In Defense of Employer-Based Health Care
As anyone who knows my writing knows, I'm a big fan of SEIU and Andy Stern's leadership in fighting on behalf of working families. But count me in the skeptics camp as far as this new partnership with Wal-Mart.
The US health care system is obviously screwed up-- costing twice as much per patient as European health care systems, loaded up with useless paperwork, and pervaded by special interests like the pharmaceutical companies that pile on costs that no other country pays.
But the unique problem for the US isn't that much of the financing for health care comes from employers. I'm not even sure what Andy Stern means when he says that the US is "the only industrialized nation on earth that puts the price of healthcare on the cost of our products," since Japan and many European countries pay for health care with heavy mandated health care assessments on payrolls:
For example (see this report):
- In France, health care is organized around employer-based sickness funds with employers contributing 12.8% of employee salaries to these funds-- employees contribute 0.75% of their salary as well.
- Similarly, Germany's health system is funded with payroll taxes averaging 14.2% of payrolls, with employers and employees each paying half of that amount.
- The Japanese health care system is divided up into different health care funds for different size businesses, with larger businesses assessed payroll taxes of 8% (shared partly with employees) to fund 1800 private health care funds.
- Sweden funds its health care system partly with an 8.5% payroll tax.
- The Netherlands assesses an employer contribution through a 6.25% payroll tax with an employee contribution of 1.7% of income.
Canada and the United Kingdom are relatively unique in that essentially none of the financing for their health care system comes from employers, so it seems that the cost of health care is included in the cost of the products of almost all our competitors in the industrialized world.
What does make the US unique is not that employers play a large role in funding health care, but that we allow so many employers NOT to contribute to help pay for our health care system. That General Motors pays to fund health care out of its revenues is not unique; so does Toyota in Japan. What is unique is that most big retailers in Europe have mandatory requirements to help fund health care for their employees, while Wal-Mart faced no such requirements in the United States.
This inconsistent system does mean that Wal-Mart and other bad employers dump health care costs on the rest of the system, which inevitably does drive up costs for General Motors, but the problem then is not the employer role in health care, but the free-riding by the Wal-Marts of the world.
Now, the new partnership mentions that "businesses, governments and individuals" should all contribute to funding health care, but then that raises the question of how much employers will pay, if any, to help fund the universal health care promised by this new partnership announced by SEIU. And has Wal-Mart committed to fight for new mandatory employer assessments that would be part of a multi-payer health care system?
If the latter is true, that would be a breakthrough, but then that's about creating a fairer, level-playing field for an employer-based health care system, not abandoing it altogether. Right now, government and individuals and many employers are already paying a hell of a lot for health care, so a key missing piece is bad employers like Wal-Mart being required to pay into the system.
So we'll see what comes of this partnership, but color me skeptical until the headline reads, "Wal-Mart agrees that it hasn't been paying its fair share of health care costs."
Comments (23)
Hey, I'm overjoyed that Wal-Mart caved. It gets people health care; and it costs Wal-Mart enough to make real the financial threat to business that the existing system causes, which could build momentum for universal health care and break a deadlock, detaching business overall from the side of insurers and other providers.
However, Nathan's dead wrong, both on logic and outcomes. Logically, he's confusing systems that rely on revenues from taxes on employers and employees with systems that rely on employment to provide everyone with private insurance. Hey, I'm happy to soak business, but there's no connection.
In outcomes, it's the worst incrementalism, and it sends a message as well that's self-defeating for labor: we got ours, so everyone else go to hell. It doesn't even promise universal coverage for full-time employees, with so few unionized, much less for part timers, freelancers, child providers, and the unemployed. It keeps the inefficiency of the current system, making decent health care for everyone all but unaffordable.
It leaves government paying for the people others have rejected, raising the cost further. It leaves freelancers with a huge bill, as in all plans that enforce private purchase with some sliding scale of government assistance. Anyone in those systems at twice the poverty level is exactly where they are now, with bills in NYC of perhaps $7,000 a year. I'll accept that when Nathan's union accepts a payroll tax on that level.
Great solution.
John
http://www.haberarts.com/
February 8, 2007 7:10 AM | Reply | Permalink
Nice summary. I'm going to cite this on the Walmart specific blog The Writing on the Wal where Walmart's health care policies have been a frequent topic of discussion.
--- Policies not Politics
Daily Landscape
February 8, 2007 7:13 AM | Reply | Permalink
John-- Of course, there's a distinction between a tax-based system and our system-- taxes are universal and our system leaves a lot of people uncovered. But most of the proposals out there today require companies to either provide health care or pay an assessment, usually as a percentage of payroll, so they in practice are designed to evolve into a payroll tax-based health care assessment little different from most European health care systems.
And of course you need to extend health care subsidies to low-income folks who are outside the employer-based system. No one ever says otherwise. But the European system mostly have different health care funds for such people as well; only a few have the exact same health care system for full-time employees as for everyone else.
In the ideal, I'm all for a completely integrated single payer system, so I won't argue the advantages-- but getting there is the challenge and so I'll happily encourage "incrementalism" in that direction.
February 8, 2007 8:06 AM | Reply | Permalink
Interestingly, employers can and do write off dollars paid for premiums and for self-funded health insurance expenditures. In other words, tax expenditures in the realm of well over one hundred billion dollars go to employers who provide paid health insurance as an employee benefit. As you all know, the employee is not taxed on the paid portion of that benefit; however, the employee foregoes wage raises due to that paid health insurance benefit.
The employer-based health insurance system we have has been refined over the years to eliminate community-rating and reflects bias toward the healthy, wealthy and young, or essentially funding your own care.
I would rather see individually mandated health insurance. The most difficult aspect of moving from public-private multiple payer sytem we now enjoy would be the transition to the individual mandate. Winners and losers - especially if eliminating Medicare and Medicaid were included in such a revamp...unless of course there were to be one fee schedule for all providers and community-based rating in all geographic areas.
It'll never happen... the 15+% of GDP represented by health care spending is money in peoples pockets. So get a job in health care delivery or financing and make money, right?
February 8, 2007 8:33 AM | Reply | Permalink
The closer we moved to national healthcare and away from employer based healthcare the better.
February 8, 2007 9:17 AM | Reply | Permalink
Are there changes in insurer underwriting, moving from experience-based to population-based, as a part of this proposal? Unless such underwriting becomes universal, the unemployed, self-employed, and small businesses remain screwed.
Considering more quality job growth comes from small business than retail, I see failing to improve the small business/self-employment hole as critical to economic growth.
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Howard
*equal opportunity offense to both extremes*
February 8, 2007 9:24 AM | Reply | Permalink
Re: Logically, he's confusing systems that rely on revenues from taxes on employers and employees with systems that rely on employment to provide everyone with private insurance.
I agree: there's a big difference between a payroll tax (which is actyuially paid by the employee even if the employer is the formal remitter) and a health insurance premium. Or even between a direct business tax and a health insurance premium. The former are simply fixed costs that apply equally to everyone. Premiums are wildly different for different groups and different individuals. and they create an incentive not to hire certain workers (older workers; those with chronic health problems; women of child-bearing age.)
Re: The employer-based health insurance system we have has been refined over the years to eliminate community-rating
Employer groups policies are still community rated; that is, they are rated according to the whole group. Premiums do not differ per individual within the group (at least I have never seen such a policy). The health expenditures are spread across the whole group. This works OK for large groups, and for small groups of youing, healthy people; but it can be disastrous for any group with too many major illnesses.
February 8, 2007 9:24 AM | Reply | Permalink
The largest businesses, of course, don't actually buy insurance from insurance companies. They self-insure under ERISA, and then contract the actual benefits management to insurance companies that have the claims handling and provider negotiation infrastructure.
Self-insured companies have flexibility that others do not. For example, when I went to work for Nortel, which at the time was self-insured with benefits management by US Healthcare, I was able to get a no-preexisting-exclusions waiver as part of my hiring negotiation. Granted, Nortel really wanted me and I was in a strong negotiating position, but I doubt a non-ERISA company could even have considered that. Yes, I suppose a wealthy small business could have paid for some kind of reinsurance policy for me, or just agreed to reimburse directly.
As an example of your first comment, a small business to which I have long consulted, ironically in the business of improving the efficiency of healthcare delivery, was told, by their insurance agent, that if they hired me (with chronic conditions), their premiums would immediately double and their policy would not be renewed.
This comes back to your second comment: employer-based works well for large organizations. For one very large organization, however, the consumer-driven [based] health plan (CDHP) works extremely well: US government employees. The Clinton plan was another variant, with some structural problems, of CDHP.
While universal coverage through a multi-payor CDHP model would require both mandatory enrollment and excessive profit regulation, it still presents a potentially viable alternative to both employer-based and single-payor. Ideally, I'd like to see some experiments with both single-payor and CDHP in states large enough to smooth out statistical irregularities and give some serious examples of how they work. No single system will be perfect when implemented the first time.
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Howard
*equal opportunity offense to both extremes*
February 8, 2007 9:34 AM | Reply | Permalink
I would rather see individually mandated health insurance....Winners and losers - especially if eliminating Medicare and Medicaid were included in such a revamp...
Chrissie,
I would be one of the losers under your proposal. I am disabled after working full time for 12 years. I draw about $643.00 per month in combined SSI and SSDI. My prescriptions run about $1400 amonth and I require an oxygen machine, paid for by Medicare and Medicaid. What do you suggest I do?
Die?
Remember, in two or three years, you or someone you love could be in my shoes.
February 8, 2007 11:10 AM | Reply | Permalink
Re: The largest businesses, of course, don't actually buy insurance from insurance companies
Actually they do, even with self-insurance. Self-insurance is onlky for routine expenses. No business however can risk taking major hits from catastreophic illnesses and injuries (and the mor employees the higher the likleihood of that) so they also have to purchasereinsurance on the commercial market, which is structured to pick up the tab if any employee's annual expsenses exceed a given dollar amount. And it's this reinsurance (and the major med component of insurance in general) which is the most subject to medical inflation and is the largest component of the premium.
February 8, 2007 4:50 PM | Reply | Permalink
Re: For example, when I went to work for Nortel, which at the time was self-insured with benefits management by US Healthcare, I was able to get a no-preexisting-exclusions waiver as part of my hiring negotiation.
Unless you had been more than 62 days without coverage, of this was back before 1998, you didnlt get anything there that isn't a legal requirement for all new hires in every situation in this country. Tcehnically it also applies to people buying insurance on their own, but there nothing protects them from exorbitant premiums.
I am continually surpries that so few people are aware of this; it's been the law for a while, and was passed with much fanfare back in 1996. Hasn't anyone ever received a certificate of creditable coverage when leaving a job?
February 8, 2007 4:54 PM | Reply | Permalink
I had been an uncovered independent consultant, in part because the companies I worked for converted most of their employees to contract and COBRA ran out. With chronic conditions, I could not get affordable coverage, and at a quite decent income level.
I sense that you may be tending to make assumptions about people working for large businesses.
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Howard
*equal opportunity offense to both extremes*
February 8, 2007 7:46 PM | Reply | Permalink
I shall rephrase: large firms self-insured under ERISA do not buy conventional medical insurance. Reinsurance for all catastrophic risks is a basic part of business. I have seen the contracts for several large companies, and they are not reinsuring for individual catastrophic expenses but for spikes in overall medical expenditure, essentially a population base.
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Howard
*equal opportunity offense to both extremes*
February 8, 2007 7:48 PM | Reply | Permalink
There are too many flaws in the employer based system to let it continue.
1. When employees get really sick they can't work. Guess what happens to their insurance?
2. It encourages the employer to choose plans on the basis of cost rather than scope of benefits.
3. There is too much duplication of administrative costs when dealing with so many small entities.
4. The current system encourages insurers to segregate risk. They eliminate and regularly cancel high cost policies.
5. It is not unusual in a small employee group for rates to markedly increase if one person has an expensive medical problem.
5. Employers often do not provide insurance
You'll find more on health care at www.medicynic.com
February 9, 2007 6:17 AM | Reply | Permalink
Howard,
This is a bit off topic, but do you have an opinion about Linus Pauling's treatment for cardio-vascular problems? For those interested, you can find a bunch of links by googling for "Linus Pauling lysine".
February 9, 2007 7:53 AM | Reply | Permalink
Let me get away from the treatment he proposes, and get back to the problem he is trying to solve: excessive lipoprotein [subscript] a, Lp[a], which is associated with atherosclerosis. From general clinical knowledge, I know that high Lp[a] levels are generally treated with high ("physiologic") doses of niacin, possibly in combination with other drugs. Pauling, I'm afraid, recommended (early 90s) something that has not been demonstrated in the clinical trials I could find quickly. He predicted a benefit from a particular biochemical structure that does not seem to get exercised in the body.
Warning: while niacin is over the counter, physiologic doses (e.g., 1500 mg or more per day) are a drug and can have significant side effects. The most common is a sensation of flushing and burning, which many patients find intolerable, but, when I took it, was rather pleasant. I had to stop taking it when I developed a relatively rare side effect called acanthosis nigricans, where my skin, in an increasing number of places, darkened, turned dry and leathery, and began to crack and bleed.
From a preliminary search of biomedical literature, while Lp[a] does have a lysine-binding site on its protein surface, an article in the Journal of Lipid Research [note: this is an abstract, full article not free, written for biochemists] suggests that the actual chemistry is such that adding lysine does not have a direct effect on LP[a]. Niacin, with due regard to its side effects, does affect Lp[a], as shown in the "Effect of Niacin on Lipid and Lipoprotein Levels and Glycemic Control in Patients With Diabetes and Peripheral Arterial Disease, The ADMIT Study: A Randomized Trial" in the Journal of the AMA, full text available free with registration.
Ascorbate (vitamin C) as recommended by Pauling is probably safe, although it's not clear that it helps. Doses of 3 gm/day over a long period may cause gastrointestinal upset, and possibly change one's requirement so that there is a withdrawal effect. Still, I take such doses when I have a cold, more for its effect in breaking up secretions.
The safest and most accepted vitamin to help cardiovascular health is folic acid, probably 800 micrograms per day or more. Bread is supplemented with folate, but not enough for cardiovascular benefit. Women that might want to become pregnant absolutely should be on folate, because it prevents a class of very bad birth defects, "neural tube", involved with formation of the brain and spinal cord.
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Howard
*equal opportunity offense to both extremes*
February 9, 2007 9:29 AM | Reply | Permalink
Re: 1. When employees get really sick they can't work. Guess what happens to their insurance?
If they go on short-term disability (or medical leave) their employer must continue their insurance (per the Family Medical Leave Act). Ditto if they take leave to care for an ailing family member
February 9, 2007 9:53 AM | Reply | Permalink
Re: I have seen the contracts for several large companies, and they are not reinsuring for individual catastrophic expenses but for spikes in overall medical expenditure, essentially a population base.
I am very surprised to read that as I worked for a company that administered self-insurance plans (among other things) and reinsurance was ALWAYS written on a per-member basis (if only because, just as a practical concern, a single member with high costs would easily bust the budget for the whole group). Are you sure you were not confused by the "insurancese" of the contracts, notoriously hard to penetrate? I saw things from the inside (benefit plan coding, member and family accumulators, etc.) so the picture was a bit clearer to me.
February 9, 2007 9:54 AM | Reply | Permalink
Thank you very much.
February 9, 2007 10:28 AM | Reply | Permalink
And if they exceed the short-term leave and are laid off, especially since the employer has no obligation for long-term disability? While they would be eligible then for COBRA, they may not be able to afford it.
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Howard
*equal opportunity offense to both extremes*
February 9, 2007 11:48 AM | Reply | Permalink
Never say never when referring to legal documents; I just took joy in finding an opposing attorney entered the wrong bar ID, scratched it out and hand-changed it without an initial, potentially invalidating the document.
I deal in hospital informatics and certainly am quite familiar with coding, claims and reimursement processing, and other aspects. In the main case I have in mind, the company, at the time, had a very large employment, but still had to (briefly) research waiving preexisting conditions.
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Howard
*equal opportunity offense to both extremes*
February 9, 2007 11:52 AM | Reply | Permalink
Howard, that is an excellent point. No one I know has ever been able to afford COBRA.
The main problem with an employment based health system is that it creates a two tier system. One for those healthy enough to be employed (and their families), and one for everyone else. And having seen both ends of the spectrum, I can tell you that there is a tremendous gap in quality of care.
Fundamentally, to resolve this conundrum, our society must decide whether life is intrinsically valuable, or only valuable in relation to economic contribution.
Under our Constitution, every citizen is entitled to life, liberty, and the pursuit of happiness. Now I'm no scholar, but doesn't that logically lead to the conclusion that every person is entitled to basic medical care?
Just asking.
February 9, 2007 4:00 PM | Reply | Permalink
Well, it says you can pursue happiness, but not necessarily catch it. Maybe that's an assessment of quality of care?
I was able to afford COBRA for a time, as much of my work became contract. One of the nasty things about COBRA, as opposed to quite a number of regular insurance policies, is that you can have the policy suspended for nonpayment but, within a reasonable time, pay the arrears and get it reinstated. This was not the case with my COBRA.
It's probably a separate discussion to talk about stratification within the two tiers, and even across it. For example, when my HMO refused to work up some complications of a procedure, I knew enough to delve into the clinical research community and eventually get into an appropriate program. It was a bit satisfying to be able to wander into my primary physician's office -- and the refusal to refer wasn't her fault -- and say "want to see some video of the occluded arteries your reviewer kept saying was muscle pain?"
Even within the idea of intrinsic value, we still need to look at heroics, of quality of life, of questionable therapies, and, from a different standpoint, of outcomes and efficacy, of the efficiency and accuracy of some providers. There are difficult tradeoffs, such as sending someone away from their support systems to what may be a center of excellence -- and perhaps an enormous travel cost to get there.
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Howard
*equal opportunity offense to both extremes*
February 9, 2007 4:17 PM | Reply | Permalink