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Cover Story - Heath Care Reform: At the crossroads |
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Written On: May/June 2007 |
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Written By: by Paul Schlienz |
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Health care and health insurance coverage in America is changing, both for better and for worse.
Schemes for increased government involvement in the system range from state-run "connectors" that link individuals with health insurance plans to actual single-payer health care, much like what is found in Canada.
On the other hand, the business community, which often bears the burden of state health insurance mandates, has been pushing for a more market-oriented system with greater choices for consumers.
Driving the push for health care reform are rising costs in the industry and the existence of a significant uninsured population—593,000 under age 65 in the state of Washington alone, according to the 2006 Washington State Population Survey. Reasons for the spike in costs include a rapidly aging population that is putting more demand on the system, expensive medical technologies, changes in the insurance system itself, and—in Washington, where three carriers dominate the market—a lack of competition.
With spiraling costs often far in excess of inflation—currently 16 percent of the economy, expected to rise to 20 percent by 2020—employers absorb higher benefit costs, require employees to share the cost, reduce benefits, or refrain from purchasing new coverage. Meanwhile, the number of uninsured individuals has continued to grow.
These uninsured people, however, still need health care services on occasion. Hospital emergency rooms are frequently their primary interface with the system. If the uninsured are unable to pay for services, especially if their health problems are serious, they ultimately end up receiving either state or federal government assistance, with taxpayers ultimately footing the bill.
Coast to coast
As one would expect in a nation with a tradition of federalism, there is no uniform health care system in the United States as one would find in many other countries. Nevertheless, every state is coping with the same challenge of a large uninsured population and rising health care costs. There are, however, key differences in the approach that each of the 50 states are taking as they attempt to reform their health care systems.
One of the most significant failures in health care reform was seen in Maryland. In 2006, with the backing of labor unions and against the objections of Gov. Robert Ehrlich, Maryland’s state legislature passed a law directed at retail giant Wal-Mart, which required employers with 10,000 or more employees to spend at least 8 percent of payroll costs on health care coverage for their employees or contribute to a state fund for the uninsured.
Much to the disappointment of its backers, the Maryland law, known as "fair share" or "pay-or-play," was overturned in the U.S. Court of Appeals by a 2-to-1 ruling stating that it violated the federal Employee Retirement Income Security Act of 1974, which was intended to allow large companies to set up uniform benefits nationwide instead of having to face the complex task of complying with state-by-state requirements.
Despite its rejection in federal court, which affects other states considering similar legislation, the Maryland law may not yet be dead. Maryland’s attorney general may appeal the law to a full panel of the appeals court or take it all the way to the U.S. Supreme Court.
Meanwhile, in California, Gov. Arnold Schwarzenegger has proposed a plan to completely overhaul his state’s health care system. Schwarzenegger’s scheme has a "pay-or-play" aspect in its requirement that employers with 10 or more workers buy insurance for their employees or pay a 4 percent payroll tax that would go into a fund to provide coverage for the uninsured. Doctors would pay a 2 percent tax on their gross revenues and hospitals would shoulder a 4 percent tax. In addition, there would be an individual mandate requiring every California resident to obtain health insurance.
Other details of the plan include a prohibition on insurers denying coverage to individuals due to prior medical conditions. Insurance companies would also be required to spend a minimum of 85 percent of their premium revenues on patient care, thus capping administrative costs and profits at 25 percent.
Especially controversial is a plan to cover all California children—including illegal immigrants—by providing insurance to children whose parents make less than three times California’s poverty level. This would amount to about $60,000 for a family of four.
Of all the experiments in health care reform, one of the most significant is underway in Massachusetts. Signed into law by Gov. Mitt Romney in 2006, the Massachusetts plan mandated that each individual resident of the commonwealth must carry health insurance by July 1.
At the heart of this scheme is The Connector—a state-chartered health insurance marketplace. This concept was originally conceived by the Heritage Foundation, a conservative Washington, D.C., think tank, as a means to provide subsidies for low-income individuals to purchase health insurance and get around federal tax codes that would otherwise spike the cost of insurance by 40 to 50 percent for individual buyers who use their own after-tax dollars.
While the intent of The Connector was to connect consumers with low-cost health insurance plans, this goal has not been realized. In fact, the board that oversees The Connector was told that minimum individual requirements could cost as much as $380 a month.
"We certainly advocated that the products that are going to be available [through The Connector] be freed from the many mandates we have in Massachusetts," said Richard Lord, president of the Associated Industries of Massachusetts and a member of The Connector’s board of directors. "Unfortunately, the Legislature did not agree with us there, so these products are going to have to include all of the mandated benefits, some of which certainly add to the cost of health insurance."
Clearly, the system that is being pioneered in Massachusetts is very much a work in progress. Already, the scheme’s ambitious timetables are being revised. Meanwhile, all Massachusetts residents will still be required to buy some form of insurance by July 1 or face a penalty of approximately $200. Nevertheless, the requirement that all residents must upgrade to higher-quality insurance, which also was slated to take effect on July 1, will likely be delayed until Sept. 1, 2008.
Where goes Washington?
In 2006, Washington took major steps toward achieving consensus on the health care issue through the creation of the Governor’s Blue Ribbon Commission on Health Care. Chaired by Gov. Chris Gregoire and Sen. Pat Thibaudeau, D-Seattle, the bipartisan commission’s final report, released in December, included 16 recommendations that have set the stage for much of the 2007 legislative session’s discussion on health care.
The commission supported an increased effort in bringing health care to all children in the state, evidence-based medicine, prevention strategies, encouraging healthy lifestyles, expanding the utilization of health information technology, providing health care consumers with better information, targeting young adults—the largest uninsured population—for health insurance coverage, and providing affordable health insurance options.
In addition, the commission provided a timetable that aimed for the report’s goals to be implemented by 2012.
Significantly, the report did not recommend tax increases on business to fund the commission’s health care objectives.
Overall, the Legislature’s initial response to the report was very positive. Gov. Gregoire requested the Cover All Children Bill, which enacted the commission’s child health care objectives after it was approved by the Legislature.
The Senate then crafted SB 5930, which was designed to enact the majority of the commission’s remaining recommendations. The bill passed in the Senate by a vote of 48-to-0 and was sent to the House.
In the House, however, language that would have allowed lower-cost, more flexible health care plans for small businesses was removed from the bill in the House Health Care and Wellness Committee. As of press time, the bill is in the House Appropriations Committee. While this measure is expected to pass the House, its final form remains unclear.
Meanwhile, HB 1569, a markedly different health care reform bill that would create a connector-style system in Washington, has passed the House and was in the Senate Ways and Means Committee at press time. This legislation is opposed by the business community because it would greatly restrict health care choices and completely eliminate association health insurance plans.
Steve Hill, director of Washington’s Health Care Authority, urges caution before following Massachusetts’ lead and establishing an untested connector system in Washington.
"[The Gregoire administration is] not necessarily interested in going slow, but we’d like to go smart, and we’d like to understand what we’re doing in the marketplace before we do something to it," Hill remarked on a recent AWB podcast.
While the Legislature grapples with different ideas for reforming the health care system, association health plans— the fruit of a 1995 health care reform effort under Gov. Mike Lowry—are currently providing an affordable health insurance alternative for about 500,000 small business employees, many of whom would very likely not be otherwise insured. Oddly, however, these plans are being threatened not only by the House connector bill but also by a ruling from Insurance Commissioner Mike Kreidler.
Kreidler’s ruling, called a Technical Assistance Advisory, or TAA, insists that association plans should use community ratings, meaning that insurers must put everyone in the same pool regardless of lifestyle, health, or other factors that would increase or decrease their risk. Currently, association plans use experience ratings where these factors are taken into account. As a result, association plans have been able to keep premiums at reasonable levels. If Kreidler’s TAA is allowed to stand, the cost of association health plans will rise, pricing out many small businesses that rely on these plans to insure their employees.
In February, AWB joined Associated Industries in a lawsuit against Kreidler on the grounds that he exceeded his authority when he issued the TAA. Currently, the suit is making its way through the courts.
"It’s very unfortunate that we have to do this because in our judgment [the money spent on the lawsuit] could be better used to help people afford health insurance," AWB President Don Brunell commented.
Whatever final shape health care reform takes, it is clear that Washingtonians want choices. According to a survey of 500 Washington voters conducted in February by Moore Information and Davis, Hibbitts and Midgehall, support for free-market solutions was overwhelming among those polled. The poll found that voters favor having the government offer incentives for businesses and individuals to pay for their own health care (54 percent) over government-guaranteed health insurance (33 percent). In addition, they prefer a market-driven health care plan, 58 percent to 33 percent, over a universal health plan managed and paid for by state government.
Although there is currently a lot of focus on shoring up weaknesses within the health care system, one prominent voice in the health care debate cautions against overlooking the system’s strengths.
"I don’t think there’s this crisis in health care," said Sen. Linda Parlette, R-Wenatchee, a member of the Blue Ribbon Commission on Health Care and the ranking minority member on the Senate Health and Long-term Care Committee. "When you look at only 593,000 uninsured in a state of 6 million, we’re doing a pretty good job. Bottom line, the issue is: What’s the role of the individual? What’s the role of government, and what’s the role of the insurance company? If we could all agree on those three things, we could really reduce health care expenditures."
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