State Insurance Programs

Workers Compensation & Unemployment Insurance

There is a direct correlation between the costs to employers for providing state mandated insurances to workers – and the increasing practice of farming out labor to overseas companies.  This ultimately results in a labor market that has less opportunity for American workers (especially those without a college degree) and increases the chances for abusive hiring practices, such as hiring illegal immigrants who will not be considered full-time employees nor often be subject to IRS auditing for their incomes.

This is proven by the data each year of the growing number of small businesses who hire part-time or contract workers as opposed to fulltime employees.  If you have reviewed our HEALTHCARE: Concerns/Solutions section, then you understand the burden small businesses operate under (which employ most of the workers in the country) as they try to afford health insurance for employees and still make a profit.  When they can’t do this – they either face going out of business or scaling back full time jobs and using part-time people who they do not have to provide benefits to.

Since large corporations enjoy better premium rates because they purchase insurance for large pools of employees – they absorb fluctuations in pricing much easier.  Not so with small businesses, who outnumber large corporations 150 to 1.  So, it stands to reason to find a solution to giving  small businesses a health care plan they can afford.  Please tak a moment  to read “Health Care , Our Solution”.

The same goes for unemployment insurance.  This particular insurance puts the entire burden of costs on the employer – and again – it is the small business owner who is most often affected negatively by its impact.  Unemployment insurance is designed to pay out dollars to any employee who is losses his job.  The cost of this burden rests with the employer, so there is no incentive for the ex-employee to find a job any sooner than the termination date of his benefits (which could last a couple of years.) Regardless whether the employee deserved to be let go or not – the employer bears the financial weight of having this cost on his budget.   If you have a small shop – this amount of extra expense could keep you from hiring a replacement.  Imagine this scenario in most of the small businesses in America and you see the extent of the problem.

This even spills over into Workers Compensation Insurance which is dealt with in greater detail under our tabs for Health Care Concerns and TORT reform.  If a small shop, with perhaps six employees has been receiving a favorable discount of 20% on premiums because there have been no claims – imagine  a single large claim when one filing causes the insurance company to remove the discount and raise premiums as much as 30%.  The swing in costs can be a total of 50% against the employer.   As with your auto insurance, this single claim will affect the rates for three years. How does an entrepreneur guard against such volatility and keep making a profit?

Perhaps lost in all this is the mandate by government that every employer must provide Workers Compensation and Unemployment insurance; and the employer is not allowed to pass any of those costs on to the employee.  This is why insurance becomes a mandatory part of the job offering.

Naturally, the cost of these insurance programs is a key factor impeding the creation of new jobs and the growth of small business.  Since the early 90’s, residential building contractors moved away from hiring workers as employees and instead almost exclusively hire individuals as subcontractors to avoid this financial burden.

SOLUTIONS?

As stated on many of our other pages, political answers are hard to come by.  However, some practical solutions may be available to us which may lead to better more consumer based solutions.

For instance, as it stands, a workers comp claim means the worker (the claimant) receives a weekly benefit for a fixed time period. When the period expires, benefits terminate – making this a “cold turkey” approach that does little to motivate the worker to find a job during the period covered by unemployment insurance. Would it not make more sense to designate a “reduced” set period during which the worker would receive full benefits, and then systematically decrease the weekly benefits until they are stopped altogether? This would financially motivate the unemployed person to make maximum effort to locate a job.

In some states, employees who file a Worker’s  Compensation claim are required to self-insure their loss of income for the first five or ten business days of a claim. This substantially reduces the number of fraudulent claims and thus reduces the cost of Worker’s  Compensation in those states.  This is a logical remedy based on human nature – understanding that if somebody else is paying the costs – then people are not motivated to alleviate the costs.

An example we often share is treating your health and workers comp insurances as you would your car insurance.  You don’t expect your car insurance to pay for every inspection, oil change or replacement of a wiper blade.  But if you did – then your insurance premium would rise significantly to offset the costs that are now expected to occur – rather than be a hedge against ever happening.   Remember, the nature of insurance was to guard against a calamity if it happened – of which the odds were high it would not.  To expect insurance to pick up the costs of everyday events changes insurance from a risk instrument to a guaranteed coverage instrument.  Consequently, until we revise health care plans to only cover calamities and not annual check-ups and every cough and sniffle doctor visit – we cannot expect our health insurance premiums to lower in price.

We need to remember that medical care is an industry, and consequently medical institutions and large medical practices take advantage of a system that has always been in their favor.  We, as patients, ordinarily appreciate what we perceive as extra attention to our well-being, and rarely question doctors’ or hospitals’ practices. We do not think to question prescribed tests or procedures. After all, we trust that our caregivers have our best interest as their main focus.  But if we are charged for everything they do – and they only do everything because we can be charged – then we have lost control of our own healthcare and the financial ability to afford it.

Health care has become so convoluted that no politician believes the mess can be unraveled. Hence, Democrats have forced Obama-care upon us, and Republicans (who don’t have a solution) recognize that Obama-care simply takes a convoluted mess and makes it a bigger convoluted mess. The American people want to believe that Congress understands what it is doing. However, Congress does not.

The demand for insurances to provide services such as routine physicals at no cost to the patient only fuels job creation and the growth of both the medical industry and the insurance industry.  The end result is that the cost of insurance is a primary factor in the out-sourcing of manufacturing jobs – and a key component in the decision “not to hire”.

As the medical and insurance industries continue to grow, so does the ratio of uninsured versus insured. 

We need to find real solutions now. 

Dear Reader,

Solutions are ideas that evolve. We are not an expert in any facet of government. Your ideas, comments, questions and experiences us develop these solutions. Please continue to submit your insights.