As the Republican-led Congress and Trump Administration work to repeal and replace the Affordable Care Act (ACA) with the American Health Care Act, I ask this question:
If money or politics weren't a factor, what would be the American public's stance on health care?
Should all American citizens have access to health care by default? Or do we believe that someone should only have health care if they "qualify”?
I said "health care", not insurance. Applying a concept like insurance to the health of a human being has always been ridiculous to me. A Google search defines the term insurance as "a thing providing protection against a possible eventuality". A possible eventuality!? It's inevitable that a human will need health care at some point in their life.
But I digress.
The health care debate is a contentious issue. It’s deeply personal to each of us. The ACA saved some of us. But also inadvertently crushed others with additional financial pressure.
To make matters worse, it has now become a partisan issue. The Democrats are trying to protect a law that was passed on their watch, so they naturally want to hold onto it. Meanwhile, the Republicans have spent over two thirds of the Obama presidency rallying against the ACA, citing the rising costs in premiums and federal government subsidies.
As a result, misinformation and bias makes it difficult for us to reach a consensus on what health care policy should be.
Jaded by the actions (or lack thereof) of our legislative branch, I began to think about practical ways to improve the health care experience within the current system that exists today. Is there a mechanism we can use to grant access to affordable health care while keeping the larger system intact?
I'm not in the health care industry, nor an expert in how insurance markets work. But after experiencing the benefits of using a professional employer organization (PEO) for my company's health care, I humbly ask: What if a state government started a PEO and offered the service to its businesses and residents?
A small NY company goes shopping for health insurance
In 2014, I started a company with two other co-founders in New York. We received an early investment from a popular accelerator called Techstars, and then managed to raise a modest round (by Silicon Valley standards) of seed financing from angel investors.
Now we could afford modest salaries and health care benefits for ourselves.
As a three person group, our options were scarce and expensive. We had no leverage in negotiating a good deal, and our deal didn’t seem to be particularly interesting to most insurance sales reps. We managed to get our insurance policy through the now closed co-op Health Republic Insurance of New York (facilitated by Zenefits), and I elected to get one of the least expensive plans for myself. The plan may of been inexpensive, but it carried little benefits and high deductibles. I'm a single male in my late 20s. Luckily, that's all I needed and did not have any major medical emergencies.
Once Health Republic abruptly shut down in late 2015, we were in the market again for a health insurance provider. Our first shopping experience wasn't pleasant, so we asked other founders for advice. A friend of ours recommended that we check out JustWorks. After doing some research, we realized that JustWorks was a professional employer organization (PEO). I quickly realized that a PEO does way more than help you buy health insurance.
Why PEOs are awesome
The ADP website clearly explains what a PEO is:
PEOs (Professional Employer Organizations) partner with companies to provide comprehensive HR outsourcing to help manage a company’s human resources, employee benefits, payroll, and regulatory compliance. A PEO works through a co-employment arrangement, which means the PEO contractually shares certain employer responsibilities with the company.
A PEO is also commonly referred to as an "employee leasing company".
When your company partners with a PEO, you are entering into a co-employment arrangement where the PEO handles all financial aspects of your company's HR department (in most cases):
- You join the PEO's group health insurance. They pool employees from all their partner companies into a single group to negotiate the best coverage options and prices.
- They process and administer payroll on your behalf. Employees will get paid from the PEO.
- They handle all of your payroll, unemployment, worker's comp, and other insurance compliance with state and federal laws.
- Your employees will receive their annual W-2 from the PEO, not your company.
To do all of this, they calculate and withdraw the money necessary to pull this off from your company's bank account in one lump sum.
It all magically gets handled. PEOs are awesome.
But like all things in life, there's a catch. A PEO usually charges an administrative fee per employee to handle all of these services. In JustWorks' case, the administrative cost depends on how many employees you have. The entry level price for JustWorks is $79/month/employee. At that price, you are spending almost $1000 per employee each year. It's not cheap.
But as far as I'm concerned, it's well worth it. You don't have to waste your time figuring out complicated compliance laws that are changing constantly and they have your back when HR situations arise. As first-time founders, we received our fair share of notices from the state of New York for late payments or missing paperwork. We were happy to outsource the work to someone else.
As a small business, a PEO brings all the benefits of a large company because you are negotiating health benefits and pricing with insurance companies within a large pool of people. By being a part of JustWork's pool, we had access to national Aetna plans with a bunch of great options. On top of that, the premium cost was ~20% less than what we were paying through Health Republic.
The case for a state-run PEO, I think
A state government already has the experience and infrastructure to use tax revenue to fund the distribution of services to residents. Granted, it would be naive to ignore the many examples where state and local governments have tragically failed it's taxpayers (see Flint, Michigan). But so have employers. There will always be examples of maleficence in government and the private sector.
So hear me out - imagine if a state set up it's own PEO service that:
- Offered payroll automation services to businesses, including the collection of necessary taxes and quarterly filings. They enforce regulations, so you could assume they would be the best entity suited to ensure a business is in compliance.
- A full-time employee's personal taxes and the company's payroll taxes would be automatically collected and paid to the state. There would be no need for a 3rd party payroll service.
- Negotiate with health insurance companies on behalf of the resident's pool. Since it's the government and our tax dollars, the state would need to follow transparency protocols just like when they submit RFPs for public projects.
- Elected officials would responsible for negotiating the best deal for their state, and their approval would be reflected in a successful bid for reelection.
If the same entity that collects taxes also facilitates the point of origin from which a tax is levied (a resident's wage), there could be a MASSIVE benefit in efficiency to be enjoyed by everyone. It could cut out so much waste.
Why employers should love this:
- Since the state government is the PEO, sharing the burden of maintaining compliance. As a result, there’s far less risk of being fined or operating out of compliance.
- You are joining a group of other employers in your state to negotiate health insurance costs and options.
- You are now a partner with the state that has a stake in your continued success, not just a business having taxes levied against you.
- Costs for insurance would be far less expensive because the risk is spread across all other businesses in the state.
Why employees should love this:
- The benefits your employer provides become standard across the state, regardless of where you work.
- A far less likelihood of losing your job because of mismanaged human resources by your employer.
- If you switch jobs within the state, your coverage would continue uninterrupted because the new employer will have the same coverage options.
- If the state's PEO service is facilitating your payroll, there's little need for being audited by the IRS. The government already has a record of what was collected.
A complement to the state-run exchanges
If you are self-employed or work part-time, this idea doesn't help you directly. But if a state is negotiating health care options for their PEO partners and the exchange at the same time, there's significantly more leverage to get a better deal from insurance companies.
That should lead to better rates for each person shopping on an exchange, right?
What's wrong with this idea?
I can't possibly be the first person to propose this idea.
Has this been tried before? Is this just a single-payer system by a different name? Why would this idea fail? What am I missing?
I want to hear from you. Industry expert or not. Please use the comments below to share your thoughts.
Thanks to Kelleigh, Evan, Andy, and Anthony for helping me edit this post.
