No one would dispute that job seekers look for companies that have high-quality affordable health benefits. Three quarters of employees who say they have good health benefits are also highly satisfied with their jobs. Seventy-one percent of those workers are loyal to their employers. The Affordable Care Act (ACA), which promises to extend healthcare coverage to all Americans, should make a lot more people satisfied employees.
It would be interesting to ask those same employees if they would prefer a raise equivalent to the cost of their healthcare coverage instead of the healthcare benefits. Little do employees realize the full cost of healthcare. In fact, an article in the New York Times, “The Health Care Benefits That Cut Your Pay,” uses the example of a young 20-something employee making $35,000 per year and all the costs she will pay over the course of her career for healthcare benefits.
The $35,000 doesn’t go directly into her bank account through direct deposit. Instead, much is diverted before it ever gets to her bank account. In fact, the article estimates that she will pay about $1.8 million over her lifetime for healthcare benefits. That’s a low number, provided she stays single and healthy.
Some costs are transparent. Healthcare plans have deductibles, co-pays and out-of-pocket limits. You also have to pay monthly premiums, unless your generous employer foots the bill. Those premiums have to be paid from your income.
Employers may pay all or a portion of employee premiums. This is money that could be used for other employee benefits, such as raises. Employers may pay thousands of dollars per year on their portion of employee benefit premiums. How many employees would rather have an extra $1,000 a month in their paycheck?
The employee making $35,000 is paying about $1,500 in federal and state taxes to finance Medicare and Medicaid. Also, 1.45 percent of every paycheck goes to Medicare. Once that employee turns 65, she is eligible for Medicare, which will cost about $140 per month, payable for the rest of her life. Add to that the 21 or so new taxes attached to the Affordable Care Act, which employers will probably pass on in higher premiums to employees or cutting benefits. You get the picture.
These numbers are just for the cost of paying premiums and a few trips to the doctor for preventive care, the flu or a bad cold. If an employee suffers a major illness or injury, high-deductible plans, which are more affordable, can take a huge chunk of what’s left of that $35,000 yearly salary. Any costs over negotiated rates for doctors and hospitals, co-pays and non-covered services drive the costs even higher. Don’t even think of going out-of-network or utilizing alternative or experimental treatments.
The article explores a lot of solutions. One is to cover everyone, but not everything. Comprehensive healthcare plans cover every imaginable situation, doctor visits, and preventive care. Would healthcare be more affordable and manageable if it only covered major illnesses like cancer or heart disease or trauma? Routine preventive care, checkups and minor health conditions would be paid out of the person’s own healthcare savings. With lower premiums for both employees and employers, those extra dollars could be transferred to employees in the form of higher wages and more generous raises, bonuses and incentives.
The ACA will require employers to note the amount employees and employers each contribute to the cost of health insurance on W-2s. This will be a revelation to employees when they see how much is going to healthcare insurance they may not fully utilize or even need. That’s the good news. Even better would be to see those dollars in the income column of each paycheck, automatically put into personal savings account to pay for doctor visits, massages, alternative medical treatment, a weight-loss program or exercise equipment.
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