Diagnosing the Health Care Reform Dilemma
SEMA News - August 2009
Small-Business Issues Vital In Legislative Debate
Lawmakers are seeking to enact legislation in 2009 that would fundamentally reform how Americans gain access to the nation’s health care system. A number of Congressional committees are now tackling the tough job of writing the legislation this summer, with a goal of completing action in both the House and Senate this fall. SEMA is taking this opportunity to identify some of the major issues being debated.
Two national problems have stoked the political pressure for reform. First, about 46 million Americans have no health insurance—either because their employer does not offer coverage, they are unemployed and cannot afford an individual plan, or they simply chose not to be insured. An individual who is uninsured may actually impose a higher cost on the health care system than someone who has coverage, since the uninsured usually forego preventive medicine and may ultimately end up in the emergency room, where treatment costs are at a premium. Second, health care premiums have skyrocketed about 113% for small firms over the past 10 years. An estimated 27 million small-business owners, employees and dependents are now uninsured. Additionally, small businesses pay an average of 18% more in health insurance premiums for the same benefits provided to big businesses.
Earlier this year, a SEMA-member survey provided a clear message that the nation’s health care system is broken. While recognizing the need for reform, the survey results also cautioned that any solutions must be affordable and not impose costly employer mandates. The results were reported in SEMA News May 2009.
Can Reforms Be Enacted?
Unlike in years past, the major players in the health care debate are willing to talk—politicians, health care providers, insurance companies, drug companies, big and small businesses and individuals. Reasons vary but include the realization that the current system is unsustainable, the number of uninsured is increasing, and there are profits to be made by providing care to the uninsured. In fact, the players are at the table to protect their vested individual interests. The insurance companies will benefit if the 46 million uninsured become customers. The insurance companies also want to make sure that there is an even playing field. For example, if the government offers a competing insurance plan under “play or pay,” that program could siphon off some of the better customers and leave some insurance companies with higher-risk participants and increased premium rates.
How Will Health Care Reform Contain Rising Costs?
Cost containment focuses on four main areas: providers, insurance companies, preventive medicine and market reforms.
Health Care Providers: Hospitals, doctors and other health care providers will be pushed to work within a standardized electronic paperwork system. “Health IT” is the catchphrase for reducing the costs and inefficiencies of the current paper-based system. However, an electronic system will need to have security and privacy safeguards, and it will need to be phased in to accommodate computer and software costs. There will also be efforts to better manage chronic disease, which accounts for 75% of overall health care spending. Reducing the incidence of misdiagnosis, unnecessary tests and treatment through more rigorous medical oversight and quality control can also take costs out of the system.
Health Insurance Companies: Private health care insurance companies are currently losing customers due to spiraling premiums. Lawmakers want to bring 46 million Americans into the system by leveling the playing field. Mechanisms may include preventing insurers from denying coverage to individuals or charging excessive premiums based on pre-existing conditions, health status, genetic information or similar criteria. Lawmakers want to limit excessive variations in premium prices for the same policy and have premiums that are based on community ratings and actuarial tables. Limits could also be placed on a company’s administrative and marketing costs and profits when compared to the percentage of funds spent on medical care.
Disease Prevention: It goes without saying that large amounts of money can be saved if people embrace healthier lifestyles, so an emphasis will be placed on promoting preventive medicine. Fewer resources may be needed if there is access to regular health checkups rather than emergency-room visits. This approach will include programs to promote smoking secession, proper diet, exercise and to provide low-cost routine health screening, including conducting such programs in the workplace.
Market Reforms: Correcting defects and biases in the marketplace for health insurance is another key aspect of reform. For years, SEMA and other groups have sought passage of legislation to create Small Business Health Plans that would enable small businesses to band together, form a larger risk pool and purchase insurance across state lines. Under the current system, large companies and trade unions have access to national plans, but most small businesses are forced to buy from insurance providers in their home states, turning them into captive customers who receive less coverage for higher prices. Forming national or regional health care insurance “exchanges” is gaining acceptance as a means to make it easier for customers to understand the types of coverage that are available, compare prices and build larger, more stable risk pools. Allowing policies to be portable as Americans move or change jobs is also crucial.
Who Pays for Reform?
Employer “Pay or Play”: The nation’s current employer-based system will be retained. Americans either will have access to health insurance through their employers or be required to purchase their own policies. Both options have ramifications for the employer. Lawmakers will likely pursue a “pay or play” approach whereby companies offer a qualifying amount of health insurance (paying all or a portion of the worker’s premiums) or pay a payroll tax for a federal health insurance fund similar to Medicare. The tax could be staggered based on a company’s size and revenue, and small employers could be exempted. SEMA’s health care survey provides guidance on this topic. SEMA members support the current voluntary approach to providing coverage but overwhelmingly oppose mandates such as pay or play. They also support tax credits and other mechanisms that would help enable employers to provide coverage.
Taxing Individuals: Under current law, workers are not taxed on the value of health insurance provided by the employer. Lawmakers may subject all or some of that money to income tax as a means to fund the federal health program. It would also have the benefit of making individuals more aware of the insurance costs borne by the employer and providing an incentive to become more engaged in health care decisions. Lawmakers are also looking at increasing taxes on popular products often associated with national health problems. Frequent targets are excise taxes for distilled spirits, beer, some types of wine and for sugar-sweetened beverages such as soft drinks. Another proposal is to add a disability-insurance tax on all workers’ paychecks. Similar to long-term care insurance, the program would address critical flaws in the current system by creating a large risk pool and guaranteeing disability coverage for all Americans.
Individual Mandate: Lawmakers will likely require individuals to buy a qualifying level of health insurance in the same fashion that motorists must have auto insurance. Compliance may be phased in over time. Enforcement would likely occur at points of contact between individuals and the government (e.g. taxes, applications for licenses, etc.) based on proof of enrollment in a personal plan, an employer-based plan or through the proposed federally run plan. In theory, an individual mandate should reduce insurance premiums by bringing into the system more young, healthy people who currently are not covered by insurance. An individual mandate would likely require subsidies for lower-income individuals.
Public Insurance: Creation of a federal health insurance plan that would compete for subscribers with private health insurance plans has been one of the most controversial aspects of the health care reform debate. Many fear that it would potentially undermine the extensive system of private insurance now in place and head America toward a single-payer system—the single payer being the federal government. More public funds may be used to pay for services provided in private hospitals and doctors’ offices as a result of reform. However, very few reformers in Congress are seeking full “socialized medicine” or a government takeover of hospitals and medical practices.
Reform Challenges: Assuming that reforms are enacted into law, success will require hard work. For example, Massachusetts embarked on the same course in 2006 and achieved initial success. However, reducing barriers to care and improving affordability have recently proven problematic, as one in five adults have reported difficulties in finding a doctor who will take a new patient or who will accept the provider reimbursement rate for payment. People who can’t find a participating physician—even when they now have the ability to pay—end up back in the local emergency room. The nation will face a similar challenge as it attempts to incorporate 46 million Americans into the current system without creating supply-and-demand rationing and as it converts to a preventive care system.
Enacting legislation to help SEMA-member businesses gain access to affordable coverage has been a top priority for a number of years. Toward that goal, SEMA has worked on Capitol Hill through the Small Business Coalition for Affordable Healthcare and with the National Federation of Independent Businesses. SEMA will vigorously support those measures in Congress aimed at containing the overall cost of health care to SEMA members.