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Mr. Gay Burke, writing for the Denver Post asks the question, “Why should employers pay for health care?”

To Mr. Burke:

An upside down world

Right question.

Wrong answer.

Employers tend to be a smart group.  Otherwise they would not be running successful businesses.  But on health care, they have been stupid, blind and stubborn.

I can say that, in part, because I have spent nearly thirty years in the employee benefits profession.

The stubborn follows from the blind and stupid.

So let’s look at stupid first

Mr. Burke is onto something when he questions the role of employers in providing health insurance to employees.  This is an admittedly illogical system.  For starters, the doctor patient relationship is one that relies on continuity.  Fostering that continuity is one of the major ingredients in proposals for health care delivery reform.

How can that strategy be successful in a system where entry into the system is through a relationship that is fundamentally discontinuous – the employment relationship?  But how ill it be improved in a market of individual policies.

But upside down logic doesn’t stop there.  I frequently encounter two kinds of questions from our participants who work physically demanding jobs:  “I’m sick or injured.  I can’t work.  I therefore have no money.  I can’t afford my health insurance so how can I get better and go back to work?”  or  “I’m better now, but in order to come back to work, I need a statement from my doctor.  But I haven’t worked in months,; where am I supposed to find the money to go to the doctor so I can return to work?”

Does this system make sense?

Then there is the business perspective.  The current system distorts competitiveness.  Less than half of private sector employees get their health care coverage from their own employers.   That means that some employers gain a competitive advantage by not offering health care coverage.  Others are subsidizing those same employers by offering coverage to dependents who work for companies offering no or inferior health care coverage.

This very unlevel competitive playing field affects employer access to talent or the ability to get the best talent.  Some employees are not able to do the kind of work they would rather be doing because they need health insurance.  Other employees are locked into jobs because they need the health insurance.  This restricts employee mobility and employer agility.  And it is not keeping pace with the demands of the 21^st century workforce.

Then there is blind

Mr. Burke is suffering from a popular misconception that if the consumers bore more of the cost of health care, that some how “market forces” would lower the cost of health care.

Mr. Burke observes that employers would rather not offer health insurance.  This is certainly reflected in efforts to shift costs to employees over the past decades.

But there is no evidence to suggest that this has curbed health care cost inflation.  Yes, it has cut employer costs.  But that is more than a bit short sighted.

It has become a rhetorical mantra that the United States pays more for health care than any other country.  But consumers in this country also pay more out of pocket than most other industrialized nations.  And we have more people declare bankruptcy as a result of health care costs

Paying more for less

Shifting more of the costs to consumers has not worked.  Shifting the full cost as Mr. Burke suggests positively will not work.  How do people without money pay the full cost of insurance?  There is only approach that makes sense – payments based on income.

Back up Mr. Businessman and ponder this.  Our European counterpoints pay less.  Their governments pay less, their citizens pay less out of pocket and their employers pay less.  Let’s leave aside for the moment that they get better outcomes:  they live longer, have lower infant mortality, lower maternal death rates, and lower rates of avoidable deaths.

Just from a services perspective, Europeans visit the physicians more often; go to the hospital more often; spend more time in the hospital; and they take more drugs.

Higher costs, fewer services.  Even a non-businessman can figure this out.  I am not aware that doctors and hospitals are flush with embarrassing riches. And poorer outcomes to boot?  So where is the extra money going?

Let me help you out here.  You are paying for the inefficiencies in this system that you refuse to let go of.

This is where stubborn enters

How many times have you heard or used the phrase – think outside the box.

But when it comes to health care, you refuse.  You are locked into a business that is not a core function.  It is fundamentally illogical and against basic business impulses.  But the only way you see out of it is to turn it over to a model of individual insurance that is the illogical conclusion of a business strategy that has not worked.

Face the reality.  There is only one way out of this box that works for you and for your workforce.  (Except for employee benefit professionals like me.)  It is a single payer system. You know from your own experience that no single employer has enough market power to move the health care industry, yet you stubbornly refusal to admit that government might be able to do a better job with health care than you have done.

There is still another model.  It is the model of the German health care system where employers and employees run sickness funds.  It is the same model that exists in the Taft-Hartley funds in this country.  Pay into the funds while the employee is working to provide coverage for periods of time when the employee is not working.

Both ideas require employers to abandon stupid and blind ideas about “consumer responsibility” and to take some real leadership that will stabilize business costs, make businesses more productive, the workforce more mobile and enterprises more agile.

The answer to the question is a smart, open-minded and forward moving approach.

It is a business solution that requires business leadership.

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The old saw, “The devil is in the details” does not seem to apply in the discussion on taxing health care benefits.  While there appears to be a certain momentum behind this idea, the details of the consequences (other than raising revenue) are barely discussed.

Jonathan Cohn, a writer I generally admire, gives high praise to a new report by the Center for Budget Priorities, arguing that this report should prompt people like me to rethink our opposition to the idea.

So perhaps their latest message will get through to liberals and liberally inclined interest groups that oppose tinkering with the tax exclusion for health benefits. The title of their new report says it all: “Limiting the Tax Exclusion for Employer-Sponsored Insurance Can Help Pay for Health Reform: Universal Coverage May Be Out of Reach Otherwise.”

I recently detailed  the devils that I was concerned about.  The CBP attempts to address some of them.  So let’s take a closer look at their arguments, using the reports own headings.

The Exclusion is the nation’s costliest tax subsidy.

Duh?  Health care is one of the fastest growing expense items in the federal budget.  It is also one of the fastest growing cost items for private business.  Which costs less, the loss of tax revenue or paying the full freight for the health care now provided by the private sector?

Am I missing something?  A tax subsidy is how the federal government provides incentives to the private sector to do what it doesn’t want to do itself.  The real issue is this.  Does the private sector do a good job of providing health care to the public?  If yes, continue the subsidy.  If no discontinue the subsidy and let the government take over that responsibility.  But don’t take away the tax subsidy and expect the private sector to continue their responsibility for providing health care.  That’s a bit like getting off the toilet, and then, well you get my drift.

The exclusion is poorly targeted. It increases health care spending

Yes, it is poorly targeted.  Go back to item one.

The point that it increases health care spending is an argument that appeals to some.  But to support it you would have to show that the rich with health insurance use more health care than the poor with health insurance.  And also show that somehow that difference is explained mostly by the preferential tax treatment.  I don’t see that argued at all; let alone successfully.

Exclusion Can Be Reformed Without Eroding Employer-Sponsored Insurance

Very doubtful.  But this is a topic all by itself.  But what about eroding the income of middle class tax payers?   Where is that discussion? After all, where is this pot of money coming from?

Our experience and the experience of others with the taxation of domestic partner health benefits tells us that taxing the benefits of just one person, not the family, of a middle class ($30k – $50k) wage earner reduces take home pay by $30 to $50 dollars per week.  Let me repeat that.  Taxing health care benefits of middle class tax payers will reduce take home pay by at least $30 to $50 PER WEEK.

Some writers dismiss this argument without even describing it.  Just an off hand comment that “labor hates it.”  It seems no one else is sticking up for the middle class on this point.

Structuring a limit on tax exclusion

This section goes part way to addressing some of the arguments I raised in my previous post.  But the CPB arguments step through the looking glass, as do their arguments about eroding employer sponsored insurance, with this statement:

If properly designed, a limit on the tax exclusion could be administered equitably and without large compliance burdens for employers or workers.

Perhaps I have just a bit too much experience with the phrase “without large compliance burdens.”  Or maybe I just feel that our health care system spends far too much on administrative expenses.  We should find ways to spend less, not dismissing ever mounting marginal increases in administrative “compliance burdens” that have absolutely nothing to do with the delivery of health care.

Charley James of the LA Progressive offers the best response.

The Kennedy plan is relatively simple; the emerging Baucus plan sounds as if it is being written by Jackie Mason.

First, you take health plans that are tax free now and you make some of them taxable, but not all of it, and not for everybody. But who? We don’t know who! Then, a new tax deduction puts money in the pocket of the people who we don’t know who they are so they can take it out again and buy what they had for free in the first place. Next, the money the states use to pay for medical care for people who don’t have health insurance could be used to pay for people who don’t have health insurance which means they can’t get good health care. But we don’t know who they are, either. Well, maybe we know, but we’re not sure, so we won’t say. Then, three million people who don’t have any health insurance will have money from the tax deduction they didn’t want, to buy health insurance on their own if they have enough income to take advantage of a $15,000 deduction and can actually can buy a policy that provides coverage. There might be six people in America who can do this. So we’re taking money from here, and moving it over there, and then back to here, which where it was in the first place and now let’s have some tuna because I’m exhausted.

Taxing health care benefits is a bad solution on top of a bad idea – employer sponsored health care.  Give the money currently spent on health care by employers to the employees, then tax it.  Then let the governement provide health care.

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I realize writing a letter to the president is like writing to Santa Claus.  Yes, Jim, there really is a Santa Claus; but the elves read the letters.

Short letter.

Dear President Obama:

Taxing benefits is a bad idea!

It is bad politics

It is not just that you thought it was a bad idea during the campaign and now you have flip flopped.  You are allowed to flip flop on some issues.

Far more important, you told us that 95% of Americans would not see a tax increase.  And now you want to tax our benefits.  Did you misspeak?  Were you just plain wrong?  Or misguided?

I realize not everyone has employer provided health care benefits, so it is a little bit like taxing the rich.  Is that how you see it?  Is that how people in Montana see it?  I don’t think those of us with employer provided benefits would think of ourselves as rich.  Lucky perhaps, but not rich!

It’s not that this goes against my interest.  It goes against your interest.  I do not believe that you have an interest in betraying the American people on the issue of taxes.  Aren’t working people upset enough already? I suggest you wave your veto wand and make this curse go away.

It is bad economics

Someone has to pay and you know it is not the employers.  How will depressing worker wages help the economy?

It is bad health policy

I have made the point here frequently that the current system distorts domestic and international competitiveness.  Taxing benefits will aggravate the problem.  It will make benefits and compensation more expensive forcing some employers to abandon or cut back on employer provided health benefits.

So your idea to pay for those without health insurance is to cause more people to be without health insurance.  So you fix that problem by raising the tax on those with insurance causing more employers to give up health insurance.

I imagine a man in a boat who sees water come in at one end and decides the solution is to drill a hole at the other end for the water to leave.

Bad idea!  Unless…but that is a topic for the next post on Wednesday.

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The blogosphere is buzzing with discussions about the promise of health care reform.  For a weekly poster like me, it is impossible to keep up.  As 2009 approaches, and more importantly, as 1.20.09 approaches, I thought I would offer my insights into the topic from the perspective of the administrator of an employer and union sponsored health benefit plan

If there is one thing that unites the comments it is their oppositional posture.  Insurance companies are the most common enemy, but hardly anyone escapes.

So I would like to go on the offensive and tick off a few positives that I would like to see in health care reform.  Please indulge my autocratic use of the term “will”.  

1. Every individual will be required to have health insurance.  We don’t object to requiring drivers to have car insurance, homeowners to have homeowner’s insurance, employers to pay for unemployment insurance, liability, or workers’ compensation insurance.  A basic principal of insurance requires the risk to be spread among as many as possible in order to provide both the greatest protection to the insurers and the lowest possible cost to the insured.  

A mandate negates the need for medical underwriting, that unseemly practice of denying health insurance to those who are already sick.

2. There will be a defined set of benefit plans.  This is not a novel concept.  In order to cut through the misleading marketing around Medicare Supplemental (Medigap) insurance plans, CMS adopted a defined set (12) of permissible Medigap benefit designs. 

A set of clear benefit design options would eliminate underinsurance while permitting certain groups to “buy up.”  What gets included in any prescribed benefit design is the most controversial and consequently under discussed aspect of health care reform.  Every possible interest group comes out of the woodwork to argue its case.  I learned that in 1993 during discussions at the state level about health care reform.  It will take real leadership to settle this issue.

3. There  will be a uniform drug formulary.  This is consistent with a standard set of benefit plan designs.  Today, physicians must grapple with dozens of different drug formularies, if not more.   What is a preferred drug with one plan may not be permitted in another.  Too often the patient is put in the middle of that controversy and forced to pay extra for a drug that a doctor is receiving incentives to prescribe.  

4. There will be payment reform.  Much has been written about the inequities of the current payment system.  It does not provide adequate incentives for primary care; it does not adequately reward or incent quality care; it does not pay for care management; it does not adequately compensate for medical education.  I support and encourage each of these objectives.   

I just want to add one unifying principal to the mix.  There will be one system that will apply for each and every patient.  There won’t be one payment system for older Americans on Medicare and another for younger Americans on state Medicaid plans and still a bunch more for those insured by private health insurers and still yet a different set of rules for the uninsured.

5. Medical education reform will include major financial support by the federal government.    There are two major flaws in the current system of financing medical education.  The first is the unconscionable debt burden that encumbers new medical school graduates and distorts incentives throughout their careers.  The second is the costs incurred by institutional and professional providers to provide supportive apprenticeship (internships and residencies) programs.  There are lots of suggestions by others to improve the content of medical education.  I will leave that topic to them.  

This is not an item that gets priority treatment in reform discussions.  People seem ill inclined to sympathy for people who, they think, make too much money.  That thinking is backwards.  Doctors should start their careers owing their debt to their community, not to their bankers. 

6. There will be a system for a fair redress of medical errors. It should adequately recognize and acknowledge errors; compensate the victim and family fairly; assure that there is no financial gain to the provider; and ensure that systems are in place to prevent errors from recurring.

7. Cost to the individual will be based on ability to pay.  That is most easily understood in the context of a government, tax supported program.  But it could be possible to have private programs with payroll deductions based on income.  That is not an unheard of concept with some employers today.  The challenge will be devising administrative systems to handle those transitions between employment and unemployment as well as those independent contractors who are not payroll employees.  Perhaps some tax on 1099 income.  I’m sure experts on tax policy could devise a workable system.

8. There will be delivery system reform that eliminates the silos that keep providers apart and inhibits the delivery of coordinated care, chronic condition management, follow up and rehabilitative care,  and drug therapy management.   

9. There will be room for experimentation.  There will always be, I hope, providers who push the boundaries of accepted medical practice.  Patients need to understand when their doctor is pushing those boundaries.  At the same time doctors and institutions need to accept that something new is not acceptable just because they say so.  Patients and providers need to be open about the risk and the costs of these experimental treatments.

10. Above all, there will be recognition that the health of the nation is not dependent solely on its health care system.  It depends on good nutrition, opportunities for exercise and outdoor recreation, on the education of its citizenry, on safe working environments, on safe drinking water and sanitation systems, and on clean air.

Over time I will take the opportunity to expand on these topics.  Some may notice that I offer no silver bullets: fix this one thing and all will be right.  It took this country a long time to get into  this mess.  Fixing it will take time, leadership, and concerted effort.

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I support a simpler health care system.  That is my number one priority.   Thus I am unimpressed with the health care reform platform of our newly elected president.  I do share the hope and optimism of many that meaningful change can and will happen. 

But getting a simpler health care system means that some of the stakeholders need to be cut lose from the system.  That is a politically daunting task. It is why most health care reform proposals try to add more patches to what is already a shabby patchwork quilt of private and public programs.

One effort does try to simplify a small part of our current system.  At least 30 states have mandated that insured health care plans cover all children until they reach a certain age.  Yet as simple as this concept is, it comes with more variations than states that have adopted it.

What are we trying to simplify? 

Most health plans offer parents with dependent children in college the opportunity to continue coverage for their child if they provide evidence that the child is enrolled in a qualified post secondary education program.

This is a holdover from the days when children entered the job market after high school and those jobs provided health insurance.  Today, it is more likely that neither half of that statement is true. It is an obvious adaption to changing times.  It is a relatively easy way to expand coverage to a vulnerable population.  Young adults are healthier than the general population and therefore not an expensive expansion.  Of course, that doesn’t prevent this trend’s detractors from referring to it as the “slacker mandate”. 

It also simplifies plan administration.  Parents know the headaches of getting colleges to certify their child’s student status or certifying the insurance status to the college. Likewise colleges incur an additional administrative burden.  In addition many colleges administer their own student health plans.  That cost becomes part of the additional cost of college tuition. Only 30% of colleges require students to have health insurance. 

For our plan it is one of the more persistent headaches.  We regularly send notices to parents and students asking them to update their student status.  Invariably, they forget until a need arises.  And then it is a crises.  And the crises usually occurs when the college is not in session and their administrative staff is on reduced hours.

But even an intention as straightforward as this ends up as a patch that covers a small percentage of its targeted audience.  State insurance mandates only cover plans regulated in their states.   They do not affect plans regulated by ERISA or government plans (including our plan).  And 30 plus separate mandates in as many states certainly does not simply administration.  

But the US congress didn’t make it simpler when they passed Michelle’s Law.  Their idea of relief is to cut as small a patch as necessary that plugs a tiny hall in that quilt.  Admittedly a hole that shouldn’t be there.   It affects only those students with coverage who are forced to reduce their course load or leave college because of an illness.  A uniform mandate to cover all dependents to a reasonable age would make a lot more sense.

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Approximately six months ago our office began receiving stacks of paper claims for prescription drugs.  The drugs originated in various Veterans’ Administration medical centers around the country.  They were for drugs that members in our Plan had received at VA medical centers. 

It was obvious that there had been some sort of new policy at the VA that required the VA to obtain payment from other payers when veterans had other coverage.  The problem in this case is that our Plan had just changed pharmacy benefit managers effective January 1, 2008. 

So think about this.  Until recently, a veteran who also happened to have other coverage went to a VA medical center and received care.  The VA paid for the service and somebody figured out how much it added to national health expenditures.  Our health plan did not pay for the services and therefore nothing was added to national health expenditures, other than the cost of keeping that Participant enrolled in our Plans.

Then someone in Congress got the idea that the VA could save money by finding someone else to pay for services.  Ignore the macro perspective that it increases the total cost to the system.   Now a layer of bureaucracy is added to find who is liable for payment and send the bill to that payer.  Remember the card game Old Maid?  Who is going to be left holding the poison card?  That’s what our health care financing system has come down to. 

But wait!  What happens when the payer information is no longer correct.  In the private sector, plan sponsors are constantly changing carriers and pharmacy benefit managers.  So now add an additional layer of administrative expense. 

In addition, these are paper claims.  Our vendors charge more to adjudicate paper claims.  The VA has an excellent reputation for its effective and efficient delivery system. (J. Kupersmith, et al.,Health Affairs, March/April 2007; 26(2)) It has not had a need for an efficient claims billing system.  Upgrading that system will add additional costs not only to the VA budget, but also to total national health expenditures.  And people think that Americans pay more for health care because we have better health care?

In our case it seemed that a central computer had the other party liability (that’s the technical term) information.  If they had the correct information, our office could be removed from this process, thus offering a small marginal efficiency to this additional administrative rabbit hole.  The local VA facility was not helpful.  I contacted my congressman and after several months and a lot of phone tag, I located someone who not only understood my problem, but also understood how it was also their problem.

But the more serious problem is that no one is looking at the big picture.  Making someone else pay the bill, may save the VA some money.  It does not save the American economy any money.