Front burner reform

Can we save our system?

By christina p. o’neill

The clock is ticking on Beacon Hill as lawmakers target a Jan. 15 deadline to submit a plan to the federal government that will extend health-care coverage to more Bay State residents. It’s a "soft" deadline – the Center for Medicare and Medicaid Services wants to have sufficient time to review the details of such a plan before the hard deadline of July 1, 2006.

"It’s just not working," says Bill Vernon, program director of the Massachusetts office of the National Federation of Independent Businesses, of the current health-care environment. "We really need to shake up the system." The gap between the cost of health insurance and what the average five-employee NFIB member business can afford is widening, and lawmakers have to understand that the problem comes down to cost, he says. Employers’ attempts to economize by increasing deductibles and co-pays eventually price the employee out of insurance. "There are choices being made, so I think if we don’t do something about the cost, then we just haven’t solved the problem," Vernon says.

A damper to hiring that extra worker

But the devil’s in the details of how to defray that cost. NFIB opposes the House’s proposed 5-percent to 7-percent payroll tax (see chart, this page), seeing it as a detriment to job creation and to Massachusetts’ ability to remain a competitive place to start or conduct a business, compared to its many neighboring states. Because the assessment would be levied on all payrolls of all uninsured employees, including part-time or seasonal workers, it would have a particularly negative effect on small businesses, Vernon says.

"I think the impact on small businesses’ employment is on the margin. Whether or not they add that extra employee or two, whether or not they add that extra person to rake the leaves, or do landscaping - whether or not they add the mom during school hours, or the teenager after school hours. I think those are the type of decisions that a current small business would make," he says.

Vernon favors the Senate plan, which does not impose payroll tax on employers but which instead provides incentives such as buying insurance with pretax dollars, which amounts to a 30 to 40 percent savings.

Cost-shifting is alive and well

John McDonough has another take on the situation. He’s the executive director of Health Care for All, a Boston-based advocacy organization. First of all, he says, businesses that do insure their workers are already paying an assessment – it’s the health-insurance premium tax, which collectively costs the state’s employers $160 million, and which goes into the approximately $1-billion free-care pool that’s also paid into by hospitals and insurers. McDonough calls this "implicit and visible cost-shifting," because employers who insure their workers are also cross-subsidizing employers who don’t.

He favors the House plan, saying that the small employers who do provide coverage – estimated to constitute about 12 to 15 percent of an employer’s payroll – will not only be exempt from the 5- to 7-percent payroll tax; they’ll also pay less than they do now because the free-care pool assessment will be eliminated.

He also notes that the mandates don’t apply to employers with fewer than 10 workers, and that there’s also a hardship exemption for any employer of more than 10 people who feels that the assessment would put them at a severe financial disadvantage. The final details of such a proposal would have to be worked out once legislation is passed, he says, but "there’s a lot of flexibility that’s built into this model to try to recognize that every employer isn’t in the same place."

Circular discussions in the broadsheet forum

Alan Sager and Debora Socolar think the House payroll taxes are fairer than flat premiums, as they stated in a Nov. 5 op-ed piece in The Boston Globe. But they warn that the taxes are low relative to the cost of providing insurance, and that some businesses will drop insurance, pay the less-costly tax, and let their workers turn to state-sanctioned plans, while others will reduce benefits.

A few days later, though, Joseph Newhouse, a professor of health policy and management at Harvard University, said in a Nov. 11 op-ed piece in the Globe that businesses that drop health coverage will be less attractive in the labor market. He targeted high health care-costs, not recalcitrant employers, as the ultimate culprit in today’s health-care cost crisis.

On that same editorial page, Harvard Pilgrim Health Care CEO Charles Baker stated that a critical key to controlling costs is the ability of the consumer to act on cost and quality data that is now beginning to be made accessible to consumers in a form they can understand. "Affordability will drive sustainability," he noted.

But in their earlier piece, Sager and Socolar cautioned, "Doctors, not patients, should decide what care is vital to diagnose and treat us, while respecting both effectiveness and cost of care. That’s why we have medical schools."

High deductibles: yet to catch on

Both the House and Senate proposals allude to the provision of stripped-down private insurance plans that carry lower premiums than full-coverage plans. They don’t specifically mention high-deductible plans, but state Health and Human Services Secretary Timothy Murphy recently estimated that a $1,000-deductible would decrease premium costs by 22 percent. The numbers look good, but what would actually happen in practice?

"When our salespeople go out, they get a lot of interest from employers on the high-deductible plans and spend a lot of time talking about it," says Christopher Murphy, a spokesman for Blue Cross and Blue Shield of Massachusetts, "But the actual purchasing hasn’t been that quick." A little more than 16,000 of Blue Cross’ 2.8 million members are covered by high-deductible products.

Acceptance has been higher in other parts of the country; regions where people are less used to the type of comprehensive, first-dollar coverage that most Massachusetts residents have come to see as the norm because of the abundance of not-for-profit health insurers in the state. Murphy says the situation shields people from awareness of the actual cost of such care.

"A high deductible plan, if you’re comfortable with it, can work very well for you," he says – if you are an educated consumer, and make your health-care choice decisions accordingly. The 20-percent adoption rate of high-deductible plans by Blue Cross’ own staff is likely higher than average because the staff is more exposed to such products than those outside the health-care industry, he says.

Waiting to see who else is doing it

William Stuart, vice president for strategic sales at Harvard Pilgrim Health Care, concurs that high-deductible products are not taking off quickly in the regional marketplace. But he attributes this to customer tentativeness – they want to see who else in their industry is doing it before making any commitments.

When Harvard Pilgrim introduced its Best Buy PPO product on March 1 of this year, he says, the company expected it to attract the attention of certain market segments – small groups on the verge of not being able to afford coverage any more and small professional groups of high-income, relatively healthy people, such as professional groups, who are willing to take the deductible risk in exchange for the tax advantages of a Health Savings Account or a Health Reserve Account, which can only be offered in conjunction with high-deductible plans. High-income professional groups may have already maxed out their retirement plans, Stuart says, and are seeking another tax free vehicle.

The third customer category is the large employer of 500-plus people, which may already offer an HMO, a preferred provider organization, or PPO, and a point of sale, or POS plan. They add the high-deductible plan with the expectation that young people will be attracted to it because of the low premium and because of their relative health.

"In mid-sized groups, in the 51-499 employees, we find a lot of kicking the tires, but no one is ready to jump yet," Stuart says. "They are all sort of waiting for their competitors. And the question that we often get is, ‘Yeah, this sounds good, but who else in this are is doing it?’" They don’t want to be perceived as offering a less attractive health plan, he says.

"We came to this market viewing it as a two- to three-year sell," he says, with the first year being education and the sale in the second year. By 2007, he says, when prospective customers may have gone through more rounds of double-digit increases, they might be more willing to consider it.

That trend is playing out at Harvard Pilgrim itself, according to Stuart. Three years ago, two employees out of 1,300 signed on for the deductible HMO product. In the second year, when the company introduced a plan cost estimator to help determine projected expenses, 17 percent to 18 percent signed on, and last year, 35 percent of the workforce had joined. This year, Stuart says, he anticipates membership rise to the high 40 percent to low 50 percents.

"Harvard Pilgrim is doing that because [it] wants to drive its employees into a plan that they have some skin in the game," he says. "They are rewarded, they have lower premiums. If they have an actual incident that they will pay a little more out of pocket, but that out of pocket is being funded essentially by the employer and people are becoming better consumers because now it is their money at that low end."

Choices, not taxes

The NFIB’s Vernon says Health Savings Accounts could eventually become the answer to the health-care dilemma for "a pretty fair amount" of small businesses. But, he says, employers have to consider what they and their employees are now paying for health care under their existing plans. If the difference between a traditional premium and the lower price of the high-deductible product is set aside in a health savings account, "that can be a pretty hefty savings account," over the course of a year, he says. That savings account can then be used to pay the deductible.

"I think HSAs become a way for [many] consumers to really see and kind of control their own health spending and, of course, they are completely portable, so they are sort of a lifetime, health-planning device," he says. But, he adds, adjusting to change will be hard.

"A lot of small business owners complain about health insurance, but getting them to try something new is very hard too," he says. "But I really think that people need choices. They need choices, not sanctions and punishments – however you want to characterize that -not taxes."

The great unraveling

Choices will become increasingly important in an environment in which choice now seems to be diminishing. Health Care For All’s McDonough warns of "a meltdown, a melting of the polar ice cap of employer-sponsored coverage" in the country and in Massachusetts. He cites nationwide Kaiser Family Foundation data from 2000 to 2005, showing that the percent of employers offering coverage dropped 59-60 percent. Massachusetts, he says, was second-highest of the 50 states in terms of loss of coverage.

"So what this comes down to is an important policy question," he says. "What is the employer responsibility for health care for its workers? Or, is there any? Because the social contract that we had in this country is unraveling. And as it unravels we are creating real, significant jeopardy for workers and their families; we are creating genuine distress in the community of health-care providers; health care for the uninsured; and we are creating real havoc with people’s lives.

Christina P. O’Neill can be reached at coneill@wbjournal.com