Would a company let a member staff go because their health insurance cost the company more?
August 1, 2004 8:58 AM   Subscribe

I don't understand something about health insurance benefits.

I'm wondering why this hasn't ever dawned on me before, but I just thought of this recently and don't know if I'm on the right track. A company employs two people and pays them the same salary. They both opt for the company's health benefits package, so the same fee is deducted from their paychecks.

Now, the company also pays out a certain amount of money per employee to the healthcare provider, right? Is that amount uniform across the board, like the amount deducted from everyone's paychecks? Or does an employee's health dictate how much money the company will have to shell out to keep the employee on the health plan?

The obvious next question is when it comes time to trim down the staff because the company is hemorrhaging money, will the company save more money by laying off the employee who gets sick and expensive instead of the employee who doesn't? That doesn't seem fair, but is that the way it works?
posted by emelenjr to Work & Money (12 answers total)
If the company is self-insured, but I don't think a company with 2 people would do that. Most companies pay an HMO a certain amount per employee, and then the HMO pays a certain amount to the health care provider.

I guess a company *could* decide to deduct a smoking employee more for their health care costs, but I haven't heard of this happening. However, HMOs do, I believe, hold onto employee data and make changes in employer costs based on employee health. (This is very rough for small businesses, who don't have the bargaining power to get lower rates, which is why some have proposed allowing small businesses to group together when buying insurance for employees.) The employee's health does not dictate how much money the company has to shell out, but you can bet if an employee gets cancer one year, next year the company's premiums will shoot up (not like they don't already, but still.)

I know of many people who think their employers fired them because they were expensive because of poor health. Othertimes employers will drop spouse/partner/kid coverage for health insurance, increase "cost sharing" (ie: the employee has to pay more out of pocket, higher deductibles and co-pays), or drop coverage completely.
posted by gramcracker at 9:21 AM on August 1, 2004

you can bet if an employee gets cancer one year, next year the company's premiums will shoot up

Yep. I've seen that scenario play out in person. Co-worker has to have heart surgery, everyone's premiums go up by double the (already high) expected increase the following year.
posted by gimonca at 9:29 AM on August 1, 2004

For companies that are not self-insured (which I am guessing is most companies), I believe health insurance rates are calculated based on an "experience rating" of previous years' total medical expenses of the group and then a flat fee is charged per employee in the plan. This is the same way worker's compensation insurance rates are calculated.

Obviously, in a small group, one incidence of cancer or heart surgery can significantly influence the premiums. In a much larger group, a few major medical procedures are less likely to drastically raise premiums.

gramcracker, typically industry trade associations offer member small businesses the option of joining their group health and major medical plans as a way to get rates based on a much larger group and, consequently, premiums that do not fluctuate as much. In two previous small businesses where I worked, we purchased insurance through a trade group.
posted by samuelad at 10:05 AM on August 1, 2004

do you have proof, gimonca? maybe the increases were for some other reason you didn't know about? i thought the whole point of health insurance was that you average the risk out over as many people as pay to the fund (ie over many companies). that's why each little company doesn't have its own fund...
otherwise, what's the point of health insurance if you have to pay more when you're ill? might as well not have it and, when you're ill, pay.
posted by andrew cooke at 10:07 AM on August 1, 2004

ah, thanks samuelad. didn't understand that (pretty sure it's not that way here in chile, where i believe law fixes the contribution size)
posted by andrew cooke at 10:08 AM on August 1, 2004

Response by poster: Thanks all for the explanations. As to the detail about the company employing two employees, I didn't mean for that to sound as if they were the only two.

And, yeah, I think I might have been one of those people who may have been laid off at least once because my premiums were probably higher than the rest. It could have been a factor, anyway. Which is frustrating.
posted by emelenjr at 11:14 AM on August 1, 2004

Just wanted to jump in with the fact that if the company has 50 or fewer employees, in most states, their premiums can't be experience-rated. So all the small companies on an insurers books are lumped together, then each employer's rates are set using that larger pool then adjusted for the age/sex mix of their employees.
posted by antimony at 3:05 PM on August 1, 2004

Response by poster: Ahh, that makes sense. Thanks.

So, aside from working hard, proving I'm worth the company's money and not working for companies whose insurance premiums are experience-rated, do I have any options if my health premiums are high (and I don't have any control over why they're high)? I can lose my job if a company wants to save money, looks at the bottom line and sees that I'm costing them more than the rest? That kind of looks like discrimination, even though the company might wrap it up in "It's a financial decision. We need to save money."
posted by emelenjr at 3:51 PM on August 1, 2004

A couple of things:

1) This definitely does happen; I know of two unrelated cases involving members of my family.

2) emelenjr, can you opt out of the plan, and get your own insurance? Where I work, this is an option. The company requires you to have medical insurance somewhere, but it doesn't have to be through them.
posted by bingo at 4:55 PM on August 1, 2004

The insurance rep told the person in HR that's why rates went up. Good enough for you?
posted by gimonca at 5:37 PM on August 1, 2004

Response by poster: I'm on my own insurance plan right now, but out of necessity since I'm not currently employed full-time. I'd prefer to have just a small fee deducted from my paycheck every month since what I'm doing now costs much more, but the trade-off there seems to be that my employer might end up thinking I'm too expensive and I might get axed. Again. (That's not a plea for sympathy there. The last time I had a full-time job was in 2002.)
posted by emelenjr at 5:58 PM on August 1, 2004

Individual health plans are much more expensive.
posted by gramcracker at 9:19 AM on August 2, 2004

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