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Towers Perrin conducted a survey in July 2009 of employer views on health care reform.  Most (80%) of employers are closely monitor reform legislation.

Interestingly and not unexpected, employers will not absorb additional costs resulting from reform, rather they will be:

Reducing benefits

Raising prices (to employees)

Reducing headcount

Cost control (no surprise) is the most important reform goal from an employer perspective…unfortunately, the Congressional focus is on expanding coverage and reducing Medicare and Medicaid costs.

Employers who intend to communicate health care reform to their employees may want to prepare them for less not more as a result.

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Senators working hard on amendments

Not long after the ink dried on the Baucus framework for health care reform, the bill has 560 proposed amendments, and half of those deal with the coverage section of the framework.

Reading through the several hundred pages of the Chairman’s Markup leads one to conclude that the legislation should be called the Medicare and Medicaid Improvement and Expansion Act.  There are over 100 pages on these topics with little to control costs although I have to admit there are attempts to change the system, but again in the context of Medicare. 

Here is an example from the text of the bill: 

Chairman’s Mark 

The Chairman‘s Mark would authorize and appropriate $100 million over five years for the Secretary to establish an initiative to provide incentives to Medicare beneficiaries who successfully complete certain healthy lifestyle programs. Programs would target the following risk factors: high blood pressure, high cholesterol; tobacco use, overweight or obesity, diabetes and falls. The Secretary would establish a system to monitor beneficiary participation and validate the results, as well as set standards and health status targets for participating beneficiaries. Prior to establishing the initiative, the Secretary would review evidence concerning healthy lifestyle programs and providing incentives to individuals for participating in such programs. The initiative would be implemented on January 1, 2011.

Here is a clue, if one has not developed a healthy lifestyle before age 65, doing so after age sixty-five ain’t going to help much, especially in the context of controlling health care costs.

Scores of pages deal with changes to Medicare, including Part D, a 50% discount on drugs while 100% of the cost is still counted toward the donut hole and reaching the catastrophic 95% reimbursement coverage. Higher income beneficiaries would pay a greater percentage of the cost for Medicare part D as they do for Part B. 

Medicare Advantage plans are addressed, reimbursement systems, quality systems group purchasing incentives for hospitals all related to Medicare.

And here is some real teeth in malpractice reform, although he deserves some credit for even mentioning the topic which is ignored by the House. 

 Chairman’s Mark 

The Chairman‘s Mark would express the Sense of the Senate that health care reform presents an opportunity to address issues related to medical malpractice and medical liability insurance. The Mark would further express the Sense of the Senate that states should be encouraged to develop and test alternatives to the current civil litigation system as a way of improving patient safety, reducing medical errors, encouraging the efficient resolution of disputes, increasing the availability of prompt and fair resolution of disputes, and improving access to liability insurance, while preserving an individual‘s right to seek redress in court. The Mark would express the Sense of the Senate that Congress should consider establishing a state demonstration program to evaluate alternatives to the current civil litigation system. 

And for employers and employees who have health insurance the future is not bright.

35 Percent Excise Tax

It is unclear how many people will be affected by the 35 percent excise tax on high cost health coverage, especially because it includes medical, dental, prescription drug, vision coverage and even the employee contribution to an FSA.  Since someone other than the employee pays the tax, it then depends in part on the decision made by the employee with regard to the FSA contribution.

This may mean that employers will be less inclined to offer the FSA thereby driving up individual out of pocket costs.

The administrator in the case of self-insured plans pays the excise tax.  Given that the legal plan administrator is generally the employer, there is a strong incentive to cut back on these benefits taken together and thus again drive up individual costs.

It would be far better to limit the tax-free status to employees of so-called excess values than to incent the reduction in coverage.

No employer intentionally offers overly generous benefits especially to obtain the tax deductibility of such an expense.

The proposal would also require employers to disclose the value of the benefit provided by the employer for each employee’s health insurance coverage on the employee’s annual Form W-2. This is a tremendous administrative expense and implies an incredible amount of individual calculations.

Limited FSA

The FSA employee contribution is limited to $2,000, thus effectively limiting its ability to help young families pay for such things as children’s braces and other out of pocket costs.

Eliminate Exclusion for Employer Part D Subsidy.

The proposal would eliminate the exclusion from gross income for the subsidy for employers who maintain prescription drug plans for their Medicare Part D eligible retirees.

When Medicare Part D was passed, it was the specific intent of the legislation to discourage employers from dropping existing prescription drug coverage for their retired employees and thereby shift costs to the federal program. 

This change will not only encourage employers to drop the coverage or substantially cut it back, but it sends yet another message to the private sector that you cannot rely on a deal with the government.  The losers in all this will be millions of retired Americans.

Retiree health benefits of all kinds are quickly disappearing and in the process changing retirement patterns, increasing costs for individuals and the government.  It does not seem prudent to accelerate this process further by once again discouraging employers from providing such coverage.

So it goes with health care reform, we are still in effect expanding coverage, penalizing those who already provide coverage or have their own, raising out of pocket costs for insured Americans and expanding Medicare will little direct impact on the cost of health care in America.

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Well, there we have it I just received my e-mail from the President via Organizing for America and the outline of his health care reform proposal is complete. It now includes words to touch on every issued raised by every supporter and critic. We have a public option, elimination of the Medicare donut hole, malpractice reform, changing the delivery system, free unlimited coverage for every affordable risk like flu shots and it is all paid for without adding to the deficit.

Can there be any doubt that the purpose of all this is simply to find a way to make everyone happy and quell any criticism? How can we be opposed, all of our concerns are addressed? There is something for everyone from doctors to seniors, insured and uninsured and it’s all paid for (by somebody).

In reality there is little new and any hope of a rational, measured approach to this is pretty much gone. The appearance of listening to the critics in a few areas simply means the Demoncrats have a stronger perception they can do it alone.

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From the American Benefits Council

The Baucus framework also proposes to impose a 35 percent excise tax on health insurance coverage above $8,000 for individuals and $21,000 for family coverage.

The tax would apply to amounts in excess of the thresholds and would be adjusted for inflation. Both insured and self-insured plans would be subject to the tax, but it would not apply to coverage in the individual insurance market. Other proposed revenue provisions would require employers to report on the value of employee health coverage using the annual Form W-2; limit annual contributions to flexible spending accounts (FSAs) to $2,000; require employers to include retiree prescription drug subsidies for corporate income tax purposes; standardize the definition of qualified medical expenses for health savings accounts (HSAs), flexible spending accounts (FSAs), and health reimbursement arrangements (HRAs); and increase the excise tax penalty for the use of HSA funds for non-qualified medical expenses from 10 percent to 20 percent.

The health care debate is a complicated discussion, right?  Well not really, so I have an idea to make it simple, think of your car.

Your car is a large complex machine with many moving parts, sophisticated computers keep things working and the engine must perform every time it is required to do so, not unlike your body. 

To protect your financial risk you buy auto insurance and if you are like most people, you have a high deductible to keep your premiums as low as possible.  In some parts of the country this coverage is modest in cost and in others quite outrageous mostly because in some areas there is abuse, higher risks and state regulation that all add to the cost.  In some cases, this regulation leads to insurers abandoning the state as a place to do business. 

This insurance is designed to protect you from unforeseen risk and the costs associated with that risk.  The risk may come from external forces or something dumb you did yourself.  The people who sell this insurance want to know the risk they are taking so if you are younger and a male you pay more, if you have a bad driving record you pay more, if you have had a number of accidents you pay more or perhaps you cannot get insurance.  This is designed to keep costs down for all customers of the insurance company and of course, to minimize the risk the insurance company is taking. 

Fixing this is going to be tough

If you have an accident and need repairs, the insurance company and the body shop negotiate over the work needed and the price, but of course, at that point the body shop has padded the bill a bit in anticipation of the negotiated fee from the insurer. In extreme cases, you are at the end of the road, you care is rationed and the car it totaled.  

Because this vehicle is a big investment and you depend on it for many things, you take care of it.  You have regular oil changes, rotate the tires, fix what is broken and you pay for all that out of your pocket because they are generally manageable costs and you expect them when you own a car.  Carrying insurance for this kind of thing even if you could get it would cost too much. 

Owning and maintaining a car is an expensive proposition, there is insurance premiums, routine maintenance, repairs, etc. In my case, I estimate that totals about $4,000 a year for two cars. 

Now, take all the same facts and apply them to health care and for some reason we cannot be expected to pay for our own preventive maintenance, routine repairs and tune-ups, we need insurance.  We don’t expect insurance companies to manage their risk even though when they do so, the healthier customers pay less.  If we spend $4,000 to have two cars that’s ok, but if we asked to spend that on our own health it is outrageous.  We have a distorted view of what is affordable.  Shouldn’t our health come before our car in priority?  Across the country, there are strikes over raising a health insurance premium contribution and at the same time, the auto insurance premium goes up just as fast it seems. 

Five hundred dollars spent out of pocket on car repairs is the same as $500 spent out of pocket on health care, it is still $500, but $70 for a prescription is unaffordable.  I remember a few years ago I wrote an article about a state that mandated coverage for birth control pills.  My logic was that such a prescription was not an insurable risk, nor was it especially expensive about $20.00 per month as I recall, or was it even necessary, as there were alternatives.  I was taken to task over the article because women should not be expected to pay out of pocket.  

What is the difference between paying for a car and paying for health care?  The difference is that we cannot be objective about health care, we do not want to spend our money on health care, it is far easier to let the costs float in the void of government or insurance rather than confront them at the point of service.  This is why it is easier to raise the payroll deduction then the office visit co-pay even though logic would call for the opposite.  

It is also why it is extremely risky to expand coverage before we attempt to change the mindset we have about health care and our role in paying for it. 

To understand the health care system, think of it in the context of the car analogy.  If health care were a car, the oil companies would decide the size of the engine in your car, the miles per gallon you receive, the number of miles you drive each year, the price of gasoline per gallon and sell you the insurance to cover it all. 

Happy motoring!

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