A lot of folks get their insurance coverage through their employers. And most pay at least a portion of the premium; the employer subsidizes the rest.
NB: I agree with Prof Sowell that this is “smoke and mirrors” economics, but that’s really not the focus of this post. Another time, perhaps.
In any case, most of us who get our insurance from our employer’s group plan have the premiums deducted from our paychecks (often pre-tax: c.f. IRC Section 125), and many come to believe that that contribution is the sole sum and substance of what the insurance costs. In other words, we believe that it really only costs $50 a week to insure our entire family, and we’re shocked to find out, when it comes time to elect COBRA continuation, that our measly weekly amount is the proverbial “tip of the iceberg.”
I had always suspected that most folks were woefully misinformed about the true cost of their insurance, but a recent study by MetLife bears this out:
" More than one-third of employees ages 21 to 30 and 28% of workers overall believe their companies spend less then $1,000 annually toward each individual's health insurance and about half the respondents believe the annual figure is less than $2,000. ”
If we take that $2,000 at face value, that means that almost 50% of our co-workers believe that their insurance costs less than $40 a week. According to the study, the true cost for family coverage is more like $7,200 a year, or almost $140 a week. That’s a pretty big disconnect.
So how does industry resolve this fundamental difference of opinion? Well, corporations can be more proactive in communicating with their employees. There are several services available that actually take the raw data (premiums, claims, etc) and massage them into a comprehensive, but quite readable, newsletter that goes to each employee. These personalized notes point out how much one’s employer really spends on health insurance, as well as worker’s comp and other coverages.
Another, perhaps more disturbing, issue that came out of this study is that over half the employees surveyed "say they value immediate-term benefits such as paid vacations more than income-protection products such as retirement plans, disability benefits, life insurance and long-term care." This seems to track with our cultural bent toward instant gratification, but it also results in a national savings rate of just a little over 1%, which is the lowest since the early 1930’s. Again, I think that this has to do with a fundamental lack of knowledge of how much the things we need really cost.
So, how do we overcome this communication shortfall? Well, as consumers, we should be more proactive: ask our providers about alternative treatments, and about how much services cost. And we should really read those annoying EOB’s: sometimes, the bills are wrong (surprise!).
Smaller employers should ask their agent to periodically come in and meet with employees, answering questions and explaining benefits. Larger employers should at least consider using one of those “benefits newsletter” service I mentioned above.
And I think that carriers should re-examine what information they put on EOB’s. Here’s a thought: how about, in plain English, explain exactly what was covered, how much of that went to the deductible, how much was paid at 80% (or whatever) – all in big type in the middle of the page, instead of mice-type in different areas, making it hard to piece together.
OK, rant over.
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