Employment Based Health Insurance

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Employment Based Health Insurance

• David A. Hyman
• Professor of Law and Medicine
• University of Illinois

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What Does the Public Think about Health Care?

• They dont think about it, by and large
• Generally like their own doctor but serious
  doubts about the health care system and its
  performance.
• Very worried about rising costs, gouging and
  their ability to keep their insurance.
• Think pharmaceuticals, insurance profits,
  fraud/waste/abuse and malpractice are key drivers
  of increased costs.
• Dont talk about costs with their doctors.

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Consumer Perceptions vs. reality of costs
Source BCBSA and Wall Street Journal Online /
Harris Interactive Health Care Poll Vol 3,
Issue 13 July 19, 2004
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Where Does The Money Come From?

• Total 2.34 trillion (17 of GDP)
• Private 53
• Public 47
• Medicare 444B
• Medicaid 190B 198B (state)
• 8.4 of GDP
• Expected to increase above 50 in 2011

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Health Policy Brief Medicare Advantage Plans,
Health Affairs, July 9, 2009 http//www.healthaff
airs.org/healthpolicybriefs/
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Who is Likely to Get EBC?

• Employees of large firms
• Employees of unionized firms
• People who dont work in agriculture or retail
  sectors
• People who have full-time jobs (not temporary or
  part-time)
• Older/higher income/better educated
• Those who opt-in

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(No Transcript)
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Why is Insurance Bundled With Employment for 162M
Americans?

• History
• Tax subsidy
• Potential efficiencies
• Solution to adverse selection problem
• Efficiencies of bulk purchasing/aggregation
• The Key Question How does health reform change
  the significance of these factors?

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Health Policy Brief Medicare Advantage Plans,
Health Affairs, July 9, 2009 http//www.healthaff
airs.org/healthpolicybriefs/
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Challenges in the EBC Market

• Affordability
• Mismatch in worker/employer perspectives
• Worker unhappiness with coverage and choices

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Health care is personal. . .
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Challenges in the EBC Market

• Lose your job, lose your coverage
• COBRA
• Job lock
• Mismatch of preferences/budget

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Impact of a 1 Point Increase in Unemployment on
State Revenues, Medicaid, CHIP Uninsured
1.1
1.0

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Decrease in State Revenues
Increase in National Unemployment Rate
Increase in Medicaid and CHIP Enrollment (million)
Increase in Uninsured (million)
3-4
Source John Holahan and Bowen Garrett, Rising
Unemployment, Medicaid, and the Uninsured,
prepared for the Kaiser Commission on Medicaid
and the Uninsured, January 2009.
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Mismatch in Perspectives Who Pays For EBC?

• Employers write the checks
• 3,891 for individual 9,773 for families
• 81 of individual and 70 of family cost of
  coverage

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Average Annual Worker and Employer Contributions
to Premiums and Total Premiums for Family
Coverage, 1999-2010
5,791
6,438
7,061
8,003
9,068
9,950
10,880
11,480
12,106
12,680
13,375
13,770
Estimate is statistically different from
estimate for the previous year shown (plt.05).
Source Kaiser/HRET Survey of
Employer-Sponsored Health Benefits, 1999-2010.
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Average Percentage of Premium Paid by Covered
Workers for Single and Family Coverage, 1999-2010
Estimate is statistically different from
estimate for the previous year shown
(plt.05). Source Kaiser/HRET Survey of
Employer-Sponsored Health Benefits, 1999-2010.
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Mismatch in Perspectives Who Pays For EBC?

• But employees foot the bill
• 83100 percent of the costs of health insurance
  are shifted to employees through reduced wages.
• Rising health-care costs are partly to blame for
  stagnant wages. . . In effect, about half the
  money you should be earning for being more
  productive is being sucked up by ever more
  expensive health-insurance premiums.

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Cumulative Changes in Health Insurance Premiums,
Inflation, and Workers Earnings, 1999-2009
Note Due to a change in methods, the cumulative
changes in the average family premium are
somewhat different from those reported in
previous versions of the Kaiser/HRET Survey of
Employer-Sponsored Health Benefits. See the
Survey Design and Methods Section for more
information, available at http//www.kff.org/insur
ance/7936/index.cfm. Source Kaiser/HRET Survey
of Employer-Sponsored Health Benefits, 1999-2009.
Bureau of Labor Statistics, Consumer Price
Index, U.S. City Average of Annual Inflation
(April to April), 1999-2009 Bureau of Labor
Statistics, Seasonally Adjusted Data from the
Current Employment Statistics Survey, 1999-2009
(April to April).
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• Is General Motors an automobile manufacturer
  that provides healthcare benefits for its
  workers? Or is it a health insurance provider
  that also happens to make cars?. . . At the
  company's annual meeting in Detroit last week,
  CEO Rick Wagoner told shareholders that health
  benefits add a staggering 1,500 to the price of
  every vehicle GM makes.
• Jeff Jacoby, Boston Globe, June 16, 2005

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• Its strange. When I joined GM 28 years ago, I
  did it because I love cars and trucks. I had no
  idea Id wind up working as a health care
  administrator.
• Rick Wagoner, GM CEO, interviewed by George Will,
  May 1, 2007

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A health insurance provider that also happens to
make cars. . .

• 2005 5 billion/year in medical costs 47
  billion in retiree costs
• Medicare spending lt 5 billion/year (2005)
• Alaska, Arkansas, Colorado, Connecticut,
  Delaware, District of Columbia, Hawaii, Idaho,
  Iowa, Kansas, Kentucky, Maine, Minnesota,
  Mississippi, Montana, Nebraska, Nevada, New
  Hampshire, New Mexico, North Dakota, Oklahoma,
  Oregon, Rhode Island, South Carolina, South
  Dakota, Utah, Vermont, Washington, West Virginia,
  Wyoming

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Problems with the tax subsidy

• Over-consumption
• Horizontal inequity
• Vertical inequity
• Estimates of average tax benefit
• Make less than 20k - 319
• 20-40k - 1,002
• gt150k - 2,823
• How should we fix these problems?
• Level up or down? Tax credit?
• Cap?

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Why Does it Matter Who Pays For EBC?

• Obscures trade-offs
• Cheap (and expensive) moralizing
• Blame employers for not providing better coverage
• Mandates (pay or play - Money for nothing v.
  on-budget taxes
• Do you want to index minimum wage to health care
  costs?
• International competitiveness
• Health care costs add 1,525 to the price of
  every General Motors vehicle. The company spent
  4.6 billion on health care in 2007, more than
  the cost of steel. As a result of these crushing
  health care costs, American businesses are losing
  their ability to compete in the global
  marketplace.)

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Dysfunctions in Two Markets

• Financing-side dysfunctions
• Selective and skewed tax subsidy
• Employment-based coverage (EBC)
• Fragmented/thin risk pools for non-EBC
• Cost-increasing regulation
• Delivery-side dysfunctions
• Highly fragmented system
• Compensation bears no relationship to quality or
  outcome
• High variance in cost/treatment patterns, with
  little evidence of benefit.
• Health care v. health

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What did Health Reform Do?

• Individual Mandate
• Employer Mandate
• Exchanges
• Subsidies
• Regulation of Insurance
• Elimination of annual and lifetime caps
• No preexisting conditions
• Limitation on premium differentials
• Price controls with premium rebates
• Tax on High Cost Plans (starting in 2018)

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What did Health Reform Do?

• IPAB (spending reduction proposals)
• CMI (payment and service delivery models)
• Outcomes Research Institute (Comparative clinical
  effectiveness)
• Various demonstration projects on
  bundling/quality/payment reform

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What effects will health reform have on EBC?

• Its tough to make predictions especially
  about the future
• Yogi Berra

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CMS, Estimated Financial Effects of the PPACA
(Apr. 22, 2010)
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Impact of PPACA on EBC

• Current issues
• Grandfathering of old plans
• Medical loss ratio calculation - what counts as
  clinical services, quality improvement,
  administration?
• 85 for large plans 80 for small
  group/individual plans
• Financial impact on firms (retiree benefits)
• Medicare Part D

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Among All Large Firms (200 or More Workers)
Offering Health Benefits to Active Workers,
Percentage of Firms Offering Retiree Health
Benefits, 1988-2010
Tests found no statistical difference from
estimate for the previous year shown (plt.05). No
statistical tests are conducted for years prior
to 1999. Note Data have been edited to include
the less than 1 of large firms who report yes,
but no retiree responses in 2010. Historical
numbers have been recalculated so that the
results are comparable. Source Kaiser/HRET
Survey of Employer-Sponsored Health Benefits,
1999-2010 KPMG Survey of Employer-Sponsored
Health Benefits, 1991, 1993, 1995, 1998 The
Health Insurance Association of America (HIAA),
1988.
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First Quarter Charges for Retiree Drug Benefits

• ATT 1B
• Verizon 970M
• Deere Co. 150M
• Boeing 150M
• Caterpillar 100M
• Prudential Financial 100M
• Total gt 4.5B for companies in SP 500

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• Charges are premature and irresponsible (Gary
  Locke, Secretary of Commerce, WSJ
• Assertions are a matter of concern
  Hearing/Investigation by House Energy Commerce
  Committee (Reps. Waxman Stupak)

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Not with a bang, but with a whimper. . .

• Hearing cancelled the day before it was
  scheduled to be held, after documents reviewed by
  staff.
• Staff finding The companies acted properly and
  in accordance with accounting standards in
  submitting filings to the S.E.C. in March and
  April. These one-time charges were required by
  applicable accounting rules.
• What wasnt in the staff memo?

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A March 3 internal Verizon memo on the impact
health-care law said new taxes on insurance
companies and health-care equipment manufacturers
will be passed onto employers through higher
prices. Facing such increased costs, employers
like Verizon may consider exiting the
health-care market and send employees to the
exchanges, the memo says. . . The Verizon memo
said, the fines for not providing coverage
would be modest compared to providing coverage
for employees.
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If you like your health insurance, you can keep
it. . .

• In a March 25 e-mail, John Deeres director of
  labor relations, Kenneth Hugh, said, We ought to
  look at denying coverage and just paying the
  penalty we would need to figure out which one
  was more expensive. Whether or not companies
  are being forced to rescind employee coverage,
  they may need to raise insurance premiums, the
  documents show.

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• A Caterpillar executive made a similar point in
  an e-mail message to colleagues, saying the tax
  changes could drive many employers to just drop
  coverage for retirees altogether, and let the
  government foot the whole bill.
• ATT will be evaluating prospective changes to
  the active and retiree health care benefits
  offered by the company.

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Dont say you werent warnedAmerican Benefits
Council Letter (12/11/09)

• Taxing the subsidy means that more companies
  will eliminate or reduce the coverage, and more
  retirees will shift to Medicare Part D, which
  will create more cost for both the government and
  the retirees.
• Further, this change would result in large
  earnings statement reductions due toincome tax
  accounting rules, which would require employers
  to immediately account for the present value of
  this tax increase.

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Problems that are here/coming soon

• Richer benefits/coverage of higher cost risk pool
  what effect on premiums?

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• It has come to my attention that several health
  insurer carriers are sending letters to their
  enrollees falsely blaming premium increases for
  2011 on the patient protections in the Affordable
  Care Act. I urge you to inform your members that
  there will be zero tolerance for this type of
  misinformation and unjustified rate increases.
• HHS Secretary Kathleen Sebelius letter to Karen
  Ignagni, AHIP

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Problems that are here/coming soon

• Asymmetry of coverage subsidy
• Demand for broader availability/potential for
  erosion of EBC for lower-paid workers
• Potential for dramatic growth in exchange, with
  associated on-budget costs for subsidies

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Horizontal Vertical Inequity Redux
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Problems that are here/coming soon

• Deferral of excise tax and absence of cost
  constraints ? Déjà vu all over again

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Universal Coverage ? Cost Control

• If we don't address cost, I don't care how
  heartfelt our efforts are, we will not get this
  done. If people think we can simply take
  everybody who is not insured and load them up in
  a system where costs are out of control, its not
  going to happen. We will run out of money.
• President Barack Obama, March 5, 2009 press
  conference

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Among Firms Offering Health Benefits,
Distribution of Firms Reporting the Likelihood of
Making the Following Changes in the Next Year,
2009
Very Likely Somewhat Likely Not Too Likely Not At All Likely Dont Know
Increase the Amount Employees Pay for Health Insurance 21 20 14 44 lt1
Increase the Amount Employees Pay for Deductibles 16 20 18 46 lt1
Increase the Amount Employees Pay for Office Visit Copays or Coinsurance 15 25 19 41 lt1
Increase the Amount Employees Pay for Prescription Drugs 14 23 19 43 lt1
Restrict Employees Eligibility for Coverage 4 5 8 83 lt1
Drop Coverage Entirely 2 6 6 86 lt1
Offer HDHP/HRA 5 15 19 59 1
Offer HSA-Qualified HDHP 6 16 24 54 lt1
Among firms not currently offering this type of
HDHP/SO. Source Kaiser/HRET Survey of
Employer-Sponsored Health Benefits, 2009.
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The salary is excellent and the benefits are
outstanding. So. . . Which would you prefer?