The End Of Our Company-Paid Health Insurance

For 15 years, I have taken pride in paying the full cost of health insurance for every full-time Palisades Hudson employee who wanted it. This month marks the last time I will do that.

Beginning in October, our 20 employees will make their own decisions, and their own arrangements, regarding health coverage. They can stay on our company’s plan, but they will have to pay the entire cost – ranging from $574 to $683 per month – themselves, through payroll deductions. Though I am raising everybody’s salary by $3,000 per year, or $250 per month, as a partial offset to the loss of company-paid health coverage, those who remain on the company plan will have a significant new out-of-pocket expense.

Some will undoubtedly make other arrangements instead. A few can elect to be covered under a spouse’s or domestic partner’s plan. In New York, where a state law already requires insurers to cover family members through age 29, some may be able to join a parent’s plan. These staffers may end up benefiting from the pay raise.

My employees could opt to go uninsured. The new federal requirement for all adults to have insurance or pay a penalty does not take effect until 2014. I hope nobody makes this choice, but they are adults, and the decision now is in their hands.

Our employees in Florida and Georgia have checked out the market for individual insurance. In those states, they may be able to purchase acceptable, if not ideal, coverage with the $250 per month raise I am giving them. There are adverse tax consequences, which we may address later with some type of flexible benefits program, but our workers in those states need not take a big economic hit to stay insured.

New York is another story. It has a broad range of mandates for individual insurance policies that make such coverage in the Empire State very expensive. Our Scarsdale staff is likely to find that the company plan, expensive as it is, is cheaper than individual insurance even for a healthy young adult.

My actions are not coming as a surprise to anyone. I wrote in this space in March that the Affordable Care Act, which was enacted later that month, is likely to make health coverage anything but affordable for those who actually pay the bills. I have no desire to stand next to the tracks in order to watch this train wreck unfold at close range. Though the most significant impacts are delayed until 2014 and beyond, I have no guarantee that the law at that time will make it economically practical to change my company health plans. So I am making the changes now.

When they wrote this year’s legislation, policymakers had a choice: They could emphasize near-universal coverage, or they could emphasize controlling costs. They opted for near-universal coverage. As a result, business owners and higher income Americans (many of whom, like me, are one and the same) will soon pay an array of higher taxes to finance the broader coverage that President Obama and congressional Democrats mandated.

So I now find myself responsible for paying for health insurance for more than 30 million strangers. Yet the cash needs of my business, which is growing despite the difficult economy of the past few years, are not going to decline. Nor are my personal financial commitments going to decrease. The only way to make financial room for those 30 million strangers is to stop paying for insurance for the 20 people I work with every day.

Politics mandated that Obama and his fellow Democrats at least pretend that their legislation will constrain runaway spending. The new law’s very name is part of that pretense. But there is little in the actual legislation that has any real prospect of controlling spending; instead, the law attempts to control premiums by fiat through new regulations and oversight. Government may be able to prevent insurers from pricing policies in ways that make sense, but it can’t force them to operate at a loss. The other shoe, in the form of higher premium prices or a rollback of the new law’s mandates, is certain to drop. Higher prices are the more likely outcome.

I am not the only employer reaching this conclusion. AT&T (T), Verizon (VZ), Caterpillar (CAT) and Deere (DE) have all contemplated dropping their health benefits as a result of the health reform legislation. About 63 percent of businesses intend to shift a higher percentage of premium costs to employees in 2011, according to a survey recently released by the Washington-based National Business Group on Health. The survey included 72 companies that employ more than 3.7 million people. In most cases, the change will likely be a gradual one rather than an immediate move from fully employer-paid health care to fully employee-paid health care. But, over time, companies around the country will probably reach the same endpoint that I did. It is far easier for a small business owner like me to make a drastic change than it is for a global corporation.

The law’s supporters will portray employers like me as bad guys who are using the new law as a smokescreen to make changes we wanted to make anyway. Though the accusation is false, it has a germ of truth: Runaway health insurance costs have been a burden for every business that pays them. Every sensible manager has at least considered steps to stem this financial hemorrhage. Many of us were just holding on so as not to disrupt employees’ lives while we waited for policymakers to do something.

Now they have done something, and it only made the problem worse. There is no longer any reason to wait.

Want to blame me for cutting my employees’ health insurance? Go ahead. Just keep in mind that the only power I have is to sign checks. I did not create our broken system, and I am not the one who wasted an excellent chance to fix it.

About Larry M. Elkin 525 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

1 Comment on The End Of Our Company-Paid Health Insurance

  1. I’m sorry to hear this for the employees, but you sure sound a lot like Fox News propaganda, actually verbatim. You obviously have a good memory, are very intelligent, and extremely self-serving. The employees (hopefully for you) will be converted to your political philosophy by taking a financial hit and blaming Democrats for their crummy fate, instead of you. It’s not your fault, it’s those dang Democrats! I’m well aware of the skyrocketing health insurance costs, which continued upwards under Republicans as well as Democrats. But why bother with facts when you need to make your political point? Maybe your employees’ financial suffereing will make them see your “light”. Too bad about your upcoming higher income taxes, I don’t have that problem along with the vast majority of Americans. I bet you never used the term “financial hemorrhage” while the Republicans ran up federal deficits, ran the USA financial system in the ground, and crashed the economy.

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