In response to John Mackey’s editorial on August 12, 2009. Read it here.
I am a human resources consultant. I actually designed the exact the plan that Mr. Mackey described in his very well written editorial, for a client 3 years ago. What he said seems completely logical and makes perfect sense, until you have all of the details.
Let me map out this plan for you.
In exchange for a very high deductible, the insurance company offers the subscriber lower premiums. “High deductible” means $2500.00 a year for a single subscriber, $4500.00 a year for a family. When I received the quotes for the company plan renewal plan last year, the cost difference between a standard HMO and a high deductible PPO was $158 per month, per person. So for an annual premium savings of $1896.00, the insurance company is offering you an up front gap in coverage of $2500.00.
Sounds like a terrible deal, right? Not necessarily. If you never use your health coverage, it’s a great alternative because you’re saving that monthly premium money. That’s money that you spend whether you use your insurance coverage or not. If you have any sort of chronic illness, this is a terrible deal because you’re spending $2500 to save $1896!
So how is Whole Foods saving all that money on health coverage? Well, here’s where you get a lesson in how socialism works.
Whole Foods generously reimburses its employees for most of that deductible money, which is great for the employee because it limits their exposure. This is also great for the company because statistically, only 55% of all of the available reimbursement money will be spent. Most of their employees will use their health coverage 0 – 1 time per calendar year. Statistically, 15% of their employees will use all of the reimbursement money available to them. So the people that never use their coverage make is possible for those who chronically use their coverage to get a better deal. Now in Whole Foods’ case, that national average of 55% is much lower because of their employee demographic. The younger the demographic, the bigger the savings will be. This is a win-win-win for all parties involved. The insurance company makes out because the profit margin on this type of plan is higher than any other plan. It’s a win for 85% of the employees in the plan that use little or no insurance. And it’s a big win for the company providing this type of coverage because they are spending less money when people don’t use their coverage. There is that 15% who would be much better off in a traditional HMO, but the pool takes care of them.
This is pooled risk, which is by its very nature, socialism.
This type of plan only works when you are pooling risk. If you are out there purchasing a plan on your own, you’re back to that paying $2500 to save $1896. The only winner in this deal is the insurance company.
I don’t know where Mr. Mackey thinks the savings are coming from, but the money that his company saved perfectly illustrates how well capitalism works when it embraces socialist ideas.
The other lesson to be learned by these figures is that we’re being gauged by the insurance companies.
Remember how I told you that the national average for that reimbursement money is 55%? That means that 45% of people paying into the system don’t use their coverage at all. That’s a pretty big profit margin, especially when you add in that $158 per month, per person that the insurance company is reducing your monthly premiums by.
Incidentally, if we all had the option to buy insurance across state lines, all of the insurance companies would move to states that have legislation that is most favorable to them, exactly the way credit card companies did. All of your credit card companies are headquartered in New Jersey and Delaware because those states allow credit card companies to charge you far more interest than any other state. This is definitely not a “solution” that will favor the consumer.
