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The New Health Insurance Solution, Part 2

How Employers Can Save 50 Percent by Giving Employees Tax-Free Dollars
excerpted from The New Health Insurance Solution by Paul Zane Pilzer

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Cost Savings on Individual/Family Health Insurance versus Traditional Employer Group Insurance for the 80+ Percent of Your Employees Who Are Healthy

Employer-sponsored group insurance (2006): Single $4,500, Family $14,000

Individual/family co-pay (low-deductible) insurance: Single $2,076, Family $6,492

Individual/family HSA (high-deductible) insurance: Single $1,104, Family $3,192

These numbers assume an average age of 35 for your employees. As explained in Chapter 5, in some states like California, the monthly premium for a 55-year-old single individual is about twice the premium for a 35-year-old. Older employees will not benefit as much financially from a defined contribution plan (unless your company sets a higher level of HRA reimbursement for older employees), but they will greatly benefit from getting permanent, guaranteed-renewable health insurance that they will not lose when they lose their job. Moreover, the financial risk of an older employee developing an illness is now borne by an insurance carrier or the state versus the employees themselves, your company, and your other employees.

Unhealthy Employees Also Save Money and Get Safer Coverage

What about the other up to 20 percent of your employees who are not healthy or who have an unhealthy family member -- some of these employees may not medically qualify for affordable private individual/family health insurance. These 20 percent of your employees will not benefit as much financially as your healthy employees (unless your company sets a higher level of HRA reimbursement for unhealthy employees); however, they too will be much better off with a defined contribution plan -- because they will now have guaranteed renewable health insurance independent of their employment. As highlighted in Chapter 1, three-fourths of the millions of Americans who have filed medical bankruptcy had health insurance from an employer when they first became ill -- health insurance they lost when they became too sick to continue their job.

Here are the four options for your unhealthy employees or employees with an unhealthy family member:

1. Buy individual/family health insurance coverage from private carriers at uprated premiums 25 to 50 percent higher than for your healthy employees. For a family, only the portion of the premium allocated to the unhealthy family member will be subject to uprating.


2. Join the employer plan of their spouse -- but still get money from your defined contribution program, which they can use for co-pays, put into an HSA, or pay for the cost of participating in their spouse's health insurance.


3. In some states such as Ohio or California, if you cancel your employer-sponsored group health insurance plan, they can apply as a HIPAA-eligible individual to any private insurance carrier and receive a state-subsidized, guaranteed-issue individual/family policy at about twice the premium paid by healthy employees (see Chapters 3 and 7 for information on how they can qualify for state-guaranteed coverage).

Tip: Consult with your benefits counsel before directly advising your unhealthy employees about state-guaranteed coverage -- some states have regulations prohibiting employers with group health plans from actively encouraging their unhealthy employees to get state-guaranteed coverage, and these regulations could apply to your HRA program under certain circumstances.


4. In other states, such as Texas or Illinois, if you cancel your employer group health insurance plan, your employees will instantly qualify for subsidized state-guaranteed insurance with no exclusions for preexisting conditions -- receiving virtually identical coverage as healthy employees from the leading carrier in their state (e.g., Blue Cross Blue Shield of Texas or Illinois). This coverage will cost about twice the premium paid by healthy individuals.

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