You Cant Tell Health Care Proposal and Player Without a Scorecard

By Jeremy Smerd

Mar. 29, 2007

Fervor to address the rising cost of health care is spreading like a fever across the country. President Bush introduced tax deductions in his State of the Union address. Hillary-Care, circa 1994, is gone, but Sen. Clinton and rival for the Democratic nomination Sen. Barack Obama have both sounded off on universal health care (though with no details). Meanwhile, AARP and health insurers have their plans, as does Oregon Democratic Sen. Ron Wyden, whose idea to do away with employer-sponsored health care has drawn the support of Safeway chief executive Steven Burd. And we haven’t even gotten to Mitt, Arnold, Ed and Rod, who as governors ushered in the era of the individual mandate in an effort to insure the residents in their respective states of Massachusetts, California, Pennsylvania and Illinois.

    How to make sense of all the proposals and how they might affect employers?

    Just print out the table below and tape it to your fridge or filing cabinet. You can keep score. Health care is sure to feature prominently in the 2008 presidential election, and the race for the White House has only just begun.

Proposal Source: The President

uProposal in a nutshell:Intended to encourage individuals to purchase health insurance. Though a major redesign of tax treatment of health benefits, it is not an attempt to provide universal coverage. The plan makes the cost of health care a part of taxable compensation. Creates a tax deduction of $7,500 for individuals and $15,000 for families who purchase health care.

uAdvocates say:Will encourage employers to offer less-expensive health plans, bringing down their costs, while giving tax incentives to people who purchase health insurance, thereby insuring more people. Long overdue tax change to level playing field for individuals who need to purchase health insurance.

uCritics say: Will erode employer-based coverage. Healthy workers will buy cheaper insurance on the individual market, pocket the deductible and leave sicker workers for the employer to cover. Also, a tax deductible may still not be enough for those with little discretionary income to purchase health insurance.

uEmployer effect: Unions and highly compensated employees would lose. The Bush administration says only 20 percent of workers would be affected, but others suggest that proportion could be higher. Employers could see savings from payroll taxes if their plan costs fall under the deductible.



Proposal Source: The Senate

uProposal in a nutshell: The plan would offer near universal coverage. Employers would terminate health coverage. Employers would take part of the cost of health care and put it toward wage increases. To offset increase in tax liability due to wage increase, a tax deduction is offered to those who purchase health insurance. Cost of coverage is subsidized on a sliding scale up to 400 percent of the poverty level.

uAdvocates say:  By decoupling health insurance from employment, people retain access to health care even if they change jobs or are unemployed. A tax deduction will encourage the purchase of health insurance. Overall costs would slow through administrative efficiencies. Wildly enthusiastic supporter is Steven Burd, CEO of Safeway.

uCritics say:  Employers would lose the ability to control their health care costs and to tailor their health care programs to the specific needs of their population. The plan does little to make consumers sensitive to the price of medical care. Overall, families would reduce spending by only $22 each.

uEmployer effect: Employers would no longer be responsible for providing health insurance. An analysis by the Lewin Group shows that employers currently providing health benefits would save nearly $4,000 per employee. The plan would slow growth of health care costs, insure 99% of Americans and save $2 trillion in 10 years.



Proposal Source:  Private Sector (Health Coverage Coalition for the Uninsured–a broad mix of 16 organizations including AARP, FAmilies USA, health insurers, hospitals and doctor groups)

uProposal in a nutshell: Group wants to expand health insurance coverage to those who have none. Would be done in two phases—first for children, with more reliance on state initiatives, and then for poor adults and families through an expansion of Medicaid and tax credits for families earning less than 300 percent of the federal poverty level.

uAdvocates say: The plan focuses on those without insurance in hopes that by giving people access to medical care they will be less likely to use expensive, last-minute emergency care for ailments that are otherwise preventable. In the end this would bring down costs.

uCritics say:The plan is not tethered to fiscal reality. The program is estimated to cost $45 billion in the first five years but does not estimate the cost of the tax credits. Nor does the plan explain where the money would come from.

uEmployer effect: With the exception of the U.S. Chamber of Commerce, employer support for plan was tepid. At the last minute, the National Association of Manufacturers and a union withdrew their support. The plan, however, would preserve the employer-based system



Proposal Source:  States and their individual mandates: Mass., Vermont, Calif., Penn, Ill.

uProposal in a nutshell: Attempts to provide universal coverage to state residents. Massachusetts led the charge among states in requiring residents to obtain health insurance. So far in 2007, eight states have introduced bills to provide universal health care, including California, which has one of the largest populations of uninsured.

uAdvocates say: Through a state-run insurance pool, individuals could purchase coverage that would have otherwise been affordable. The plans do not penalize employers who already provide health insurance. The thinking goes that requiring individuals to obtain insurance will bring down premium costs for everyone.

uCritics sayWhat works in Massachusetts may not work in California. Universal coverage won’t affect long-term trajectory of rising health care costs unless people become more sensitive to price. Also, there is little agreement on what constitutes an adequate level of coverage. Too many variations across states would make it hard for multi-state employers to comply.

uEmployer effect: Though many state plans are similar, differences could potentially violate ERISA, legal experts say. While employers in Massachusetts that provide insurance would not have to pay any fees, in California any business with 10 or more employees would have to provide insurance or pay a 4 percent payroll tax, which will help pay for the $12 billion plan.


Jeremy Smerd writes for Crain’s New York Business, a sister publication of Workforce Management.

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