Staying Alive

The struggles of a business trying to survive.

I got an e-mail last week with my health insurance renewal rates for 2012. (I have written extensively on this subject: on previous rate declines, on the subsequent feedback, on the health care overhaul, and on rates for older workers.) I opened the e-mail with some trepidation, given the general trend of substantial increases every year. Surprise! Another decrease: 6 percent less for single workers, married couples, and families.

Coupled with the decreases we had in 2011, our rates are down 22 percent from their peak in 2010. Single worker policies dropped from $424 a month to $352; family policies dropped from $1,246 a month to $971. Workers pay a third of that amount, and the company picks up the balance. (Except for me. Owners pay for themselves — and get taxed on that amount as income.)

Rates are one thing, sums are another. Here are the annual totals for my company, which employs 14 people. Twelve of them get their coverage through us, the others get it elsewhere. Health insurance will cost the company (i.e. me) $73,476 next year. The employees will pay another $19,260, for a total bill of $92,736. But it would have been much worse if rates had remained where they were in 2010: the total would have been $117,024, with the company paying $92,964 and the employees paying $24,060. The decrease saves the company $19,488, and saves the employees $4,800. That’s real money.

Coincidentally, I received this e-mail yesterday:

Hi Paul,

I know that the post about encouraging small businesses not to hire older workers is from March 2011, but the post really bothered me. I am 50 yrs old and work for a health care company. I can tell you that your rates are based more on your past claims, but please check with your insurance agent.

Being an older worker myself, I would advocate hiring those over 50. There are many factors to consider, such as: how long will a 20 yr old remain with your company — creating costs in hiring and training another employee, how many “sick” days will the 20 yr old incur, and other similar factors. I work with a diverse group of individuals, varying in age. I know that those over 40 yrs have a much different work ethic, which is invaluable in today’s economy. If I had my own business, I would definitely hire those willing to do the work and take the chance on higher health insurance premiums.  

Just something to think about.

Kelly B

Carlisle, PA

Come to think of it, my oldest, sickest worker left us in the fall of 2010. I know that he had a number of health problems (not job related) and that his wife had a hip and knee replacements while he worked for us. It hasn’t been by design, but the new hires I’ve added since then happen to be healthier and younger. We’ve added two single guys in their 20s, and one family guy in his forties, with a wife and three kids under 10.

In her e-mail, Kelly, writes that “your rates are based more on your past claims,” which reinforces something multiple commenters to my earlier threads have said: sick workers will cost you, and the cost can be substantial. My profit for 2010 was $92,155, from $1,516,837 in sales. That’s a 6.07 percent margin. Just changing my health costs from the 2010 rate to the 2012 rate would have increased my profit by more than 21 percent. It appears that the departure of my unwell employee will be of great benefit both for myself and my remaining employees.

Let me be clear: I am not writing about this to help others exploit the system; I am writing about it to help others understand the system. And what a system it is! If one of your employees falls ill, it can be a financial disaster not only for that person, but for you as well as for your other employees. That creates powerful incentives to discriminate against anyone who is likely to be sick: older people, obese people, people who simply look unhealthy. Sure, there are laws against all kinds of discrimination, but we all know it’s not that hard for employers to skirt them if they choose.

I have no solutions to offer, just a strong desire to get out of the health insurance business entirely. What’s happening with those exchanges I’ve been hearing about?

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside of Philadelphia.

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