Health Care As Employee Benefit

The cost of quality health-care in the United States is steadily increasing each year. Employees, employers, state, and federal governments are generally concerned with steadily rising health-care costs. Due to sky-rocketing health-care costs over the past few decades, the federal government has intervened attempting to regulate and resolve the issues caused by health-care providers and insurance companies. Continuously changing state and federal regulations make it increasingly difficult for employers to offer affordable health insurance to their employees with a cost spiral that seemingly is out of control.

In 2017, health-care costs in the United States totaled nearly $3.5 trillion. In 2018, the average yearly premium for employer-based family coverage increased five percent to almost $20,000, and for individual coverage, premiums increased three percent to nearly $7,000 (Miller, 2019). At the time of this research, the National Business Group of Health predicted that health-care costs would raise an additional five percent in 2019. $3.5 trillion for health-care costs in the United States is nearly 20 percent of the Country’s gross domestic product for 2017. For perspective, health-care costs in 1960 were $27.2 billion, roughly 5 percent of the United States gross domestic product for that year.

Why the Rise in Costs

There are two primary causes for the massive yearly increase in health-care costs. First and foremost, government health-care reform, policy, and regulations. Our County relies on a capitalistic market, company-sponsored, private health-care insurance. In July of 1965, during the Lyndon Johnson administration, the federal government established Medicare and Medicaid to aid tax-paying citizens without health-care coverage. These government programs drove demand for health-care services yielding health-care providers the ability to increase costs for services. In a Princeton University study, they found that people in the United States use the same amount of health-care as those in other countries, yet the United States pays more for the services (Anderson, 2003). Hospital services in the United States are nearly 60 percent higher than similar services in Europe. Substantially, government reform, policies, and regulations aimed to cut health-care costs have historically led to a steady increase in health-care costs.

Secondly, societal lifestyle changes, and an increase in chronic illnesses have aided in the rise of health-care costs. Examples of prominent chronic diseases include, but not limited to, diabetes and heart disease. In 2010, health-care costs of those with one chronic condition accounted for more than 85 percent of health-care spending. Chronic illnesses are expensive to treat. Nearly one of two Americans have a chronic disease, and more than 70 percent of those treated for chronic disease are on Medicare (Chapel, 2017). Medicare spending of patients in the last seven years of their life is six times the national average, and care for these patients is nearly 25 percent of the Medicare budget. Medicare spending of patients in the last six months of their lives visits their doctor's office more than 25 times the national average. Half visit the emergency room within their final month, over 33 percent find the intensive care unit, and 20 percent undergo surgery (Riley, 2010). Although there are more sick Americans every year, government policy inevitably drives the increase of health-care costs as they are responsible for the establishment of Medicare and Medicaid.

Government History in Health-Care Policies

Around 1960, the expansion of health insurance coverage drove health-care prices to increase by nearly nine percent each year through 1965. This expansion of health-care coverage covered more people raising the demand for health-care services. By December 1965, Americans paid approximately 44 percent of medical expenses out of pocket, while insurance companies paid roughly 24 percent. Due to the increasing use of Medicare and Medicaid coverages, health-care spending increased by nearly 12 percent each year from 1966 to 1973. Through these years, the government expanded Medicare paying for senior citizens to move into nursing homes. Demand drove supply leading to increased costs of nursing homes. Of other note, health research and developing expensive health-care technologies also contributed to the annual 12 percent rise in health-care (Catlin, 2015, p.7).

The Nixon administration implemented wage-price controls in 1971 in an attempt to stop mild inflation. This government policy mitigated the rise of health-care prices, leading to an overwhelming increase in demand for health-care services. This demand inevitably caused prices to increase. In 1973, the Nixon administration implemented more government policy, authorizing health maintenance organizations, such as HMOs, PPOs, POSs, and EPOs, in an attempt to cut health-care costs. Prepaid health maintenance organizations restricted users to particular medical groups. The HMO ACT, established in 1973 by the Nixon administration, gave taxpayer money to health maintenance organizations and required employers to offer these health-care policies to employees when available (Galewitz, 2011).

Health-care prices increased an average of 14 percent per year from 1974 to 1982. These increases are directly correlated to more government policies and regulations. In 1974, wage-price provisions expired, causing health-care prices to increase. Additionally, Congress enacted the Employee Retirement Income Security Act of 1974, exempting corporations from state regulations and taxes if self-insured. As you would expect, companies took advantage of these lower-cost, flexible plans. Lastly, home health-care services increase by more than 30 percent each year through 1982.

Health-care costs rose 10 percent each year from 1983 to 1992, while home health-care costs increased by nearly 20 percent each year. Congress passes the Emergency Medical Treatment and Labor Act in 1986, forcing hospitals to treat anyone that comes to an emergency room. Additionally, the federal drug administration allowed drug companies to advertise on television and the radio leading to drug cost price increase of 12 percent per year.

From 1993 to 2010, health-care prices only raised six percent each year due to a capitalistic approach of health-care insurance companies controlling health-care costs through the use of HMOs through the early 1990s. In 1997, Congress implemented the Balanced Budget Act forcing many health-care providers out of business. Subsequently, Congress implemented the Balanced Budget Refinement Act abandoning many payment restrictions imposed with the Balanced Budget Act. From 1997 to 2007, prescription drug prices tripled (Aitken, 2008). In 2003 the Medicare Modernization Act led to nearly 18 million people using the plan, inevitably driving up the costs (Woolhandler, 2003).

Continuous government regulation has caused health-care prices to spiral out of control. The dependence of private insurance companies led to health-care inequality while unaffordable health-care caused many Americans to drop, or opt-out of health-care coverage. Congress then passed the Emergency Medical Treatment and Active Labor Act, requiring hospitals to treat anyone who needed emergency care. Nearly 46 percent of hospital patients who visited the emergency room were uninsured. Hospitals endured more than $38 million of uncompensated care costs.

By 2009, Medicare and Medicaid costs were $671 billion consuming nearly 60 percent of the federal budget. In 2010, the Obama administration passed the Affordable Care Act in an attempt to reduce national health-care costs. Additionally, the Act required all taxpayers to purchase health-care insurance. To date, the establishment of the Affordable Care Act has decreased the number of uninsured health-care Americans ten percent while health-care costs have increased just 4 percent per year from 2010 to 2018 (Mangan, 2019).

Health-care costs will continue to rise in the United States. Based on historical trends, experts are expecting prices to rise five to five and a half, percent each year for the next decade. These costs could reach six trillion dollars per year by 2027. Health-care spending is expected to exceed economic growth, increasing from 17.9 percent of gross domestic product in 2017 to 19.4 percent gross domestic product in 2027 (Peterson, 2019).

Employee Health-Care Benefits

To manage a prosperous business, a company must keep its employees happy. One way to keep your employees happy is by providing your team with an excellent benefits package. The most valuable and expensive employee benefit is often health-care insurance. Health-care insurance is the most requested employee benefit. The highly sought-after benefit often motivates employees to stay with the company. Additionally, employee health-care contributions are pre-taxed.

Companies with over 50 employees, or whose employees work more than 30 hours per week, are required by law to provide their employee's health-care. Given the extremely volatile health-care market and the ever-increasing cost of health-care, health-care costs remain manageable for small businesses and corporations.

Choosing a Health-Care Plan

Marketplace

One way to manage the cost of health-care employee benefit is to choose the right health insurance plan to suit your business budget and employees. These options include Health Maintenance Organization, Preferred Provider Organization, Point of Service, Hight-Deductible Health Plan, and Health Savings Account Qualified High-Deductible Health Plan. Provide flexibility in options as both the employer and employee can financially benefit.

Choose wisely while keeping expectations realistic. The health insurance plan your organization chooses may not be adequate for all employees. Do everything in your effort to select a policy that benefits most of your employees. For the employees whose health-care insurance plan does not suit, provide them an increase in salary to aid the employees in purchasing an alternate health insurance plan on the market.

Adjust Deductible and Co-Pays

When increasing deductibles and co-pays, the company is often able to reduce the overall cost of group health insurance. While this may make financial sense for the employer, a higher financial burden often extends to the employee.

With a high deductible health insurance plan, both the employer as well as employees, will pay a lower premium. Federal law dictates these policies have a deductible of at least $1,400 for an individual and $2,800 for a family. Furthermore, the max annual deductible is $6,900 for an individual and $6,900 for a family. Due to the high-cost deductibles, employers could offer these policies in addition to a lower deductible plan.

Savings Policy

Another cost savings benefit is to combine a high deductible health insurance plan with a savings account. This method helps employees pay their high out-of-pocket deductible while providing both the employee and employer with a tax deduction. The Internal Revenue Service states an employer can deduct $3,550 for individuals and $7,100 for families. Unused savings remain in the respective employee's savings policy account. This account would stay with the employee even if they were to change employers. There are many tax-deductible savings examples available to employees and employers when combining a savings policy with a health-care plan. For specific details and examples of other savings available, employees should contact human resources.

Flexible Savings Account

A flexible savings account allows employees to set aside pretax funds from employees' income to pay for eligible out-of-pocket expenses. There are three types of flexible savings accounts available, and each offers unique benefits. The employer may provide more than one kind of flexible savings account. Like savings policies described above, the tax-deductible savings are different from individuals and families. It is common for employees to provide fund matching contributions for their employees.

Qualified Small Employer Health Reimbursement Arrangement

A Qualified Small Employer Health Reimbursement Arrangement (QSEMRA), allows small businesses to provide tax-free contributions to their employees without offering or providing a health-care insurance policy. The federal government approved the QSEMRA's program with the Affordable Care Act. Tax benefits include $5,150 per year for individuals and $10,450 for family coverage for both employees and employers. QSEHRA's are uncommon and unknown to the populace. Assuming an employer is to offer this program, Human Resources needs to provide thorough training and information to the benefits of this program.

Conclusion

Continuously rising health-care costs does not mean your company has to eliminate health-care benefits. Although there is no right or wrong way to manage health-care costs, choosing the right plans and coverages for your employees prove rewarding while selecting the wrong policy can be detrimental. An employer must communicate, in-depth, to their employees the health-care programs offered by the company. Choosing the right plan and educating your employees on the benefit plans provided keeps your employees comfortable and motivated to stay with your business.

References

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