WHY EMPLOYER-BASED HEALTH INSURANCE IS UNRAVELING
November 1, 2005
Starbucks Corp. will spend more on health insurance for its employees this year than on coffee beans and General Motors (GM) will spend more on health insurance than on steel. However, Devon M. Herrick, senior health fellow at the National Center for Policy Analysis, says it is misleading to compare the cost of health insurance to the cost of a cup of coffee or an automobile.
As Herrick explains, health coverage is not a direct input into the production of either coffee or cars. Coffee beans and steel are direct inputs, as is labor. Health coverage is simply a form of noncash compensation for the labor input.
- Starbucks spends $200 million on its 80,000 U.S. employees each year, which includes part-time employees who work at least 20 hours a week.
- Starbucks' health coverage costs have increased at double-digit rates over the past four years, which is completely non-sustainable.
- GM expects to spend $5.6 billion on its 1.1 million workers and retirees this year, which amounts to $1,525 per car produced.
- GM decided decades ago to offer generous health care coverage and deferred benefits in lieu of higher cash wages, but if costs continue to increase at recent double-digit rates, eventually all of the company's assets will be required to pay for health care commitments made long ago.
Some industry experts argue the high prices will force employers to change the way they calculate compensation, says Herrick. According to compensation and benefits expert Richard A. Matthews of Desjardins Matthews & Company, when insurance costs were 2 percent of payroll no one cared. Now that they approach 33 percent for family coverage, everyone cares. Driven by the huge annual increases in the cost of health insurance premiums, Matthews believes it is inevitable that all employers, including Starbucks, will go to some form of "total compensation."
Source: Devon M. Herrick, "Why Employer-Based Health Insurance Is Unraveling," Heartland Institute, Health Care News, November 1, 2005.
Browse more articles on Health Issues