Big employers and health reform – they’re kind of right, but for the wrong reasons

Last week the National Coalition on Benefits went public with their position on health reform – they don’t want any reduction in the role of employers. The NCB’s position was laid out in a letter to Sens. Ron Wyden (D OR) and Bob Bennett (R UT) opposing the Healthy Americans Act. The big issue for NCB appears to be the HAA’s focus on providing benefits through state organizations, thereby eliminating employers’ ability to offer consistent plans across multiple states.
I don’t get it. Or maybe I do, and it smells like good ol’ special interest self preservation.
According to their website, the NCB represents employers, health plans, and trade associations that provide benefits under ERISA (Federal law that regulates big employer benefit plans, exempting them from state control). Members like the current employer-based system; their position is that “any change must not erode those parts of the health care system that are working…”
The NCB’s letter goes on to claim “The federal ERISA framework also makes it possible for employers to drive value-based strategies that improve the entire health care system by allowing employers to apply leading edge, innovative practices on a consistent, nationwide basis.”
That’s a puzzler. If the current employer-based system is working so well, why

• have premiums gone up 87% since 2000 while the CPI is only up 17%?
• are 10 million of the uninsured working full time at large employers (>1000 workers)?
• did Safeway and Wal-Mart endorse Wyden’s Healthy Americans Act?
• have insurance costs as a percentage of payroll gone from 8.2% to 11% in six years?
• are 30 million uninsured Americans in families where the head of the household is working full time?

According to a source in Sen Wyden’s office, “what the National Coalition on Benefits is saying isn’t the attitude of all their members, even of some listed in that letter. In fact, the NCB had a conference call [last] week with some of the members listed on the letter who were unhappy because they didn’t agree with it.”
Turns out the letter from NCB only reflects the opinions of the dozen members of the steering committee which is comprised of equal numbers of trade associations and employers (e.g. ATT, GM, UPS, Verizon).
The staffer went on to note that “news reports said Boeing was severely disadvantaged in competing with Airbus because of the costs they have to bear for their employees’ health care costs that Airbus doesn’t have to pay because their employees’ health care is paid for by the government. Employers could be relieved of that competitive burden under the HAA.”
Wyden himself responded rather acerbically to the NCB (a change from his usual low-key, laid-back-Oregonian style), saying “We may be talking about the coalition of the un-willing. We have talked to several alleged coalition members — like NIKE, AHIP, Wal-Mart and Johnson and Johnson — and they all say that the letter does not represent their views on the Healthy Americans Act. As for their message, their defense of the employer-based health system sounds eerily similar to the Titanic’s deck crew hyping the merits of a sinking ship.
Whoever wrote this letter can’t guarantee a single American that their employer-provided benefits won’t be taken away. But of course, that’s not their job. Their job is to protect tax preferences for the status quo.”
The Senator has a point. The tax benefits of the employer-based system are well-documented and extensive, amounting to about $200 billion annually for employers. Health benefits save employers and employees taxes as they are paid for with ‘pre-tax’ dollars – dollars that aren’t counted as income for tax purposes. If employer sponsorship of health benefits went away, the assumption is the cash employers spend on benefits would instead be paid as wages (and therefore subject to taxation) or (under the HAA) paid into the state agencies as the employers’ contribution for their workers’ health benefits. Of note, monies paid to these agencies would still be tax-deductible.
Provisions in HAA allow for a transition from the current system over a two year period. Employers would increase their workers’ wages by the amount they had been spending on health benefits. After that two year period was up, employers wouldn’t have to pay employees the added wages, but instead contribute to the state agencies running the benefits purchasing groups. Here’s what’s puzzling about the NCB’s position; the amount employers would have to contribute is about 10% of the total cost of health benefits for their employees – a much lower percentage than they are now paying.
Seems like a pretty good deal for employers.
According to the Lewin Group’s assessment, “Private employer health spending under the HAA is reduced under the HAA by $309.8 billion, from $428.8 billion under current law to $119.0 billion under the program.”
There’s a much better reason for employers to maintain a role in the health benefits decision process than the ones claimed by the NCB – benefits directly impact worker productivity. If employers are removed from the process of vetting and selecting health insurance vendors, individuals would be responsible for choosing their carrier. Insurance companies would ‘win’ based on how cheaply they could provide insurance to individuals and families, and the less care delivered, the lower the premiums. I don’t see what would prevent those vendors from suggesting each and every injured or ill worker or dependent tried bed rest and over the counter drugs for two weeks, then an x-ray or basic lab test, and only then would they get to see a diagnostician. In fact that’s how group plans treat back pain, while under work comp care is much more aggressive as it is focused on getting that worker back on the job.
Over time, those insurers who best manage chronic conditions (which drive most health care spending) will have lower costs and therefore deliver lower premiums. But the key issue is this – health plan incentives under an individually-driven system are different from an employer-based system. Over the long term, payers would figure out how to best care for medical conditions, and over that long term, the ones who do it right will win. However, that may not be the case over the short term – wherein low price based on denial of care or very conservative care would ‘win’ in the individual market.
Of course, studies show the number of employers who actually understand the linkage between health benefits and productivity is identical to the number of Yankee fans living within two blocks of Fenway. Yes, employers are ignorant of the real reason they should be involved in health benefits. But that doesn’t mean we shouldn’t protect them from themselves.
The net is this. The Healthy Americans Act would save employers a shipload of cash. It would also allow them to focus on running their businesses and get them out of the health plan management business. Those are good things.
Yet the impact of health benefits on productivity is undeniable – and has to be part of the cost:benefit calculus.