As with many of you, as a small-business owner, I have any number of operating expenses each month. One significant expense is health insurance. On the first of each month, I write a check to my health insurance provider for about $10,000. Other than the costs of parts and payroll, I have no larger expense than health insurance. Midas of Richmond employs 29 people on a full-time basis, and that is the cost of providing a reasonably good health insurance package for them.
Now the crazy part: When I went through my annual renewal this year, my premium increased 19 percent. To the best of my knowledge I had no hospitalizations, no new babies joined the Midas of Richmond clan, nothing of import seemed to happen with respect to the health of my company, and our premiums went up 19 percent. That is crazy!
President Obama has a plan to fix our national health care program, so do the Republicans, even my Golden Retriever, Gumbo, has an outline he started sharing with me before he got distracted by a squirrel. I don’t have a plan – creating a health care plan is above my pay grade.
I do have two sharp perspectives though. Although I do not think people have a blanket right to health care, I do feel people have a right to have access to reasonably affordable health care. I also want you to understand that anyone who chooses to have Midas of Richmond take care of their vehicles has some aspect of these health care costs reflected in the prices they pay.
That is the simple set of economics behind how we set up our pricing matrix. This applies to any business you choose to have a relationship with. So we have a health-care system that is a runaway train. Who is responsible?
Each of the parties involved – from drug companies to hospitals to insurance companies – points the finger at someone else. In my experience, no solution can be found in a dynamic like that.
How about letting the government take over? The thought of the government managing any service industry is a serious concern to me. I have yet to see any government program that has efficiencies and competencies comparable to those found in the private sector.
Where are we then? For as long as I am a small-business owner, I will provide my employees with a significant health-care subsidy.
We need a menu of private sector programs that foster competition, innovation and market-based pricing. And, foremost, we need cooperation among insurance carriers and medical care providers, health care and wellness, private sector and public sector, and bottom line affordability.
If we set bottom-line focus aside and reverse-engineer a program offering those who are involved in it a return consistent with the risks they take, it seems to me there would be a solution to be found. If you are so compelled, search online for Harvard Professor Michael Porter’s recent comments, and book, on health care – there is a great template there.
There is a quote that I do not know whom to attribute to that states the thought process that got us to the point we are at will not be sufficient to offer a solution – in short, what got us where we are will not get us out of it. As I said earlier, Gumbo has some unique ideas, and if you watch the Sunday morning talk shows, there are a lot of Gumbos out there. This is a community issue, and we are the community – get involved, be heard and help create the solution.
Mark Smith owns the local Midas franchise.
Mark Smith outlines the problem well.
I understand his concern about government controlled anything. But, the only player in the position to do anything he wants to do is the government. And everyone agrees. The question is how.
Susan A. Miller, M.D., a clinical professor at Virginia Commonwealth University’s department of family medicine who is involved an organization called Physicians for a National Health Program, wrote column worth reading.
And she might have provided one clue Mr. Smith’s question about why his rates keep going up when she reported that Medicare overhead is 3 percent, while the private insurance industry takes 30 percent of the health care dollar for CEO salaries, profit, and administrative overhead.
Here’s the link:
http://www2.timesdispatch.com/rtd/news/opinion/commentary/article/ED-MILL12_20090710-195604/279279/
Spoke with Mark this morning. He trusts wholeheartedly that his broker is acting in his best interest because they have been working together for over a decade. I offered to show some wonderful Consumer Driven plans that could save him 30-50% from his current premiums and reduce his annual increases to below 3.5% instead of the 14.5% that Anthem just released for the 4th quarter He declined because he thinks his broker would have shown them to him if they worked….
You said it yourself, Mark. “19 percent. That is crazy!”
Nice write up though.
Unlike Mark Smith’s experience a small business owner friend of mine did not have his health care premiums increase at all this year. He may have been lucky but he told his employees that he would continue to pay the full cost of their health care plan if each employee, (and covered family members) chose a primary care provider and had a physical exam.
The other option is to shop for a different health care carrier. Our company compares our plan with what is available annually and when the need arises it changes carriers. That’s what competition is all about.
If we end up with any of the federal plans being considered, goodby competition and don’t expect costs to be contained , they never are when the government runs any program.
Mark,
I really enjoyed this post and your perspective. Thanks and keep ‘em coming!
My premiums would have increased for the 10th year in a row if I’d stayed with Anthem. I’m saving almost 50% and keeping most of that savings in a tax-sheltered HSA. Imagine that, KEEPING the money instead of paying Anthem “just in case”… I believe in consumer-driven health care because it simply works. Even in my worst case scenario this year, I would have easily saved $2k, as it is we should save almost $5k as a family.
Alan speaks the truth. I endorse him enthusiastically.
Let me attempt to answer the premium increase question.
The reasons that your premiums went up 19% most likely had nothing to do with you or your employees. It had nothing to do with your broker trying to make more money off of you. It had nothing to do with the Insurance Company trying to make more money off of you.
The fact of the matter is that our current HMO/PPO or co-insurance/co-pay insurance model is broken and has been for a long time. We are no longer paying for health insurance, rather we are prepaying for health costs that we may incur. Do you know what your $25 co pay for a $69 office visit is costing you in premium every month? Did you know that the $15 co pay drug you are taking may actually cost $4.99 in the generic form at Kroger? Have you ever looked into it? Has there ever been any reason to? No, its only $15. But if the insurance company is paying the drug company $60 for that prescription, believe me, it is built into your premium. With the current, popular system, there is no incentive for people to collectively make better healthcare cost choices. Sure you can keep increasing deductibles, co pays, and out of pocket limits. That is only a band aid, and a bad one at that, as you are only passing tax deductible premium payments to post tax costs to your employees.
Insurance exists to insure against Low Frequency High Cost expenses. Heatlh insurance as we know it today is prepaying to receive benefits of High Frequency Low Cost expenses. Do you buy car insurance to cover your weekly gas fill ups? Anyone interested? Didn’t think so…
Consumer Driven Health Plans (CDHP)
Consumer Driven Health Plans define themselves. They are designed to empower the consumer to make decisions about how their healthcare dollars are spent. The catastrophic element of the insurance still exists for if you get sick. But the idea is to take away the insurance for the $5 drug or the $69 office visit and give the consumer the premium savings. Most people are taking these savings and contributing to HSA’s (Health Savings Account) a triple tax saving device. Tax free in, tax free growth, and tax free withdrawals if they are spent on medical expenses. Dental, Medical, Eyeglasses, orthodontics, and even over the counter expenses at your local pharmacy apply. If the money is not spent, it rolls over to the next year and accumulates.
Lets talk about my friends Scott and Cara. Scott and Cara received a lovely 15% renewal increase this past December putting their family premium just over $1131 per month. After a few research and education sessions with them we honed in on a CDHP from nHealth. Their new premium is $570 per month. That is an annual premium savings of $6,732. Their total family Deductible is $4,000! The most that a family can contribute to an HSA account per year this year is $5950. So they actually could not put all of their savings into the account, but I would say $5,950 is sufficient considering their combined deductible is $4,000. And I am not sure of their tax bracket, but it will surely help out the refund next April.
Why did their old broker not show them a plan like this? Not going to go there in this response, but I think you can figure it out.
Mark Smith is correct – what got us into this mess will not get us out. Continuing with private insurers, who add significant cost without adding value are a significant part of the problem. So is Congress who would not allow price competition for drugs when the VA had been doing quite well with it for years.
I believe that the federal government now insures around 40% (I am not sure of that number) of the population through various programs. That seems to be working reasonably well.
Moreover, a part of our world business competitiveness problem is our crazy health care insurance program. Before GM failed, the embedded health insurance cost per vehicle for health care for existing employees and retired employees was significantly higher that that of the Japanese manufacturers.
Doing the same thing over and over again and expecting the outcome to be different …
Well said Mr Smith. I would advise anyone interested in this topic to google Regina Herzlinger – a Harvard Business School professior (head of the program). She has written a book – “Who Killed Health Care?” which I plan to soon read. She made a presentation this past Wednesday at Lewis Ginter and has excellent ideas – she has researched this topic extensively and I came away with two very significant points. 1) – putting the cost of federally funded health insurance on the backs of small business in bad publi policy. 2) Health care reform must be consumer driven. Put the health care decision back in the hands of the consumer. Providers will soon enough provide the basic care the masses desire.
The economic policy necessary to accomplish is beyond this discussion but let’s all get involved. We can make a difference. Mr Smith has issued the call to arms.
I appreciate the responses each of you have offered — thought provoking on a number of fronts.
Over the weekend, I happened upon a piece in the New Yorker called “The Cost Conundrum” by Atul Gawande. If you want to see a possible scorched earth scenario, this article is worth the time.