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The End of Employer-Provided Health Insurance

The co-author of a new book says that day is near and it's a good thing

By Richard Eisenberg

Could employer-provided health insurance be going the way of employer-sponsored pension plans?
Rick Lindquist, President of Zane Benefits, which specializes in individual health insurance reimbursement for small businesses, says: Not only could it happen; it’s happening already.
Lindquist and Paul Zane Pilzer (who founded Zane Benefits), argue that case in their new book, The End of Employer-Provided Health Insurance. As surprising as you may find the title, get a load of its subtitle: Why It’s Good for You, Your Family and Your Company.
Lindquist and Pilzer’s Salt Lake City, Utah-based company stands to profit if employers shift from traditional health insurance and toward their defined-contribution reimbursement system. In that model, employees are given a flat amount of cash from their employers — say $500 a month — told to buy a health care plan with it and that their firms will cover their medical costs.

(MORE: 10 Things Your Health Insurer Won't Tell You)
Still, I wanted to learn more.
I recently spoke with Lindquist about why he thinks employer-provided health insurance is the employee benefits equivalent of now-you-see-it-now-you-don’t Snapchat.
Next Avenue: Why are employers moving away from offering health insurance?
Lindquist: There will be a massive shift; in fact, we’re in the middle of it. People categorize this as employers dumping health insurance. Yes, they stop offering insurance but they don’t stop offering benefits. They’re just changing they way they deliver them and replacing them with defined-contribution plans. It could save millions of dollars for employees and employers.
How fast is this switch happening?
In our book, we project that by 2017, the majority of small businesses that now offer health insurance will switch to defined-contribution. This is being led by small business owners. But it doesn’t stop there.
A few years ago, some big companies [Verizon and AT&T] leaked documents saying they were evaluating dropping health insurance plans.  Some big companies will drop their plans and that will have a snowball effect. We project that 90 percent of all businesses will drop offering health insurance plans in the next 10 years.

(MORE: How to Get Help Paying Medical Bills)
Why don’t we see more big companies doing this?
They don’t understand it. Plus, there’s a cost to make the transition: To avoid a revolt, you need to educate employees, which is hard. It will happen.
Why is this happening?
Since the early 2000s, health care costs for businesses have been growing faster than any other employee cost. And they’ve shifted the cost to employees over the last 15 years with higher deductibles, higher co-pays and higher premiums.
As costs rise, especially for small businesses, either the employees stop taking the plan or they go with their spouse’s or buy their own. This causes participation issues for the employer and the plan is then cancelled by the carrier.
What small businesses are doing is saying: What are my choices? Because when a new hire says what are my health benefits, you need an answer. So that has led to the designing of these programs.

(MORE: Obamacare and Your Taxes)


Why do you say they’re good for individuals?
Health insurance is one of the most important and expensive products we buy. But who’s in charge of picking it? Your employer. You could lose your job and then lose your insurance. Or your doctors can cancel participating in the middle of a health event for you.
This new system is a gift from the employer, especially when it offers a way to save money compared with the old plan. Now you have a choice: You can say: ‘I want that plan with these doctors’ and another employee can say ‘I want that plan with these doctors.’ You can change to another plan in a year and if you leave your job, you can take your plan with with you.
How exactly does this new system work?
The easiest way is to provide a stipend. In your paycheck, you might get $500 a month as your health insurance stipend. The problem is that money is taxable; it’s not like group health insurance.
At Zane Benefits, we have a solution to that. We establish a formal reimbursement program that complies with federal tax rules. We say: There’s $500 a month but you only get it if you buy coverage and prove you bought it.
Tell me how these plans compare in coverage and cost with employer-provided health insurance.
The key is that you can have whatever you want when you shop on the individual market. And now you’re required to be an educated consumer.
How much money does the employer give the employee?
It varies. But in every situation, it makes employees equal or better off than before. The policies can cost 20 to 60 percent less, depending on your age and location —  up to 80 percent less if you’re a low-wage worker and your income is less than 400 percent of the poverty line.
Is coverage better than what the employer provided?

It’s up to the employee. Let me use a car analogy: You can buy a Ford or a Maserati; a bronze, silver, gold or platinum plan. You can find a policy with coverage that’s comparable to what you had.
What does this all mean for people in their 50s and 60s who aren’t yet on Medicare?
Health care is the No. 1 threat to early retirees. One of the messages in our book is that if you’re an early retiree or plan to retire and you’re counting on your employer to offer you health insurance in retirement, well, don’t plan on it. When they cancel health insurance plans, they will cancel retirement coverage.
How should employees faced with buying insurance this way do so wisely?

You can’t make a giant mistake because there are minimum standards that every plan must cover. The biggest mistake is not picking the right network of doctors. If you don’t go to the doctor much, you might take a bronze or silver plan. If you need a lot of health care, you’d want a gold or platinum plan.
Once you pick the coverage, do a provider lookup to be sure the doctors you want are covered by those plans.
What would you tell people who don’t like this idea?
The fact is, whether you like it or not, the current model of group health insurance is unsustainable. Something’s got to give. Just like it did with pensions.

Photograph of Richard Eisenberg
Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More
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