We can see where the cost of health insurance is headed: you and I will soon be responsible for 100% of our health insurance costs, even if we are in a traditional employment relationship. Even if I were a traditional employee, that would be ok because it simplifies the employment relationship and puts employees more in control of their own benefits. But the transition is going to hurt, a lot. Wages are clearly not increasing. As the proportion of employee-paid health insurance premiums increases, it effectively squeezes-out personal income of traditional employees. There’s no way any government stimulus can make up for that.
In the short term, traditional employees will have less discretionary income to spend. That in turn will squeeze retail businesses further. The news last week covered that point about the squeeze fairly well.
But I didn’t see any news or commentary about the long term implications of traditional employers’ passing the cost of health insurance off to employees, and that’s what interests me most. Do they get it? Do they understand where this leads?
This is where it leads: we all become responsible for our own benefits. We fund our own retirement. We pay for our own medical insurance. Time off will be at our own discretion and in most cases, it will be unpaid when we take it. I’m sure traditional employers will be ok with the simpler cost of maintaining a roster of employees.
We saw the same thing happen 35 years ago with retirement benefits. Companies phased-out defined-benefit pension plans and switch to defined-contribution plans (401k plans). It put us more in control, but we’re still in transition on that one too. Federal limits on 401k contributions don’t allow us to save enough to build-up a retirement fund that would provide for ourselves at a level similar to what we could get 50 years ago through a defined-benefit plan that was managed by our life-long employer.
The consequences of all this seem to have been overlooked. Companies are shifting the burden of medical insurance and retirement plans to employees. But the US market for medical insurance and retirement plans is not designed for individuals. We all know an individual medical insurance policy is inferior to a group policy and the same goes for an IRA versus 401(k). So here is what will happen: we will all acquire retirement saving solutions, medical insurance and everything else we need by some other means. As you know, Free Agent Source is one way to do it. I’m sure there will be other ways, such as the Freelancers Union, and perhaps even more creative solutions.
By the time the suite of traditional company benefits is shifted to employees, the employment relationship will be vastly simplified (this is the freedom that contractors and freelancers enjoy today). Traditional employees’ commitment will also be reduced to a simple dedication to the current job; perform the assignment with professional excellence, get paid, maintain a professional relationship to ensure your employer (client) will happily give you a good reference or testimonial. Of course you will also give positive references for your employer (client) when they fill their end of the trade, promptly and with professionalism… that is, when they are a good client.
Traditional employers will have far fewer levers to bind employees into long-term commitment. They will complain that there’s no loyalty any more. Employees will counter; You don’t get something for nothing. You can’t take away all the reasons for long term commitment and still expect to get long term commitment.
I like where this is all going. I don’t think it’s possible for our economy to grow and evolve without separating the source of medical insurance and retirement savings plans, from our source of income. However I don’t like the financial difficulties that will be imposed on millions of families as we go through this transition. I don’t know how else to get there except to push ahead and go through the transition as quickly as possible.
Meanwhile, I’ve already separated my retirement plan, health care, and everything else from my sources of income, so I can be more detached about it.