Why is New York killing health insurance for my employees?
The share of US companies that do not provide health insurance spiked this year, to nearly 55 percent. After next year, many New York firms may have to join them — or risk downsizing.
Thanks to a 2012 state law, many mid-sized firms — those with between 51 and 100 insured employees — may have to drop their health plans, beginning in 2019. Wittingly or not, the state is pushing employers to purchase much more expensive and often less comprehensive insurance.
Absent changes to the law, businesses and employees could collectively lose millions of dollars — and companies would have to consider staff reductions. Empire State legislators must change course.
At issue is a method of providing health benefits called “self-insurance.” Under this strategy, employers pay their employees’ medical claims directly, rather than buy coverage from a conventional insurer.
Self-insurance encourages companies to design comprehensive health and wellness initiatives that focus on keeping employees healthy, versus waiting to treat them when they are not. At my company, Pharos Systems International, our wellness program covers everything from subsidized exercise and yoga to classes taught by experts on topics like nutrition, child care and the impact of mental well-being on health.
The results can save employers and employees significant amounts. Since self-insured companies only pay for the health care their employees consume, they benefit from helping their employees stay healthy. Employers and employees can hold onto money they otherwise would have paid in insurance premiums.
Self-insurance’s holistic commitment to employee wellness has been the most appealing aspect of Pharos’ strategy. We’re organized as a “B-Corporation,” or “benefit corporation.” This designation requires us to adhere to rigorous standards governing our social and environmental impact — and to be accountable and transparent to our community. Providing a well-rounded health-care program is key.
Like many other self-insured employers, Pharos provides financial incentives for participating in our wellness initiatives. Employees who get blood work done or undergo a yearly physical, for instance, receive larger contributions to their tax-advantaged health savings accounts.
Pharos employees also have an additional incentive to keep their health costs in check. The savings from our health plan have allowed additional funding for quarterly employee bonuses.
Those savings have been real and significant. Before switching to self-insurance two years ago, Pharos faced double-digit premium hikes for conventional insurance coverage every year.
Since we started self-insuring and building our wellness initiatives, our health costs have dropped significantly and stabilized from year to year. We haven’t had to raise our employees’ health-care contributions for three years.
That will change unless the Legislature fixes the legal definition of “small employer,” which dictates whether a firm like ours can self-insure. A 25-year-old state law prohibits “small employers” from purchasing “stop-loss” insurance (a form of coverage that reimburses self-insured plans for medical claims exceeding a certain, relatively high threshold). Without stop-loss, a single catastrophic event — like a cancer diagnosis — could threaten our business.
In 2012, the state changed the definition of “small employer” from one with fewer than 50 workers to one with fewer than 100 employees. Conventional health insurers, seeking more customers, lobbied for the change. Together with their allies in the Legislature, they argue that the conventional insurance market is faltering and needs premiums from mid-sized firms with healthy workforces to stabilize.
That’s not appealing to firms like ours. A traditional insurance plan would cost each of our employees an extra $1,000 a year. The company would have to absorb an additional $3,000 in costs per person. All told, New York’s looming stop-loss ban could cost us and our employees $300,000 a year.
Other mid-sized employers are looking at similar losses. In response, they may have to scale back benefits, or even reduce the size of their workforce.
These are consequences no one wants — least of all New York, which is trying to keep and grow our entrepreneurial employment base. Mid-sized firms will soon have to choose what kind of health benefits they’ll offer after 2018. New York legislators must prove that they’ll listen to the voices of the electorate — not those of the insurance lobby — by rolling back their ban on stop-loss, so that self-insurance can remain a choice for employers.
Kevin Pickhardt is CEO of Rochester-based Pharos Systems International.