The Amazing Maze of US Health Care

Imagine that an employer can hire professional talent for a day, a week or for years and not have to consider health care as a fixed cost.

Imagine that same professional talent is without work, whether through illness or simply lack of work, and yet does not have to worry about paying for health insurance.

Sound like a health reformers ideal.  Provide employers the flexibility to hire talent as needed.  Provide health care for workers even when they have no income.

This model exists now

This is the model of the multi-employer health & welfare plan.

Multi-employer plans are common in those unionized industries with seasonal or irregular employment: transportation, needle trades, construction trades, and theater trades, for example.  They are governed by a board with equal numbers of employers and union representatives.  Employers pay a negotiated rate per hour worked into the Fund and the Fund provides benefits through periods of employment and transitional unemployment.  Some funds are fiscally sound enough to provide benefits through retirement.

But this is not a competitive model.  Not when your competitors provide few, if any health benefits.  The unions with benefit funds are more sensitive to the cost of health care than many of the industrial and public sector unions.  They negotiate a total wage package and see more clearly the trade-off between wages and benefits.

During the last decades they have seen medical inflation eat into their real income.  It is no wonder that Unions for Single Payer includes many unions more who traditionally have not been at the leading edge of past union struggles for health care reform.

The multi-employer fund as model

As employers increasingly abandon employer sponsored health plans in their never-ending race to the bottom, the multi-employer plan stands as a model for all of America.

Employers pay for health care only while workers are working.  They pay enough to cover workers when they are not working.  As a national model, employers would pay a percentage of all compensation, including part time wages, compensation to free lancers, bonuses, commissions and any other form of compensation.

Workers would give up a portion of their wages only while they are working.

Employers would gain unprecedented flexibility in hiring.  Decisions about part time work, part year work, job sharing, work hardening, phased retirement would not be encumbered with the fixed cost of health care.  Because workers would have equal access to health care; employers not offering health insurance now would have access to a larger labor pool.

Workers would be free to choose job opportunities or a career path or even an entrepreneurial enterprise without regard to an employer’s health plan offering.

How does this multi-employer model match up to the single payer model?   Pretty well.  They both would enjoy a near monopsony – a single buyer purchasing from a multiplicity of sellers.  Governance would be different.  The multi-employer plans would be regional private funds with local employer-employee governance.

Government would still play a significant regulatory role.  Several large regional plans would create a national system that encourages delivery system reforms and payment system reforms tailored to the unique requirements of the local economy.

It’s a model that has worked well for some Americans in the past and can be a model for all Americans in the future.

Retired Steelworkers and single payer advocates rest after a long day rallying and lobbying for health care on June 25, 2009.

The Senate and House are preparing to reconcile two modestly different approaches to health care reform.  Charges and counter charges continue to swirl around like New Year’s Eve confetti.  Are we on the verge of an historic breakthrough on health care reform?

What lessons have we learned about ourselves and our government?  Let me suggest six.

1.            America matters more to some than Americans.

The target of health care reform is Americans who are in the margins of our workforce.  They earn too much money to qualify for health care programs for the poor – state Medicaid and Children’s Health Insurance Programs (CHIP).  They work for small businesses who cannot or do not provide health insurance coverage.

As a society we have already agreed to provide health care to the poor, the old and those who work full time for profitable companies.  Why is it so difficult to fill the remaining cracks in the system?

Yet opponents of reform frame their arguments as a classic American struggle against big government.  The stories of very real Americans facing death by neglect or medical bankruptcy don’t seem to resonate as much as the conjured images of America challenged by fictional tyrannical death panels and giant government databases.

2.            I got mine – go get your own.

Very few people with health insurance pay anywhere close to the full cost of health insurance.  Less than 10% of adults under 65 obtain their health insurance in the individual market where they have to pay the full price.  73% of those who tried to buy individual insurance gave up either because it was not available to them or it was too expensive, according to a study by the Commonwealth Fund.  For the rest of us, our employer pays the majority share, or the government for those on Medicare and those on Medicaid.

Yet extending the same helping hand to those who may need health insurance to continue to participate in the workforce is tantamount to terrorism or tyranny, according to certain news commentators.  That may be an extreme view, but the noise it generates is dead weight that drags the center of political discourse away from constructive and meaningful reform.

3.            Money talks

Despite the clamor from the right, polls consistently show strong support for health care reform and even for the “controversial” public option.  Recently, I described how opinion pools show strong support for a single payer system.

So why are Democratic politicians having such a hard time getting “on board” with health care reform.  Countless stories have documented the amount of money the health care industry has spent on lobbying members of Congress.  One is reminded of my home town’s favorite son, Simon Cameron, Lincoln’s first Secretary of War, who once said, “An honest politician is one who when bought, stays bought.”  Only when some politicians began to realize that actual voters are behind those poll numbers did the public option begin to show renewed life.

Sadly, the Senate result reinforces the impression that money talks.

4.            Symbols matter

There is not a whole lot of evidence that the public option by itself will make a meaningful dent in the number of uninsured or in medical cost inflation.  But it is a powerful symbol reflecting one’s viewpoint about who should be the intermediary between the patient and the health care system – a government or quasi-governmental organization, or a private health insurance company.  There is clearly little appetite or political will to take on the insurance companies directly with the kind of strong and consistent regulation found in other countries.  The best that Democrats can offer is the threat of weak-kneed competition.

5.            Why do simple when complex is so – complex?

There is much ado about the nearly 2,000 pages of the health care bill.  When Congress tries to fix 1/6 of the American economy, it can’t be easy.  An analogy can be made to taking your tired old clunker to the repair shop.  It is too expensive.  It can’t haul nearly as many people as it was supposed to.  But you love it to death.  Your favorite repairman could hand you a ten-page estimate and tell you it will still be expensive and still won’t carry the all the passengers you would like.  Or he could hand you a one-page invoice for a new car.  HR 676, the “Medicare for All” legislation and beloved of single payer advocates, is 27 pages long.

6.            Who does Congress love most?  Not you and me.

Do you doubt the devotion of Congress to the insurance industry?  If so, the provision in both the House and Senate proposals to require an 85% medical loss ratio should say it all.  The law requires that at least 85% of premium income be used to pay for medical claims of covered participants.  Even the most conservative estimates put Medicare’s loss ration in excess of 90%, some argue in excess of 95%.  If the government can spend premium income more efficiently why let the private insurers in?

What next?

It’s no longer a safe bet that health insurance legislation will succeed (It does not deserve to be called health care legislation).  It is criticized from the right and from the left.

As feeble as it is, it will be a significant achievement given the long record of historical (and hysterical) opposition. Calling it reform will be the challenge of the spin-doctors.  Already there are estimates that it will leave a significant number of people still uninsured.  It doesn’t do enough to manage costs.  And there will undoubtedly be a backlash for a variety of reasons, some of them legitimate.  The question will be, how soon before Congress will have to revisit this issue?

Photo by JL McGee

Premiums absolutely should be based on income and absolutely should not be based on age.  I say that not just because I am in the 60+ age bracket and you likely are not.  I say that because of my 25+ years in employee benefits.  However, I do agree that there should be a penalty for delayed enrollment similar to what Medicare Part B imposes.

When you come right down to it, the whole health care debate boils down to two issues.  How do you expand health care coverage and how do you pay for health care.

Expanding coverage is important because it spreads the risk among the sick and the healthy equally.

Make it straightforward and uncomplicated

But when it comes to paying for health care we are locked into a conversation that is driven by the cost of health insurance for an individual or a family.  Consequently, in efforts to get money where it is needed we come up with goofy schemes like taxing “Cadillac” plans.

Instead we should think collectively.  How do we transfer money from those who have more of it to those who have less of it?  This is a principle we have already agreed to with Medicare and Medicaid and some employers charge their employees on a percentage of income basis – some even on a sliding scale.

The simplest, most straightforward, uncomplicated approach is to pay based on ability to pay.

My idea is that employers be charged a flat percentage of total compensation for health care.  Total compensation needs to include all forms of compensation and should include payments for contract labor (sometime referred to as free lancers or consultants).  These payments would be reduced by payments made for employer sponsored health care.

Focus on the main issue

The immediate consequence of this approach is twofold.  High wage earning industries would subsidize the health care costs of low wage earning industries.  Employers not providing health insurance would be paying a “fair share” for health care costs.

Several numbers could guide the actual premium rate.  Health care consumes about 18% of GNP.  According to the Employee Benefits Research Institute, employers in 2008 paid 7.9% of total compensation for health care costs.  Employees paid between 65% and 75% of health care costs.  That puts actual health care costs somewhere around 12% of total compensation.  By my calculation, that puts the employee share at around 3% of total compensation.  (I would appreciate any comment on the calculation of these numbers.)

So 6% is low as a percentage of total compensation, but high as a percentage of employee share.

If we want to lower those percentages, then we need to lower that first number – health care costs as a percentage of GNP.

To the extent that older workers tend to earn more than younger workers, there is an inherent age bias to this approach.    But not all old people earn more money nor are they always sicker.  Certainly, I am not sicker (knock on wood).

If the goal is to transfer money from those who have more of it to those who have less of it, then don’t confuse that goal with other objectives such as punishing only those over a certain income threshold or punishing the recipients of “rich” benefit plans.

This plan does not address the complications of how very small businesses should pay their share.  But if we can agree on the first two goals I outlined above this should be a manageable challenge.