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.
Ronald Bailey is Reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.
