Big Business Proposes Health Care Reform - A jackpot or a worker rip-off?

Big business jumped on board the health care reform train earlier this week with the announcement of the Coalition to Advance Healthcare Reform (CAHR). No presidential candidate worth his or her salt has failed to come out in favor of affordable high quality health care for all Americans. (As Wharton health care economist Mark Pauly says, "That's like being in favor of affordable Bentleys for everybody.") The bandwagon has room enough for all of them: The CAHR includes 40 big players including Safeway, Del Monte, Heinz, Kimberley-Clark, PepsiCo, Clorox, Norfolk Southern, GlaxoSmithKline, Aetna, Eli Lilly, Cigna and Kraft Foods.

The Coalition has endorsed five core principles to guide health care reform. Reforms must result in a market-based health care system; individuals must carry mandated health insurance coverage; coverage for low-income individuals will be subsidized; reforms must include strong personal financial incentives for adopting healthy behaviors; and the difference in tax treatment between employer-provided and individual health insurance policies must be eliminated. As principles go these are pretty good, but how they are worked out in practice makes all the difference.

Whenever big business comes out in favor of something, the first question to ask is: What's in it for them? The first suspicion is that big companies are waving the banner of reform as a way to get out of their obligations to pay for their employee health insurance costs. The oft-heard claim of failing corporations is that American businesses can't compete internationally because they are being weighed down by soaring health insurance costs. But as Pauly points out, "While the employer surely sends in the check that pays for health insurance, nearly the full cost of insurance purchased in the workplace setting ultimately falls on the workers themselves in the form of lower wages." He adds, "Employers do not sacrifice profits to help their employees get insurance; rather, workers sacrifice a portion of their potential wages for it." In other words, employers aren't paying for health insurance. Workers are. When a company CEO complains about high insurance costs, he or she is essentially complaining that wages are too high.

So in order to be more "competitive," some companies and their generally unionized employees would like taxpayers to pick up at least a bit of their health insurance costs. Naturally, there are politicians eager to help. For example, Democratic presidential hopeful Sen. Barack Obama (D-Ill.) wants to cover $7 billion of the U.S. auto industry's "legacy" health care costs as a way to encourage automakers to retool to produce fuel efficient cars. "Legacy" means the health care promises that the auto makers made to their retirees. Put nicely, this is a subsidy; put more accurately, it's a taxpayer bailout of failed management. Of course, subsidies can tilt the playing field in favor of one company or another, but overall national competitiveness will decline as taxes soar to pay for the new subsidies and management devotes ever more time to seeking government favors and less time to innovation.

How do the reforms being proposed by new Coalition fit in this dynamic? Are they just another sneaky attempt to shift health care costs onto taxpayers? That's not immediately obvious from the Coalition's core principles. My interpretation impression is that the Coalition companies aim to dismantle our increasingly dysfunctional employer-based health insurance system and empower individuals to purchase their own health insurance. The fact that Senators Ron Wyden (D-Ore.) and Bob Bennett (R-Utah) participated in the Coalition rollout gives us a hint of what kinds of reform these companies favor. Earlier this year, Wyden and Bennett introduced the Healthy Americans Act which would mandate that every American purchase private health insurance. One of the attractive features of the Healthy Americans Act is that employers would "cash out" the value of their employees' health insurance premiums and hand the money over to workers to go shopping for the health insurance coverage they want. In addition, Medicaid would largely be privatized as low income citizens receive subsidies to purchase health insurance in the private market. Every state would certify at least two health insurance plans that would be available to low income residents. Also, state Health Help Agencies would provide unbiased information about competing private health plans and help individuals select the best plan for their families.

Wyden offers some examples of how this might work. Take the case of a married janitor with two kids making $25,000 per year whose employer is paying for his health insurance. The janitor pays $2000 per year in premiums and his employer pays $5000 per year. (Keep in mind that the $5000 being spent by employer is actually wages being used to pay for insurance.) Without going into every detail, under Wyden's plan the janitor would get a $5000 pay raise (the money that his employer spent on health insurance) and would spend $1200 on subsidized insurance premiums. This yields him an after tax savings of $3,650. In another case, a married bus driver with two kids, making $55,000 per year is also insured by her employer. The bus driver currently pays a $1000 out-of-pocket for health insurance and the employer pays $10,500. Again, the bus driver gets a $10,500 cash salary increase, but because of her income she must now pay an unsubsidized $8,200 per year for health insurance. Still this yields her a saving of $2,530 per year.

Back to the crucial question—what's in for the Coalition companies? By shifting responsibility for purchasing health insurance to individuals, companies can get off the health insurance premium escalator. But doesn't that dump workers right onto it? Yes, but one of the reasons that health insurance premiums have been rising is that under the current third party payment system patients have very little idea how much medical care costs. This means that employees do not have strong incentives to keep their medical costs down by searching for cheaper options. But could employees find economical health care even if they wanted to?

American Enterprise Institute resident fellow Tom Miller points out that there is a paucity of good data on health outcomes in the current medical marketplace. Thus patients can't easily find out how much hospitals and physicians charge for various treatments, nor how effective those treatments are compared to alternative therapies. Without this information, it's hard for patients to shop around for the best health care deals and easy for hospitals and physicians to avoid pressure to lower their prices through competition. However, Medicare has amassed a great deal of information on the relative efficiency of physicians, hospitals, and treatments. Miller wants the Feds to make this trove of data available to the public so that the private sector can mine it to provide consumers with information that will help them to more cost-effectively navigate the modern medical marketplace. Not surprisingly, physicians, hospitals and medical products manufacturers who don't want to compete are resisting the release of this data.

At least initially, it doesn't look as though the Coalition members are proposing to shirk their health insurance obligations. Instead the Coalition aims to put those responsibilities where they properly belong—into the hands of individual Americans. If so, that would be a big win/win for both employers and employees.

This system would be fine if individuals who purchased health insurance were allowed to enjoy the same breaks as the major health insurers when it came to costs. But without the bargaining power of “the group,” I don’t think that will happen. And as the article mentioned, unless you’re really familiar with the system, you don’t know that you, as an individual have some bargaining power.

We’ve been covered under group insurance (our share of premiums are about 300 per month) for years. My husband had surgery a couple years ago, the bill was in the $60,000 range, the hospital was paid $9,000 by the insurer, we paid our copay, and that was that. As an individual, I could go in and negotiate a lower bill, but most people aren’t even aware of that fact, and the truth is, as an individual, if I do negotiate a bill, I still won’t get the same benefit as a “group” negotiation. Will individuals be able to form “groups” on their own, in order to negotiate lower prices?

Another problem with this plan...it will shift more people to public hospitals because not everyone is “responsible” enough to take the extra money in their paycheck and spend it on insurance. So the people that use the money for something else, will then go to the public hospitals where treatment can’t be denied.

And even if the person is “responsible”...will those with pre-existing conditions be denied insurance and become part of the “uninsured.” And if they are denied, there again, will that shift them to public hospitals and eventually tax the system even more?

Another consideration, health care costs rise each year. So the employer gives the employee the cost of insurance in the form of a raise. Well the year after that, will there be a “raise” in the employee’s paycheck for insurance premiums, or is this a one time deal...you get the cost of insurance today added into your wage, and that cost stays the same year after year, even though the cost of insurance is rising. If that’s the case, then I can see why the business sector would be in favor of it. It saves them lots of money in administrative costs and they get to freeze their insurance cost obligations at today’s dollars.

I could potentially see this causing more of a burden on “public health” than exists already.

Lots of questions to be asked.

I’ve often heard that the reason for higher medical costs is to cover the uninsured. However, like your husband, my hospital stay earlier this year incurred around $20K but my insurance only had to pay their “contracted rate” of $6k. So I have to wonder, is it the uninsured driving up the cost of healthcare or is it the “contracted rates” that the hospitals have to recoup? I’ve heard also that the uninsured are charged more per service than the insured - why?

I know that our family would not be covered if we had to go to an individual policy do to “pre-existing” conditions. However, we pay right around $600/mo for just the premium not including co-pays for office visits and prescriptions.

Our family doctor has implemented a new system where if you don’t have/use insurance, you get a 20% discount. I’ve heard a lot of doctors going this route rather than paying the administrative costs for filing insurance that pay’s (in our case each office visit) $18 on top of the $30 we pay.

I certainly don’t want universal coverage, but maybe a catastrophic plan would be better for our family. We’re looking at all sides of the issue to figure out what’s best for us.

Big Bidnis does things that will benefit Big Bidnis. But neither workers, nor taxpayers will be getting a good deal when health care costs are socialized with a Canadian-style single payer plan.

A far better plan is to allow workers to buy their own health insurance just like they buy their own auto or home insurance. But there are several restrictions that must be removed as well:

* Insurance companies must be allowed to sell across state lines. This will allow increased efficiencies in the business. We don’t require shoe stores, or cell phones, to be restricted by state lines, why is insurance special?

* Insurance companies must be brought under the same restraint of trade or collusion laws as shoe companies are: we need to outlaw the common tables of fees that companies publish under the false front of paying “reasonable and customary” doctor charges.

* Health insurance premiums that an individual pays should be just as exempt from income taxes as are the premiums that employers now pay for group coverage.

* Health insurance companies should be allowed to sell group policies to any group they can define. This will reduce selling expenses and allow small business to form association groups that big bidnis doesn’t need because of the larger number of employees in the policy pool.

* Government should get out of the business of regulating the number of hospital beds. We would think it absurd that government would regulate the number of grocery or shoe stores, yet government thinks it is good for the consumer to forbid a hospital from having too many patient rooms. Who benefits when supply is restricted? Not the customer.

* States must not be permitted to force companies to offer policy provisions that not all customers want. I don’t need IVF coverage, yet in some states I would have to pay for that “risk” in my premium.

* We don’t expect Geico or Progressive auto insurance companies to pay for every oil change and tire rotation. Health insurance must return to the role of being real insurance against losses that the policy holder chooses not to pay out of his own pocket.

I am sure that other Freepers could add to the list.

We have gotten in this mess over several generations of tax code tweaking, labor relations and union negotiation, as well as just general custom with people who have jobs. It will take a lot of work to get ourselves untangled. Any solution that does not work to improving the incentives, will increase costs in the long run. Single payer is a recipe for having a health care system that serves everyone but serves them poorly.

We don’t have grocery insurance, car buying insurance... the whole concept of insurance for health care needs is beyond ridiculous.

Catastrophic inurance, sure....but

...Infectious disease diagnosis and care need to be included in the defense budget. It’s a modern aspect of warfare and we can’t count on patriotism to get people to spend money diagnosing and treating what might be bio-terrorism

Other things we can discuss partial subsidies where it benefits the common good, but routine care should not be covered under any kind of insurance sinc that only adds to the basic cost.

You have tgo be willing to think out of the box on this, and honestly, this box is so protected by powerful special interests that most people have no real idea about it. I suggest reading books like the Cure which argue for infusiong more capitalism and less government. I heard the President say that automation would squeeze 20% of the cost out and save lives. I think it is very interesting that Newt Guernrich seems to be working on that outside of government. As Reagan said, government is not the solution. It is the problem. A bunch of lawyers in Congress are not going to solve the problems.

In particular, group discounts and pre-existing conditions are not set in stone. The first is just a marketing technique. The second is actuarial. Note that the implementation of the Medicare Drug benefit has not used either idea. Competition has driven prices down with Walmart seting the pace.

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You have to be willing to think out of the box on this, and honestly,
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The box is inverted. Economic reality is outside the box. Inside the box we find loads of government intrusion, manipulation and collusion with the big-buck parties involved. Then there are the politicians and bureaucrats who respond to the political dynamic to become power brokering “champions” of the poor and uninsured.

We have arrived to the point that every candidate on the Dim side is advocating socialized medical payments. That is just a disaster plan, from a standpoint of economics, liberty, and health care.

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