Medical Device Daily Washington Editor
WASHINGTON — The White House plan to level the health insurance playing field between employee and private insurance — dubbed Affordable Choices — drew heavy flak from a number of Democrats in the 110th Congress.
But while there were substantial differences between some of the positions taken yesterday at a press conference at the American Enterprise Institute (AEI; Washington) to discuss the feasibility of Affordable Choices, there was no mention of a universal governmental health system being proposed by some Democratic candidates.
Additionally, there seemed to be wide agreement that exemption from payroll taxes granted to companies, as well as to employees, for their health insurance costs is a central feature in the dysfunctional U.S. healthcare reimbursement system.
Bob Helms, a resident scholar for health policy studies at AEI, pointed out that "the tax treatment of health insurance … started as a tax deduction in World War II" as part of a wage control mechanism. He said that the tax exclusion for healthcare premiums has a slightly different meaning than "deduction," but that the situation created no incentives for cost control.
Katherine Baicker, associate professor at the School of Public Affairs at the University of California Los Angeles, said, "we spend more on the tax exclusion" than on Medicaid.
She said that the current system "is unfair to people who buy insurance on their own" and works "in favor of the most expensive policies and against basic policies."
The panoply of unused benefits in most health plans warps costs, Baicker said, noting that if auto insurance companies worked the same way, "it would be like having your auto insurance cover oil changes."
"If people really knew how much their [employer-based] coverage costs," they might ask for more basic coverage and a boost to their gross pay, Baicker said, adding that healthcare inflation has devoured as much as 25% of wage increases over the past few years.
Roberton Williams, a principal researcher associate at the Tax Policy Center, called the administration's proposal "very creative [and] fiscally responsible, but unfortunately full of risks." The White House plan could cause some to lose insurance, Williams said, "because there is "no guarantee that the insurance market will participate."
"Large employers are effective at creating large risk pools," but "the likelihood of having employer insurance" has dropped in the past few years." He acknowledged that employer-based insurance creates a job-lock problem.
And he said that "many companies, especially small companies, may remove coverage entirely," because "the small business owner has no tax incentive."
He also made reference to "a tendency toward a death spiral" in which healthy people bail out of the employer-based insurance market, leaving behind sicker people with more expensive care.
Williams also pointed out that the deduction's impact on Social Security benefit calculation will trim the benefit, and the net effect is "a rough wash," a fact he called "a big issue, but rarely discussed."
Roger Feldman, PhD, a professor of economics at the University of Minnesota (Minneapolis-St. Paul), said there is about a 15:1 ratio between those who buy their insurance through their employer and those who are in the individual market. He added: "we don't know that large firms will drop insurance" as a result of the Affordable Choices initiative because "everything we know comes from small firms" since all large firms offer insurance and there is no variation to allow study.
"You can't study whether large firms will drop coverage when they all offer it," he said.
The employer model is resilient because of administrative efficiencies, according to Feldman. For businesses of one to nine employees, administrative overhead consumes about 30% of all costs, and for employers with more than 10,000 employees, administration accounts for about 6.5%.
Feldman said that recent studies indicate that "demand for individual coverage is responsive" to price. But states have laws that disallow premiums to be tagged to cost. He said that a simulation based on take-up of health savings accounts by adults between 19 and 64 not eligible for spousal coverage — and who are not among those who can afford but decline to take insurance that their employers offer — shows that the true rate of uninsurance is much lower than is generally recognized.
Assuming these conditions, "Our results suggest that uninsurance is reduced from 27.3 million to 7.1 million, at an annual cost of $204 billion."
Bill Thomas, former chairman of the House Ways and Means Committee and a visiting fellow at AEI, said, "I want to start out by giving President Bush an enormous amount of credit for biting the bullet" on the amount of the deduction in the proposal, which the former congressman said was previously substantially lower.
Thomas decried the employer-based system as "the most heinous screening mechanism you can have" because workers are healthier than the unemployed.
"I think we're still dealing with a vocabulary that was created by the exclusion," adding that the conceptual framework is that "employers are a natural group." However, any serious reform would require that the individual enrollee becomes the conceptual center of gravity.
"If you're stuck in the concept of the employer … and then try to figure out how to deal with the rest of them," nothing will happen, Thomas insisted.
The political element, Thomas noted, has much in common with that of the alternative minimum tax (AMT), which he said was a bad solution that could have been avoided if Congress had opted for changes to a number of tax credits and deductions, but "politically it was easier to create an alternative universe" than it was to strip credits and deductions.
Of AMT, Thomas said, "now that it [costs] about $1.7 trillion, maybe we can deal with it," adding that Congress is in a similar place with regard to health insurance.
On the other hand, Thomas noted, some of the dismissive comments coming from Congress regarding the president's plan suggest "this is too good to fix now" because of the political advantage the current debate offers.
He described some of the president's opponents as "Utopian folks who have policy envy" and who want to convert health insurance into a constitutional right. Should that occur, healthcare would become "a black hole that will suck up every dollar we have."