Unhealthy Insurance

For some reason, I find myself gravitating more to old Bob Dylan music than usual.  I am particularly fond of the song, “The Times They are A-Changin’ ”.I guess I find this song comforting as I navigate changes in the construction industry. As a business owner, the changes in health insurance are on the top of my list.

Professionals in the construction industry are quite familiar with how insurance affects our industry since we contend with all types of coverage in many different aspects of the business.  Coverage such as bonding, general liability, workers compensation, OCIP, CCIP, and others are just a part of doing business.  Health insurance, on the other hand, has become a major challenge whether you are the owner of the business or the guy swinging a hammer in the field.

Of all of the political changes that have emerged from Washington over the past 50 years, I would have to say that the passing of the Affordable Care Act (ACA) back in 2010 surpasses them all in creating controversy. The new law has created discontent from rich to poor and everyone in between because it involves significant changes for all.  This post is not another bitch session on the unconstitutionality of Affordable Care, or a politically charged diatribe.  I just want to outline the challenges that confront many of us in the construction industry.

According to the Census Bureau, 53.9% of the total population is covered by an employer based health plan.  A very high percentage of architects, general contractors, owners, subcontractors, and union members are beneficiaries of this type of coverage. The average cost of such health benefits is $2.70 per hour or 8.5% of total average compensation.  So we’re talking about significant costs that will dramatically impact this type of coverage in the future as these costs increase.

I wasn’t the only one who found the provisions in the ACA to be complicated as it was being considered on Capitol Hill, signed into law, and contested at the Supreme Court.  The original documents were said to be over 10,000 pages long and many people in Congress even admitted that they didn’t fully understand its implications.  The law itself is 2,409 pages long.  The program went into effect on January 2014 and all of its effects on healthcare in the United States have yet to be seen.

Our company decided to grandfather our existing program back in December 2013 so we could provide the same level of coverage to our employees for the current year.  Over the past decade, we have become familiar with double-digit increases in health insurance costs and have changed from one insurer to another in an attempt to purchase the best deal available in the marketplace. We are now in a position where we have to pay the new rates that are a result of the implementation of the ACA.  Currently we are confronting a 52% increase to renew our coverage for 2015.  Yes, you heard that correctly.  Fifty-two percent!

So what’s a company that is confronting such an explosion in overhead cost do when it already is one of the single largest line items on the financial statement?  We really only have the following options:

1. Absorb the entire increase as a company and increase our prices in the marketplace to cover the difference.  This will result in our customers paying for the added cost of insurance, or will drive the company out of business if we fail to remain competitive.
2. Switch to a self-insurance alternative where the company assumes the risk that our employment base will not suffer catastrophic costs.  My company is in the historic window business; we are not actuarial experts who can effectively gamble on future health outcomes.  We also have fewer than 30 employees, making this option highly risky.
3. Change the coverage of our current plans to new plans where there are higher deductibles, increases in co-pay amounts, reductions in total coverage, and decreases in prescription coverage.  These changes reduce the premiums, but effectively transfer the health costs to the employee who has to fork over more money for every procedure.
4. Change the amount the company contributes to the individual and family plans.  This results in lower corporate costs, but transfers increases in coverage to the employee.
5. Eliminate all coverage and ask everyone to purchase their own insurance on the exchanges.  Who knows what this would mean for our employees?

Our company will probably choose some combination of the above alternatives to meet the challenge.  So in essence, the burden of the costs associated with ACA will be shouldered jointly by the company and by our employees.  This wouldn’t be an issue if the company was flush with cash and our employees were paid like investment bankers.  But that’s not the case at Re-View, nor is it the case for most companies engaged in the construction industry.

What are you going to do?  Here is what the esteemed management consultant Bob Dylan would do:

“Come gather ‘round people wherever you roam

And admit that the waters around you have grown

And accept it that soon you’ll be drenched to the bone

If your time to you is worth savin’

Then you better start swimmin’ or you sink like a stone

For the times they are a changin’”