated, stress-inducing product.

The implications to a system grown fat on sucking increases out of bureaucracies (and unable to coax individuals to pay smaller amounts out of their own wallets) are immense– and should reshape the system to become far more consumer-friendly.