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The Society for Human Resource Management (SHRM)has approximately 250,000 members representing the varied disciplines and commercial interests within the  human resource profession.   As a benefits professional with expanded human resource responsibilities, I recently joined SHRM.

No one there {Photo by JLM}

So I was disappointed to learn that SHRM does not support the recently passed House health care reform bill, HR 3962, The Affordable Health Care for America Act.

My readers will know I consistently argue that relying on employment as the primary gateway to the health care system is outmoded and ultimately harmful to the American economy.   Part of that argument is because employer sponsored health care limits the flexibility of employer human resource policies and the mobility of the workforce.

Does SHRM share those views?

Apparently not.

What does SHRM say?

In some areas, the legislation does not go far enough, especially in the area of containing costs.  In other ways, the legislation would create new impediments for employers and employees.  For example, the House bill:

1. Does not include provisions to create greater availability to wellness programs for employees and employers.
2. Mandates that employers provide and pay for “qualified” health care coverage for their employees. If employers do not provide coverage – or do not provide the specific “qualified” coverage at an “affordable” price, as determined by the federal government, they must pay an 8 percent payroll tax.
3. Erodes the effectiveness of the Employee Retirement Income Security Act (ERISA) by applying state law to employer- purchased coverage in a health insurance exchange; prohibits post-retirement reductions of retiree health benefits by group health plans, unless reductions are also made to active employees’ health benefits; and requires employer-sponsored plans to meet detailed federal requirements.  These changes would likely result in additional costs and burdens on multi-state employers who could face different rules in different states.
4. Establishes a public insurance plan option that, as currently drafted in the House bill, could result in cost-shifting to private plans, potentially increasing costs for both employers and employees.

The Maze’s response

I.            Their first point is preposterous.  Employers don’t need federal legislation to promote wellness.  For people without health insurance, their pathway to wellness is health insurance.   And wellness alone is no substitute for health insurance.  What more evidence do you need than the story of the shooting in the health club in Bridgeville, PA this past August?  One of the victims had no health insurance.  Her health club membership did not protect her from the bullets of a crazy man.

In addition, workplace wellness is a growing phenomenon around the world and is not dependent on employer sponsored health insurance.

II.            It continually mystifies me why the business community opposes employer mandates.  Apparently the ideology of a “free” market trumps the common sense of a competitive market.  In a competitive market, everyone plays by the same rules.  In a free market, the winners make the rules.

III.            I am a bit more sympathetic to some of the arguments about ERISA.  As typical of any legislation, especially proposals that are as hotly debated as this one, legislators make decisions that reflect a poor understanding of the complexities of the issue.  If the choice were between this proposal and a single payer system, I would agree this solution is a poor one and should be rejected.  That is not SHRM’s viewpoint.

IV.            If SHRM were truly concerned about cost shifting, they should support a single payer system or at least an employer mandate.  They could support an all-payer methodology that the state across the river from their headquarters has.  Their opposition to the public plan option reveals their true loyalty to the insurance companies.

An alternative perspective

Why not promote policies that enable employer flexibility for all employers, large and small, and facilitate workforce mobility and development?

Ken Dychtwald was the keynote speaker at the recent annual conference of the International Foundation of Employee Benefit Plans (IFEBP).  He described how Americans are living longer and the impact thus is having on workplaces and employment practices.  Workers want to extend their working careers with educational breaks, career shifts, part time and part year work.  He did not address specifically the issue of universal access to health care.  But it is obvious that current employment based health insurance practices are a significant hurdle to adoption of the kind of workforce flexibility envisioned by Dr. Dychtwald.

SHRM should be looking to enable the future and not protect the past.

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To Chris Farrell

Chris Farrell is Economics Editor for American Public Media’s Market Place which airs on approximately 330 public radio stations including WAMU in Washington, DC.

You almost had a break through moment.  Then you broke down. Your straight story took a nose dive.

On June 19th, your Straight Story opined on health care reform.  Health care needs to be de-coupled from employment, you stated boldly.  Your words were, “sever the link between your job and your health care.”  You went on to say:

It makes no economic sense to me  that if someone loses their job their family loses their health care insurance  and don’t tell me that COBRA covers it, because COBRA is so expensive very few people who lost their job can pay for it even with the new subsidy.  It makes no sense; it is so inefficient; and it is immoral.

But wait a minute.  You also said that by “severing the link between your job and your health care” you could lose your job and still have health insurance.

How does this work?

Do you really have any idea what health care costs in this country? COBRA rates are so expensive because they reflect the actual cost of group health insurance.  Unless you are working for a company with a bunch of old sick people, you are unlikely to buy an individual policy with comparable coverage for less than COBRA rates.  The key word here is comparable.

Please don’t misunderstand me.  I think you make one of the most important points in this current health care debate.  Health care needs to be de-coupled from employment.

But payment should be tied to income.  Otherwise you put it out of reach for too many people.  Not just out of reach for the recently unemployed, but also for young people just trying to enter the job market, and for low wage workers in general.

This is not just a health care issue

It is an economic development and work force development issue.  Health care costs distort our competitive economy. More important, it distorts incentives in the workforce.  How many people with bright creative ideas are reluctant to test them in the market place, because the one market entry barrier they don’t know how to overcome is the cost of health care?

The 18,000 people a day that die for lack of health insurance are not just tragic personal stories, they are tragic economic stories.  They are stories of people who have been denied the opportunity to contribute to the American economy.

Mr. Farrell, I trust your instincts.  But on this one, you need to go back to the drawing board.

Please don’t tell me you are enamored with the idea of competing insurance companies.  On what will you base your decision?  Do they cover lap band surgery, but not cardiac rehab?  They have your primary care doctor in their network, but not your cardiologist.  They have your internist in the network, but they don’t cover cardiac rehab.  Oh, you didn’t notice that language, until after you had your heart attack?

Please Mr. Farrell.  I am not one to criticize the insurance companies.  I work with them every day.  Like you, I fault the connection between health care and employment.  Insurance companies do what those who hire them, like our plan, ask them to do.

We can keep the insurance companies.  I am not sure we should, but they do seem to have a loyal and devoted following in Congress and the White House, even if nowhere else.  But let’s make them play by our rules.  I propose a set of very simple rules. They would apply to both public and private plans.

1.    No medical underwriting, guaranteed issue and guaranteed renewability.

2.    Rates would vary based only on age, location and benefits.

3.    All carriers would pay the same provider the same amount.  Our current system pays providers next to nothing for treating poor people (Medicaid), a bit more for treating old people (Medicare), and a healthy profit for treating employed people.  That makes no sense and should be replaced by a payment system that rewards good outcomes.

4.    There would be very limited set of benefit options, similar to the current Medigap regulations.

I think I just described Medicare, almost.  There’s the solution – Medicare for everyone. And we can even keep the insurance companies.  After all, aren’t they the ones paying Medicare claims now?

On this issue, Mr. Farrell, your story may be straight, but it falls way short of its target.

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An E-mail came across my desk recently.  It was from one of the many employee benefit-consulting firms and information services that have uncovered my e-mail address and bombard me with information.

This one had some startling advice.

It advised employers to deny all applicants for the COBRA subsidy.

Why, you ask.

Well, it seems that our federal government speaks with forked tongue on whether to make it easier for recently unemployed workers to continue their health insurance.

The American Recovery and Reinvestment Act (ARRA) says that employees who are involuntarily terminated can apply for COBRA continuation coverage.  If they have been involuntarily terminated, they become an Assistance Eligible Individual (AEI to the cognoscente).

An AEI (you are now part of the cognoscente) pays 35% of the normal COBRA premium – a fairly substantial premium subsidy, although for the unemployed, still a hefty burden.

Guidance from the Department of Labor (DOL) appears to give weight to the individual’s determination on whether the termination was “involuntary”.  They  offer this guidance:

If you believe you meet the criteria for the premium reduction, complete the attached “Request for Treatment as an Assistance Eligible Individual” and return it with your completed Election Form.  Under federal law, you have 60 days after the date of this notice to return your completed Election Form and Request for Treatment as an Assistance Eligible Individual.

If you are denied treatment as an “Assistance Eligible Individual” you may have the right to have the denial reviewed by {the Department of Labor (for private sector employees) or the Department of Health and Human Services (for federal, state, and local governmental employees) as appropriate}.  Additionally, certain high-income individuals may have to repay the amount of the premium reduction through an increase in their income taxes.  (Your income for the year would have to be more than $125,000 ($250,000 for married couples) before you would have to repay all or part of the premium reduction.)

Here is what the Employee Benefit News writes:

And, employers should keep in mind that guidance from the Internal Revenue Service has made clear that “involuntary termination” is to be interpreted very broadly, including employees who quit in advance of a threatened layoff, seasonal employees, and even those employees who quit instead of being relocated by their employer.

The rub comes later.

The way that an employer gets the other 65% of the COBRA premium is by claiming the COBRA subsidy as a credit on the quarterly tax withholding reports that an employer files with the IRS – Form 941.

The IRS apparently takes a dim view of employer mistakes.  If for any reason, the plan takes a credit for the COBRA subsidy and it is subsequently determined that the presumed AEI is, in fact not an AEI at all, the employer will be considered delinquent in their quarterly remittance to the IRS.  The employer will be assessed interest and penalties for the shortfall.  Anyone who has had experience with IRS interest and penalties, knows that they can mount very quickly.  Depending how long it takes the IRS to come to the conclusion that the COBRA subsidy credit was taken inaccurately, the interest and penalties could exceed the subsidy credit.

Thus the advice – deny the claim first.

The ARRA has an expedited process to appeal COBRA subsidy denials.  If the feds say its OK, then you, the employer, are protected against excessive fines from the IRS.

One can only hope that this consultant advice is playing to employers who want to hear that kind of advice.

So once again, the federal government comes up with a temporary and half baked solution to a permanent problem – health care coverage for the recently unemployed.  It makes it complicated and confusing from the outset with approximately 15 pages of forms and instructions.  Then it throws a few more roadblocks in the way with contradictory motives from another federal agency.

The amazing maze of health care in the United States of America!  What does this portend for health care reform?

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Does Congress really think they are doing anyone a favor with the new COBRA subsidy provision in the recently enacted stimulus package?

Why can’t they make it simple?

Conservatives who fear “socialized” medicine because it will make medicine more bureaucratic should acquaint themselves with COBRA regulations. Litigation over COBRA keeps lawyers and judges busy all over the country.  And what does any of it have to do with the delivery of care?

What is COBRA anyway?  The Consolidated Omnibus Budget Reconciliation Act of 1986 was one of those huge (thus the word omnibus) budget bills that included everything from tobacco price supports to fishing fees for foreign fishing vessels.   But it will be remembered because Title X (of XX) included provisions to permit those who lose their health insurance under an employer sponsored health plan to continue their health insurance under certain conditions (called qualifying events) and provided they pay the full cost of the coverage.

Because, the person without coverage is also usually without a job, and because the person must pay the full cost (actually 102%) of the coverage, very few people elect the coverage and those that do are more likely chronically ill individuals.  In insurance parlance, that’s called adverse selection.  The plan sponsor will usually end up paying more than they receive in premiums.

So what did Congress and President Obama do with COBRA? 

The new law makes the cost of COBRA premiums slightly more affordable.  Normally, a 65% discount would seem pretty attractive.  But the average cost of one of our family plans exceeds $1,000.  $350 – 450 per month for a family with one less breadwinner is still a stiff price.  Imagine selling a Lamborghini at 65% off!  $70,000 for a $200,000 car is a huge bargain.  But for someone without a job?

The new law allows those terminated between September 1,2008 and February 17^, 2009 and who initially declined their COBRA election, another opportunity to elect the coverage at the reduced rate.  And they can begin their coverage March 1 instead of the date of the qualifying event.

Unlike regular COBRA, the subsidy is limited to those who are “involuntarily” terminated and their family members.  The plan sponsor can rely on the employees’ attestation that they were involuntarily terminated.

Unlike regular COBRA, the subsidy is limited to those whose income is below certain levels ($145k for singles and $290k for couples).  Curiously, that determination is made based on the income tax filings of the subsidized participant.  I can imagine that there will be a lot of hair splitting on that issue.

Unlike regular COBRA, the participant can elect coverage other than the coverage they were enrolled in at the time of their termination, provided it is a less expensive option.

The subsidy is only available for 9 months wile COBRA eligibility extends for 18 moths.

The subsidy ends after the 9 months or after the participant becomes eligible for other coverage.  That raises a lot of questions.  How will the plan sponsor know if the participant is eligible for other coverage?  What if the participant doesn’t even know that he or she or the children are eligible for other coverage, for example Medicaid or SCHIP?  It is easy to imagine a situation where an individual may not be eligible when they start out

An unproductive bureaucracy!

The process is a maze of intersecting, overlapping, and competing bureaucratic interests.  The plan sponsors sends notice to everyone who might be eligible.  The individual claims eligibility by asserting that they were involuntarily terminated.  The IRS determines if the participant met the income limits.  The IRS also indirectly reimburses the plan sponsor by permitting credits on the quarterly tax withholding reports. The Department of Labor decides any disputes about eligibility.

Imagine a single payer system where eligibility was not dependent on employment!

Imagine how much simpler the bureaucracy would be!

Imagine how much more meaningful the result would be!