A Rarity: Earn More, Pay More For Health Coverage
One-size-fits-all health insurance premiums that don't take into account how much an employee earns strike many people as unfair.
Why should someone who makes $30,000 a year pay the same premium for health care coverage as his boss, who pulls down three times that amount?
Yet most companies continue to keep employee contribution rates the same for all employees, regardless of how much they're paid. Why don't they switch?
One of the obvious reasons to steer clear of a salary-based premium model is that plans with more variables are harder to administer. Companies already charge different rates for single, couple and family coverage and for different types of plans. Working salary into the mix adds a layer of complexity.
Some raise questions about whether an employee's wages are actually a good measure of how much he can afford to pay in premiums, particularly if there's a working spouse in the picture who earns a good salary. "Maybe it's not adopted more because it looks fairer than it is," says Helen Darling, president of the National Business Group on Health.
Then there's the from-here-to-eternity argument. Once you start charging lower wage workers less, you can never go back, say experts, even if, for example, the composition of your workforce changes and you have many more workers that qualify for lower premiums. "You have to be able to live with it forever," says Raetzman.
Even so, some companies have added pay differences to the premium equation. Ten percent of employers currently vary worker contributions based on salary, according to benefits consultant Mercer.
And more are considering moving in that direction in coming years as a way to avoid health law penalities that could be assessed if their workers' premium contributions exceed 9.5 percent of their household income, says Steve Raetzman, a partner in Mercer's health and benefits consulting practice.