Park Printing House’s John Bass isn’t exactly sure what should be done to reform the nation’s health care system, but he knows something must be done for the sake of small businesses.
Bass is not a passive observer of the health care reform debate now raging in the nation’s capital, where Congress is tackling the first sweeping overhaul of the nation’s health system in more than 40 years. When your small business has consistently experienced double digit annual increases in its health insurance costs, as high as 42% in 2007, and it has reached the point where it spends $400,000 a year to provide health insurance coverage to its 62 employees, something has to give.
As Park Printing House’s human resources manager, Bass only hopes that particular “something” is not his company’s financial stability. In 2007, the year it faced that 42% increase, the company changed its plan to add a deductible and higher co-pays that, in effect, brought its increase down to 31%. By passing on higher premium costs to its employees, the commercial printer brought its employer-employee share of health insurance costs from 80-20 to 75-25.
Since 2002, the company’s monthly premium rates for a single plan have soared from $201 to $432, a 214% increase. Its premium rates for employee-spouse coverage has gone from $461 to $945, up 205%, and its rates for a family plan have risen from $601 to $1,232 — also a 205% increase.
That would be the very definition of hyperinflation, and it is what separates this debate from the “Hillary Care” fracas in 1994.
National surveys indicate that out-of-control costs are the culprit behind the erosion of health insurance coverage among small businesses, leading many to switch to plans with higher out-of-pocket costs or fewer services, and others to drop coverage altogether. The Wisconsin Department of Health Services estimates that only 41% of Wisconsin’s small businesses now provide health insurance coverage to employees.
In a random survey published in 2008, the Kaiser Family Foundation found that the annual cost for single coverage has more than doubled in the past decade, from $2,196 in 1999 to $4,704 in ’08. Kaiser also found that the annual cost of family coverage has doubled from 5,791 in 1999 to $12,680 in ’08.
Mindful of just how important health coverage is to attracting and retaining quality employees, Park Printing has never entertained dropping coverage. But depending on this year’s premium increase, it may have to pass even more costs onto employees in the form of higher deductibles and co-pays.
“Something just has to be done,” Bass stated. “Whether it’s a baby step or not, something has to be done.”
Reform Plan Taking Shape
Something is likely to be done very soon. Since President Barack Obama has said it’s 2009 or bust for health care reform, and since Congress has imposed an August deadline to pass a bill, the reform drama is unfolding this summer. Rather than a complete government takeover of health care, Obama has pledged to build on the current employer-based system. His goal is a reform bill that expands coverage and gets costs under control without adding to the federal deficit.
Congressional allies — most notably Sen. Edward Kennedy, D-Massachusetts, and Sen. Max Baucus, D-Montana, are trying to craft acceptable measures so that both houses of Congress can pass reform bills before the August recess, and so that Obama can sign a final bill this fall. The eventual bill could include one or more of the following elements:
- A National Health Insurance Exchange that would provide access to regulated private insurance (employers could buy insurance on the exchange).
- A controversial “public plan” alternative where the government would provide coverage and competition for private insurers.
- Mandated coverage on some individuals; subsidies for low-income and some middle-income households.
- Insurance pools that would allow small companies to create economies of scale that large employers already have.
On the business side, reform is likely to include employer mandates that could come in one of several forms: a requirement to pay a fixed percentage of each employee’s health insurance; a mandate to pay a fixed percentage of payroll for employee health benefits; or a “pay-or-play” option that requires employers to provide health insurance to workers or pay a tax.
Robert Kraig, program director for Citizen Action of Wisconsin, the state’s lead organization for the national health care reform advocacy group Health Care for America Now! (HCAN), said the general concept is to create a system in which employers that like what they now offer and meet certain standards — for example, if they cover a certain percentage of the cost and coverage is comparable to that of federal employees — can keep “doing what they are doing.” If they did not want to do that, or they simply couldn’t, they would pay into a pool and their employees would be able to get coverage through the national exchange.
A consensus has emerged that larger employers should pay into the pool, but the extent to which small businesses contribute is still to be determined. “I think there is going to be a real desire, given how small businesses have been affected, to have a cutoff at which the very small ones don’t pay at all, and having a lower amount that others would pay into the system,” Kraig said.
Cost Conundrum
By some estimates, the United States spends almost 50 percent more per person on health care than the next most expensive nation. In 2007, America’s health care costs reached $2.2 trillion, or 16 percent of gross domestic product. On our present course, the Congressional Budget Office estimates that health care’s share of GDP will reach 25% by 2025 and an unsustainable 49% by 2082.
Yet according to Gretchen Young, vice president of government affairs for Aon Consulting, the initial motivating force of reform was universal coverage. Controlling costs was considered something that would be addressed after everyone was covered.
In recent weeks, however, Obama has sought to reassure cost-conscious reform advocates that cost containment is a priority. According to published reports, the Obama administration may try to accomplish this by giving the Medicare Payment Advisory Commission, or MedPAC, more power. MedPAC was established to advise members of Congress on Medicare issues, but critics of the current health care system argue that its recommendations, including where to set annual Medicare reimbursement rates, have largely been thwarted by interest groups. Proposed legislation would place MedPAC in the executive branch and give its commissioners more authority to set Medicare payment rates, which would influence rates set by private insurers.
Since Medicare reimbursement rates are routinely set too low to please physicians, a key stakeholder is likely to resist this effort. Critics charge that boards such as MedPAC have led to health-care rationing elsewhere, replacing physicians’ judgments with those of government bureaucrats.
Congress has allocated $634 billion for a down payment on health care reform. Other financing pieces that could be part of reform include:
- Limitations on the tax-favored treatment of employer-provided health coverage. The Office of Management and Budget estimates that the tax exclusion on employer-paid insurance will amount to $168.4 billion in 2009, which may prompt Congress to cap the exclusion to raise tax revenue for health care reform. Due to the ability to means test, not all of it would be taxed, but politics may still rear its ugly head. When the idea of eliminating the exclusion was raised by Arizona Sen. John McCain in last year’s presidential election — he had proposed getting rid of it and replacing it with a $5,000 family tax credit — none other than candidate Barack Obama assailed the idea.
- A reduction in subsidies (what critics call “overpayments”) for Medicare Advantage, a program that allows private insurers to provide health benefits to seniors. The latter has staunch allies in Congress, most notably Sen. Charles Grassley, R-Iowa, who has vowed to oppose any reform plan that includes deep cuts in Medicare Advantage.
- Cuts in anticipated reimbursements to hospitals, another proposal that is likely to anger a key stakeholder. In his recent visit to Green Bay, Obama talked about the “warped” incentives that reward doctors and hospitals based on how many tests and procedures they do, even if they aren’t necessary or result from medical mistakes.
“The real cost savings will come from changing the incentives of a system that automatically equates expensive care with better care,” Obama said. “We’ve got to address flaws that increase profits but donÃÂÂÂt actually increase the quality of care for patients.”
Administration critics say the cure for unnecessary tests is tort reform that would reduce incentives for physicians to order procedures simply to protect themselves from malpractice lawsuits.
- Higher tax rates on wealthy Americans (the most likely tax code change).
Judging by the comments of Larry Zanoni, CEO of Group Health Cooperative of South Central Wisconsin, insurers agree that controlling costs for companies in the small-group space is a key to reform. He believes there is more than enough money in the health care system — $3 trillion by his count — so it’s a matter of more sensibly redistributing the existing pool of dollars.
“We need to reduce the cost trend of health care in the small-group market,” Zanoni stated. “They’re trying to get those costs somewhat equal to what they are in the large-group market so that small groups don’t go out there and get hit with 30% increases anymore.”
Virtually all stakeholders — purchasers, providers, and insurers — are on board with the need for reform, but in the past they have wanted someone else to pay for it. Wayne Corey, executive director of Wisconsin Independent Businesses, which lobbies for small businesses, said that if there is going to be meaningful reform that controls costs, one or more of the stakeholders “has to lose.”
Corey blames the health insurance industry for defeating past reform attempts, and harbors doubts about whether they are prepared to support reform this time around. “The fact of the matter is, having done this issue for 20 years, the insurance industry says ‘yes, yes, yes, yes, yes’ until they get right to the end, and then they say ‘no,’” Corey charged. “They have been successful in killing all sorts of reform on the state level and on the federal level.
“Am I pretty negative about the health insurance industry? I certainly am. Candidly, I don’t trust them any further than I can throw them.”
Public Plan or Socialism?
There is little debate among Democratic Party policy makers that universal coverage is a necessary pillar of reform. According to a U.S. Census Bureau survey, 46 million Americans have gone a year or more without health insurance coverage. Yet one of the most controversial aspects of reform is the so-called public plan, which many believe is the key to expanding coverage. The idea has drawn criticism from insurers and conservative politicians who view it as a step toward a government takeover of health care.
Obama reportedly is ready to spend about $1.5 trillion over the next decade to cover uninsured Americans. Advocates of a public plan believe it will increase competition by giving consumers another choice (government-sponsored health insurance). Insurers worry that a public plan would dominate the market by giving government officials more power to set costs, and they worry that they could not compete with a public plan because the government has no profit motive and an unlimited ability to print money.
When Obama offered his support for a public plan in early June, Republicans howled, saying it would destroy any chance for the bipartisan reform the President and Democrats say they prefer. To gain the support of Republicans, authors of the bill might structure a hybrid public plan with private-sector elements such as using premiums to fund the plan rather than simply printing more money. Another proposal calls for the public plan to operate as a nonprofit cooperative.
Kraig (Citizen Action of Wisconsin) does not believe that health coverage can be extended to large numbers of uninsured people without a public plan. First, he believes it will bring savings, citing a Congressional Budget Office report detailing significant savings in administration and marketing done by insurance companies. “The second thing is that we think it will keep the insurance companies much more honest if people could move to a public plan,” Kraig said. “It puts some competitive pressure on them.”
