- BIOETHICS FORUM ESSAY
Health Care Reform: A Guide to Current Events
The American health care system is in bad shape. The U.S. spends 16% of its GDP on health – about twice the average for other rich countries – yet 46 million Americans are uninsured and another 16 million are underinsured. The continued increases in the cost of health insurance have caused employers to question why they provide health insurance and employees to decline employer-provided coverage: more than 80% of the currently uninsured, and more than 90% of all nonelderly Americans, have either a direct or a family tie to the work force. In March, 2006, 71% of workers in private industry had access to employer-sponsored medical care plans, but only 52% were actually covered. Monthly employee premiums averaged about $297 for family coverage and $76 for single coverage, according to the Bureau of Labor Statistics (pdf download). Finally, the states are struggling with Medicaid costs that consume more and more of their budgets. According to the National Association of State Budget Officers’ 2003 State Expenditure Report (pdf), twenty-three states spent more on Medicaid (after taking federal subsidies into account) than on education.
Because the federal government’s efforts to improve health care have been woefully ineffective, several states have acted on their own, and their plans go far beyond what’s being given serious consideration in Washington. (See Brietta Carter’s recent Forum post for an analysis of why the president’s so-called fix will make the health care woes of the working poor worse, not better). The state plans are limited, however, both in substance and in their geographical reach. Moreover, the possibility for state-level change is hampered by the same forces that control Washington. First, there are so many interested parties, and the health care industry is such a colossus, that any significant change is difficult and controversial. Second, our political leaders have such short attention spans, and so hate tackling controversial issues, that all of the current sound and fury may yet signify nothing.
In any case, it makes sense to understand the different types of reform that are being tested and trumpeted in the various states. Four states – Maine, Maryland, Massachusetts, and Vermont – have health care reform statutes. Many other states appear poised to pass some kind of health reform law as well. Of these, the two states whose proposals have attracted the most attention, because of the states’ size and large uninsured populations, are California and New York. All of the state plans rely on employer contributions, and none would eliminate the inefficient multi-insurer system that is the current model for American health care.
Maine passed its health care reform act, “Dirigo Health Act,” in 2003 and revised it in 2005. The act created the Dirigo Health Agency, an independent executive agency responsible for monitoring and improving the quality of health care in the state and arranging for the provision of comprehensive affordable health care coverage to small employers, self-employed persons, and other individuals on a voluntary basis. The state-designed and taxpayer-subsidized health insurance plan DirigoChoice is central to the Dirigo Health reform initiative. To reduce employees’ costs for employer-provided insurance, DirigoChoice provides taxpayer-financed subsidies to employees with household incomes under 300 percent of the federal poverty level. DirigoChoice requires participating employers to pay 60 percent of the premiums for employee-only coverage; there is no minimum employer contribution for dependent coverage.
To date, only 15,800 people are enrolled in DirigoChoice; the goal was to cover all of the state’s 130,000 uninsured by 2009. Yet even with its limited enrollment, the program is facing economic woes. The state paid $53 million to launch the program, with further funding to come from the cost savings that Maine’s hospitals and insurance companies would accrue under the plan. When Maine’s independent insurance commissioner evaluated the program in 2006, it calculated that $43.7 million had been saved since the program started. Maine’s governor contends that those savings benefited the insurance industry and has billed insurers for payment. But the insurance industry counters that the assessment is erroneous, and it contends that if they are made to pay the $43.7 million bill, it will pass the costs on through higher premiums for consumers – constituting what the plan’s opponents call “The Dirigo Tax.” The Maine Association of Health Plans has filed lawsuits contending that the $43.7 million assessment is “arbitrary or capricious,” and that any savings they have seen are outweighed by the fees.
Given its lower-than-hoped for enrollment and the controversy over the Dirigo Tax, the Maine reform plan is hardly a model for success.
On January 12, 2006, the Maryland legislature enacted the Fair Share Health Care Fund Act, which required employers with 10,000 or more Maryland employees to spend at least 8% of their total payrolls on employees’ health insurance costs or pay the amount of the shortfall to the state. The only employer affected by the act was Wal-Mart. In January 2007, the federal 4th Circuit Court of Appeals held by a 2-1 majority that it conflicts with – and is preempted by – the federal Employee Retirement Income Security Act. The dissenting judge disagreed: “As the record makes clear, Maryland is being buffeted by escalating Medicaid costs. The Act is a permissible response to the problem. Because a covered employer has the option to comply with the Act by paying an assessment – a means that is not connected to an ERISA plan – I would hold that the Act is not preempted.” The court’s decision invalidates the Maryland law and may pose problems for any state that requires employer contributions as part of its reform package.
Massachusetts is one of these states. In 2006, the Massachusetts legislature enacted An Act Further Regulating Health Care Access, which sought to cover 95% of the state’s 500,000 uninsured within three years. Since enacting the law, Massachusetts has enrolled more than half of the poorest people who are eligible, but it will be more difficult to enroll the working poor, who will receive a state-subsidized rate but must pay a monthly premium depending on income.
The law requires an employer that does not provide health insurance and has eleven or more employees to pay $295 annually for each full-time employee, prorated for part-time and temporary workers. There is no absolute mandate on individuals to buy insurance, but people will face financial penalties if they choose not to enroll in an eligible plan that is available to them. For 2007, they would forfeit their personal state income tax exemption, costing them about $200. In 2008, they will be fined half of the average premium for the minimal plan. In January 2007, the state agency outlined the minimum requirements: the average cost is now estimated at $380 a month, more than $100 above previous estimates. In addition,a new count shows that more than 200,000 Massachusetts residents with health insurance would need to buy additional coverage to satisfy the minimum standards.
Critics have questioned the financial viability of the plan from the outset. “The ongoing commitment of state and federal funds is critical,” wrote the activist group Community Catalystlast year. “The plan projects that more than $200 million over three years will be raised from employer contributions and this funding is also essential. In addition, the employer contribution requirement could be subject to a legal challenge.” (See Community Catalyst’s report, “Massachusetts Health Reform” [pdf].)
Vermont enacted its new program, Catamount Health, in May, 2006. Catamount Health will require private insurers to offer coverage for the uninsured starting in October 2007. Employers who do not offer health insurance must pay $365 annually per employee, and cigarette taxes will increase. The law also creates a subsidized insurance product. The law is much more specific than the Massachusetts law, which left many issues to be resolved in later regulation. Unlike Massachusetts, Vermont did not make participation mandatory. Reform should be easier in Vermont than in most other states, however, because only 11% of state residents are uninsured and the state has the lowest rate of uninsured children (6%) and one of the lowest rates of poverty or near-poverty. (See Community Catalyst’s report, “Understanding Health Reform in Vermont” [pdf].)
In California, 6.5 million (including at least 1 million illegal immigrants) of the 36 million residents are uninsured. Last summer the legislature passed a single-payer bill that Gov. Schwarzenegger vetoed, and Schwarzenegger has now unveiled his own proposal. Businesses that have ten or more employees and do not offer coverage would pay 4% of Social Security wages to a state fund to subsidize the purchase of coverage by the working uninsured. The cost would be based on a sliding scale determined by earnings. As with Massachusetts, one basic concern is whether the cost would be as affordable as Schwarzenegger has claimed.
In addition, Medicaid eligibility would be extended, and doctors would pay 2% of their revenues, and hospitals 4%, to help cover higher reimbursements for those who treat Medicaid patients.
At his inauguration, Gov. Eliot Spitzer vowed to make health insurance available to all children and to enroll all eligible adults in Medicaid. “If carried out fully, his pledges would cut the number of uninsured New Yorkers in half,” reported Richard Perez-Pena in the New York Times. Almost 14 percent of New Yorkers are uninsured. According to A Blueprint for Universal Health Insurance Coverage in New York, issued in December 2006 by the United Hospital Fund and the Commonwealth Fund, New York has an estimated 2.8 million uninsured: 41% are already eligible for an existing public health insurance program; another 36% have low-to-moderate incomes (below 300 percent of the federal poverty level) but are ineligible for public coverage; and the remaining 23% have incomes above 300 percent of the federal poverty level.
The Blueprint advocates a building block approach: “First, reform public programs to increase participation rates and make affordable coverage available to a greater share of low and moderate income persons. Simplify rules to enroll those who are eligible but uninsured; expand Family Health Plus eligibility for childless adults; allow low- to moderate-income New Yorkers to buy into FHP with income-related premium assistance. A new statewide purchasing mechanism would provide a choice of additional coverage options at group rates.” The report describes two variations of assessments on employers with ten or more employees that do not offer health insurance: an assessment of $400 per worker per year; or a pay-or-play assessment of 8% of payroll, with a credit for coverage offered. The average would be $3,200 per worker. All residents would be required to buy health insurance, with income-related premium assistance.
Real reform might not be possible at the state level. The New York Times economics columnist Paul Krugman has argued that health care should ultimately be a federal responsibility, with state-level plans merely pilot projects, not substitutes for a national system, because “some states just won’t do the right thing. Remember, almost 25 percent of Texans are uninsured.” Numerous bills have been introduced in Congress, and Sen. Ted Kennedy and Rep. John Conyers have advocated a Medicare for All proposal. However, Rep. Pete Stark’s pessimistic assessment, quoted in the January 16 Los Angeles Times, is probably correct: “What we are building up to is a year, 2007, in which a lot of people are willing to discuss the benefits and costs of universal coverage, but I don’t think we’re going to make legislative headway.”
In his 2007 State of the Union address, President Bush proposed that, beginning in 2009, employer-provided health insurance should be taxable income, but that a standard uniform deduction for health insurance should also be created. The deduction would initially be $15,000 for family coverage and $7,500 for individuals. Democrats assert that the changes would encourage employers to stop providing health insurance. Also, as a New York Times editorial pointed out, “The new standard deduction would almost certainly entice some people to buy health insurance who had previously elected not to. But a tax deduction is of little value to people so poor that they pay little or no income tax. And unfortunately, it is those people who account for the vast majority of the nation’s uninsured. If the administration really wanted to help low-income people, it would have proposed a refundable tax credit that would have the same dollar value for everyone – instead of a tax deduction, which primarily helps people in high tax brackets.”
The proposal also ignores the realities of the individual insurance market: in a 2001 study conducted for the Kaiser Family Foundation, Karen Pollitz found that roughly 90% of applicants in less-than-perfect health were unable to buy individual policies at standard rates, while 37% were rejected outright.
Bold or Incremental?
Real reform will require policy-makers to break away from multi-insurer plans funded by employers and loaded with budget-busting administrative costs. Most unbiased observers agree that meaningful reform can be achieved only by eliminating the incredibly wasteful, unfair, and inefficient multi-insurer system that we have today. As Robert Reich has noted, “a single payer… would avoid the current insanity by which private insurers spend hundreds of millions of dollars a year advertising and marketing to younger and healthier beneficiaries, and seeking to discourage older and riskier ones, or people with pre-existing medical conditions. America now has the only health-insurance system in the world designed to avoid sick people.”
However, because fundamental redesign is a hard sell, it could end up suffering the same fate as the 1994 Clinton plan. Some reformers therefore advocate a more moderate approach. Jacob S. Hacker has argued, for example, that reform build on what we already have: “Limits on public budgets, resistance to measures that might be seen as taking away what Americans already have, and the embedded realities of the present system all stand squarely in the path of grand policy redesigns – from single-payer national health insurance, to individual mandates requiring that everyone purchase private coverage, to a universe of individualized Health Savings Accounts. Instead, the most promising route forward is to build on the most popular elements of the present structure – Medicare and employment-based health insurance for well-compensated workers – through a series of large-scale changes that are straightforward, politically doable, self-reinforcing, and guaranteed to provide expanded health security.”
One can only hope that this time around, unlike 1994, the American public will not swallow the self-serving misrepresentations of the insurance industry, and that we won’t get fooled again. The American people – all of the American people – deserve better.
– David Pratt and Alicia Ouellette
Published on: February 22, 2007
Published in: Health Care Reform & Policy