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An EHR We Can All Agree On, by Eric Novack

NovackI have written about this previously directly and tangentially, but given that this is ‘open enrollment
’ period (for those who still have more than one choice), it is worth repeating.

I report this as a part owner of a small business whose costs are increasing every year while revenues are decreasing.

Therefore, I present to you all the new, improved EHR: Effective Hourly Rate.

The EHR should be given to all employees of all companies.

What it will consist of is simple: all of the total compensation divided into what that rate would be on an hourly basis. Let’s give an example:

Current situation:

Employee paid $18.00 per hour

Employee gets 3 weeks paid vacation (or 120 hours of ‘paid time off’) and does not miss other days (we will assume no overtime payments)

Assuming that this covers a full 52 weeks at 40 hours per week that equals 2080 hours in a year.

A bit more math: $18 x 2080 = $37,440.00

And that is all an employee sees.

Under the EHR: (same employee)

Gross salary: $37,440.00Employer Paid Medicare Taxes: $2321.28Employer Paid Social Security Taxes: $542.88Employer Paid Unemployment: $350Employer Paid Health Insurance for employee (fully paid by employer): $4000

Total Compensation: $44,654.16

Divided by the 1960 hours worked during the year (2080 – (3 x 40 hours paid vacation))

Effect Hourly Rate (EHR)= $22.78In other words: the EFFECTIVE HOURLY RATE IS ACTUALLY 26% GREATER than what appears to the employee.

Why is this so important? Because most people—including
employers—have little idea of how much money is spent on health care
benefits (or other benefits and additional employer taxes, for that
matter).

Question: Do employees not currently ‘pay’ for their health
insurance, even when it is ‘covered’ by the employer? Answer—of course
they do; they pay in lower wages.

The EHR gives employers the ability to accurately let employees know
what their ‘cost’ is—of course, if their ‘value’ was not at least equal
to that cost, the employer would likely not keep them employed. If
employees do not feel that they are receiving an EHR equal to (or
greater than) their value, they will likely consider other options for
employment.

With the Effective Hourly Rate, prospective employees can better
assess the value of a job in the marketplace across employers, trades,
professions, and location.

Until we bring these numbers ‘out of the shadows’, we are doing
ourselves, employers, employees, our economy, and our health care
system a real disservice.

(oh, and by the way, it does not require any new bureaucracy, legislation, or regulation.)

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9 replies »

  1. How about, “Day of Reckoning” costs put on pay checks as well. If people really want to know the true cost of living well.
    Cost of Global Warming: $xxx,xxx
    Cost of National Debt: $xx,xxx
    Cost of Iraq War: $xx,xxx
    Cost of Electing Bush (twice!): $xxx,xxx,xxx,xxx,xxx,xxx
    You can add your own.
    “I report this as a part owner of a small business whose costs are increasing every year while revenues are decreasing.”
    You’re in good company Eric.
    http://www.boston.com/business/personalfinance/articles/2007/08/21/more_americans_making_ends_meet_with_less_money/

  2. EHR should not be tied to employer. It is the patients information. Think about that for a minute.
    Also, health insurance should not be tied to an employer. If you don’t understand that, then try to start your own company or do independent contracting, or just lose you job for longer than 18 months, then get back to me.

  3. > have you had the data routinely at
    > every job over the last 25 years?
    I don’t remember whether they did at a startup I was with for a year and a half, but everywhere else, yes.
    > When you have been hired, was you ‘salary’
    > presented as an EHR?
    Of course not. It was presented as an annual figure, I suspect because I wasn’t paid (strictly speaking) by the hour. The mostly-silent expectation was that I’d work somewhere between 2,000 and 2,500 hours for it. I can do the arithmetic quick enough.
    > your ‘disagreement’ implies to casual readers that
    > I do not believe employees ‘earn’ what they are paid
    Oh, sorry about that. I thought what you said implies to casual readers that people would end with more disposable income if they bought health insurance some way other than through their employer’s HR department. But they won’t, and they’ll work for it all the same. (Yes, I know all about the tax code and the vagaries of the individual market.)
    Barry — wages probably would not go up by an equivalent (ceteris paribus, of course) amount because:
    1) people don’t know how much they should go up by, and
    2) people actually value having someone else administer this mess for them.
    I agree with Dr. Novack that people ought to have this information, but its hardly a new idea, and lots of people, perhaps most, do have it. I do know that the labor union my brother belongs to explains all this very clearly to its members. Whether most people pay any attention to it is another matter.
    t

  4. As I said to Eric, it’s one post in which I completely agree with him. I ahve asked hundreds of rooms of healthcare types the question “how much does your health insurance cost” over the years and no-one other than the few self-0employed saps in the audience (i.e. me) ever knows.
    I also suspect this is true in the US with overall tax rates. (And for that matter with understanding about government spending)
    This is not a healthy situation.

  5. “they pay in lower wages”
    I think what Eric meant is that cash wages would have been higher by an amount equal to the cost of health insurance if the employer were not incurring the cost of paying for health insurance on the employee’s behalf. The same is true with respect to the employer’s share of FICA taxes and all other benefits for which the employer pays cash. Paid time off is a little trickier in that if the nature of the job is such that a temp does not have to be hired to fill in and the work can just accumulate until the employee gets back or existing staff can step in as needed, then it is not a cash cost.
    My own preference is for employers to issue statements that quantify the annual value of all benefits for which the employer pays cash, along with the actual salary and bonus (if any) with the figure at the bottom showing the employee’s total yearly compensation. I don’t know why every employer doesn’t routinely do this. It couldn’t cost more than $20 or so per employee at most to both issue an annual paper statement and post the information on a password protected section of an employee portal on the company’s website.

  6. Tom- we ARE doing it… but have you had the data routinely at every job over the last 25 years? When you have been hired, was you ‘salary’ presented as an EHR?
    A poll question for readers: what is your EHR? If 5% of all THCB (which is not an ‘average’ cross section of employees), I would be shocked- pleasantly shocked- but shocked nonetheless.
    And, Tom- your ‘disagreement’ implies to casual readers that I do not believe employees ‘earn’ what they are paid– read
    ” If employees do not feel that they are receiving an EHR equal to (or greater than) their value, they will likely consider other options for employment.”
    So– if you disagree that employers must take into account the ‘total cost’ of hiring an employee, while most employees disregard all ‘non-wage’ components of their employment– then I will stand by my post and comments and leave other readers/ responders to reach their own conclusions.
    eric

  7. At least for me (being salaried) they didn’t break it down by the hour, but a little chemical company I worked for 25 years ago did something very much like that in the annual recap of salary at tax-time. Today I think we can file this under “Duh!”
    Any decent payroll services provider will do it, and lots of their customers buy it. This is not an endorsement, but my wife’s company uses ADP, for example. They can customize letters and reports to suit, and I’m sure they could divide timesheet hours into total compensation and report that as EHR, at least for employees who punch a time clock. I take it that Dr. Novack is not doing this in his own business. He can have his practice manager look into it for him. One wonders that she hasn’t already.
    This I think is wrong: “they pay in lower wages”.
    They do not. They pay by working, the same way they pay for everything else.
    t

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