On the status of health reform

Posted by on Monday, Sep 7, 2009

Notes on the eve of the President’s address
by Andy Coates

The election of Obama raised expectations for sweeping health reform sky high. But in spite of several self-imposed deadlines, Senate and House health reform bills were not ready by the time of the August Congressional recess, when passionate local debate erupted at Congressional home district town hall meetings.

The Onion pierced the din with truth: “After months of committee meetings and hundreds of hours of heated debate, the United States Congress remained deadlocked this week over the best possible way to deny Americans health care.”

If the goals are health care for all and reduced costs of care, the measures being prepared in Congress will not reform the health system. Instead they amount to a massive taxpayer subsidy for the private health insurance industry.

In 2007 more than one of five working age people were uninsured for a year or longer. One of six working people had health insurance insufficient to meet the expenses of a serious illness. And there were 8 million uninsured children in the United States. At least 5 million more people have lost their health insurance in 2008 and 2009 thanks to galloping unemployment – on top of years of progressively unaffordable health insurance, inadequate coverage and steep out-of-pocket costs. The failing economy further accelerated the crisis in health care through devastating state and local cutbacks in safety net care.

Yet the Congressional bills that have come through committee offer precious little relief for these ills, no fundamental reform — and key provisions would not start until 2013.

Against this background, a nascent mass movement for single-payer national health insurance, plugging away for decades, steadily accumulates new force. Single payer would deliver all necessary care for all individuals, lifelong, with no co-pays and no deductibles through a system in which health care would be publicly financed but privately delivered. By eliminating private insurance, single payer would save an estimated $400 billion annually in health spending. The single-payer bills in Congress are HR 676 and S 703. HR 676 has 86 co-sponsors and has been endorsed by over 500 labor bodies, including 39 state AFL-CIO federations.

Whether a bill passes or flounders this fall, the details in the proposals that have come through Congressional committees have little connection with the popular expectations and grassroots clamor this summer.

If Congress enacts reform, in 2013 individuals will be required to purchase health insurance. This is the centerpiece of the “reform.” The proposal has come straight from the insurance industry: criminalize the uninsured and subsidize unaffordable private insurance premiums with public funds.

Massachusetts as a model

An “individual mandate” was enacted in Massachusetts under Governor Mitt Romney in 2006. All residents of the state were required to join the private insurance risk pool or pay a fine. Supposedly this would reduce costs through an expansion of the risk pool. It did not.

The state purchased health insurance for everyone with incomes below 150% of the federal poverty level and subsidized those making between 150% and 300% of that level. A new state agency, the Commonwealth Health Insurance Connector, was established to match individuals to private insurance plans.

The Connector employs more state workers to assist with the purchase of private health insurance than the province of Ontario’s Medicare employs. Canada’s Medicare is the agency that pays for all necessary medical services for all residents. Ontario’s population (13 million) is twice that of Massachusetts. Canada’s Medicare overhead costs 1.3% of health spending. In Massachusetts the Insurance Connector adds 4.5% in administrative cost to each policy it brokers.

The Massachusetts reform went into effect in 2007. As of March 2008, 40% of those uninsured in 2007 remained without coverage. High-deductible policies lowered premium costs by shifting more of the expense onto individuals. Physicians for a National Health Program found that a healthy 43 year-old man making just over $31,000 a year would have to pay $5,096 before any insurance coverage kicks in, with additional co-pay and co-insurance costs.

In Massachusetts when you lose your job you still lose your health insurance, the reform does not protect you from financial ruin when illness strikes, and health insurance remains far too expensive. Neither is the program sustainable for the state. As the state budget deficit rises into the billions, funding for safety net programs and institutions has been slashed to keep the individual mandate afloat. Services that have been cut include care for the poor, emergency and primary care, mental health and addiction care.

A 2008 survey of opinion intended to bolster the program found that of those directly affected by the reform in Massachusetts 56% opposed the individual mandate and 50% said that the “is hurting” the uninsured. In July 2009 the state revoked subsidized health insurance for 30,000 legal immigrants.

For healthy profits

The “individual mandate” is a financial bonanza for the insurance industry just at at time when the relentless rise in premiums, far ahead of wages, have hit their ceiling of unaffordability.

An April 2008 New York Times business column about sagging profits at UnitedHealth carried a frank appraisal of the declining employer-sponsored private health insurance market. “It is never a good thing if many of your customers can no longer afford what you’re selling,” Reed Abelson wrote. “In recent years despite soaring medical costs, insurers have made big profits by keeping premiums well ahead of health care inflation. But analysts say that business strategy may be reaching its limits, with companies finding it harder to raise prices without losing substantial numbers of customers.”

The article closed with a quote from a health business analyst: “The hail Mary may be that we turn to some sort of universal care.”

Shortly after the Presidential election the insurance industry officially embraced health care reform. A November 2008 press release from Blue Cross Blue Shield read: “The Blue Cross and Blue Shield Association (BCBSA) and the 39 member Blue Cross and Blue Shield companies today announced support for every individual being required to have coverage and all insurers being required to accept everyone regardless of their health status.”

If the government would only criminalize the uninsured and pay the premiums for the poor, the industry said, it would stop denying people insurance coverage because they are ill. The industry further promised that women would no longer be charged more than men for health insurance – again, if and only if the federal government would deliver paying customers – and guarantee the payments too.

But there is growing recognition that the “reform” is most of all “truly meaningful” for the profitability of Blue Cross Blue Shield Association and its competitors. BusinessWeek announced on its front page: “The Health Insurers Have Already Won: How UnitedHealth and rival carriers, maneuvering behind the scenes in Washington, shaped health-care reform for their own benefit.” A Los Angeles Times headline read: “Healthcare insurers get upper hand. Obama’s overhaul fight is being won by the industry, experts say. The end result may be a financial ‘bonanza.’”

Details of the swindle

Congressional proposals include a minimum annual tax of $750 and/or a tax of 2.5% of adjusted income upon people who don’t purchase health insurance. For those who still could not afford the premiums, a hardship waiver could be requested. The Senate HELP bill defines “unaffordable” as 12.5% of income or more.

Companies that presently arrange skimpy policies, for example the very high deductible plans like Wal-Mart offers, would be protected by a grandfather clause and exempted from regulations setting forth minimum covered benefits. Recognizing that the costs of health insurance are a nonstarter for individuals, subsidies for private health insurance policies would be granted for people whose incomes are 400% of federal poverty or less. And tax credits would be given to small employers to subsidize the employer share of insurance premiums and grant payments to employers whose plans cover retirees aged 55-64.

But as the Congressional Budget Office began adding up the price tag – over a trillion additional dollars in costs over the coming decade – lawmakers moved to scale back the subsidy. According to the Los Angeles Times, “In May, the Senate Finance Committee discussed requiring that insurers reimburse at least 76% of policyholders’ medical costs under the most affordable plans. Now the committee is considering setting the rate as low as 65%.”

Bankruptcies in the United States in 2009 will affect 3.8 million people. Two-thirds are the result of debt due to illness – more than three-fourths of whom have health insurance. To prevent this, HR 3200 would cap personal costs (at $5,000 for an individual and $10,000 for a family) – but only for covered services, not all out-of-pocket costs.

On top of this, the proposal would shift more costs to individuals. Invoking “shared responsibility” the House bill calls for employers to pick up at least 72.5% of the premium for an individual policy and 65% of the premium for a family. The Senate HELP bill would require employers to offer to pay 60% of the insurance premium. Consider that 40% (the direct cost to the employee) of the market price for insurance coverage for a family of four would equal 2/5ths of about $16,000 — $6,400 annually or $533 per month. Plus co-pays, deductibles, and the rest of the usual unaffordable out-of-pocket expenses.

Another feature of proposed bills is a government “exchange,” through which employers and individuals would be encouraged to purchase insurance. Individuals would not be allowed to use the exchange if their employers offer health insurance, including plans that were grandfathered. This agency would add yet another layer of expensive bureaucracy to the presently dysfunctional system, like the Connector did in Massachusetts.

None of these changes would start until 2013. Some of the provisions that would begin in 2010 include new taxes, increasing Medicaid payment for primary care services to 80% of Medicare rates and prohibiting insurance companies from recissions – rescinding policies for reasons other than nonpayment of premiums (often the allegation of failing to disclose a pre-existing condition.)

“Public option” posturing

The “public option” refers to an idea that people and employers should be allowed to purchase insurance from a public program along the lines of Medicare. Proponents believe this would pressure the entire insurance market to reform itself.

On moral grounds, supporters of the public option advance arguments similar to single payer proponents: Insurer profits amount to blood money, for every penny earned by the company is a penny’s worth of care cheated from the effort to make a human being healthy. In comparison a public program with the lowest possible overhead, its finances open for scrutiny, presents a morally defensible means of paying for care.

But the public option amounts to a moral posture, not a workable reform. Single payer would eliminate the insurance industry from health care, a “public option” cannot. A “public option” won’t liberate the resources squandered by the private insurance companies. Instead it adds duplicative waste in administrative overhead to the system.

The most relevant evidence comes from the state of Maine. Maine has offered a “public option” since 2003. In six years this program has managed to cover only 10% of the uninsured and has not forced its competitors to lower costs.

Perhaps the idea of a “public option,” as a clever market-based scheme, reveals something about popular ideological illusions, for it relies upon a crude kind of “free markets equal low costs plus high quality.” Of course this is not the way the market works. The laws of the health insurance market, in particular, dictate that the successful competitor will avoid insuring people who are sick and/or poor while recruiting customers who are healthy and wealthy.

Does it really make sense to believe that a “public option” tossed amid the heavily monopolized insurance market in the U.S. would stand a chance at competing for the healthy and wealthy patients? In the best case scenario, wouldn’t such a program instead drive the system toward officially sanctioned disparities in care?

Historical note: once upon a time, as Medicare gained momentum required for Congressional passage, the “public option” was put forward by the AMA, Ronald Reagan Republicans, Dixiecrat Democrats and other right-wing opponents of Medicare. The idea was to let seniors voluntarily purchase insurance from a public plan, in addition to private insurers, instead of enrolling all seniors in Medicare. Does it make sense to now embrace a proposal that was objectionable over 45 years ago?

Topsy turvy

The “public option,” much more a political posture and much less a specific proposal, has given liberals and progressives an reason to support reform that would be, at its heart, a spectacular transfer of taxpayer funds to health insurers, a financial services industry – in which the government will hawk the product, coerce customers, and subsidize payments to companies. Even so, the White House seems prepared to jettison the “public option” in exchange for bipartisan support for the individual mandate, in spite of “public option” supporters’ moral indignation.

Prevailing Democratic Party wisdom holds that the tragedy of the Clinton heath reform effort was a failure to maneuver legislation through Congress quickly, thanks to too much dealmaking behind closed White House doors. The nuance of the Obama administration was to move the dealmaking to behind the closed doors of Congressional committees. Meanwhile the White House, in parallel, also sought closed-door deals palatable to “stakeholder” profiteers, hoping to expedite bipartisan compromise. If one accepts such “wisdom,” history seems to have repeated itself, – if the first time tragedy, this time farce.

The Los Angeles Times reported that former Louisiana Congressman Billy Tauzin, President and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA) visited the White House six times. In exchange for a pharmaceutical industry promise to forgo $80 billion in profit over 10 years, Tauzin told the Los Angeles Times that the President promised not to allow importing of drugs from Canada or Europe and not to reform Medicare Part D. (Medicare Part D has been another government-delivered industry bonanza — for it prohibits the government from bargaining for drug prices.) In return PhRMA has pledged $150 million in advertising in support of the Presidents’ reform effort.

Yet the right, in response to the industry-friendly proposals moving through Congress, has attacked the entire reform (not just the public option) as if it were single payer national health insurance!

In the resulting gyrations, when PhRMA lobbyist and former House Republican leader Dick Armey joined the chorus of conservative talking heads attacking the Congressional bills as a “government takeover of health care,” PhRMA forced his resignation from the lobbying firm. Because the reform discussions have included Medicare cuts, the right also found fertile ground among seniors. A Democratic Party-friendly poll found that 39% said “yes” when asked “Do you think the government should stay out of Medicare?”

At the end of August the Republican Party took the position of “hands off Medicare.” While this would leave in place “Medicare Advantage” (which pays private insurance companies 12 to 17% more than it pays for the costs of care of traditional Medicare), and Medicare Part D (another huge giveaway to the drug and insurance industry), it was striking to see the Republican Party tie itself in knots after decades of calling for the abolition of Medicare.

Also in the name of “keeping the government out of health care” the Republican Party came out in defense of the Veterans Administration, a socialized health care system directly owned and operated by the federal government. In August the Congressional Budget Office released a study that underscored once again evidence of superior quality of care at the VA: better than Medicare, better than private practice and better than managed care.

If we were to engage a truly evidence-based debate over how to pay for health care using a “uniquely American” model, it would be a debate between single payer, the Medicare model, and socialized medicine, like the VA.

From “off the table” to “on the floor”

Single-payer national health insurance, after more than 20 years of accumulating evidence, now accumulates unprecedented popular support. Although polls have shown for decades that a majority, including physicians, favor national health insurance, the depth and passion of grassroots activism for the proposal is something new. For the first time this fall single payer may be voted on on the floor of the House of Representatives.

At the end of July, as the Energy & Commerce committee completed deliberations on HR 3200, Representative Anthony Weiner of New York, with 6 others, put forward an amendment to replace the text of HR 3200 with the text of HR 676. Committee Chair Waxman interrupted to say that House Speaker Nancy Pelosi offered to allow single payer to be voted on by the entire House of Representatives if the amendment were withdrawn from Committee. Weiner accepted.

Perhaps the prospect of defeating single payer on the floor of the House of Representatives seems, to the Democratic Party leadership, a way to at last get single payer off the table.

Single payer activists have welcomed this turn of events, for it was the direct fruit of grassroots mobilization. The proposals before Congress, with the exception of HR 676 and S 703, will simply not work. Whatever happens in Congress this fall, the system will grow more dysfunctional. And with expectations for fundamental reform now raised even higher, excellent prospects to build a movement for single-payer national health insurance will persist.

Dr. Coates practices medicine in Albany, NY, where he is assistant professor in the departments of medicine and psychiatry at Albany Medical College, secretary of the Capital District chapter of Physicians for a National Health Program and co-chair of Single Payer New York.

“Sick and Wrong” by Matt Taibbi

Posted by on Monday, Sep 7, 2009

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Sick and Wrong

By Matt Taibbi
September 3, 2009

All that’s left of health care reform is a collection of piece-of-shit, weakling proposals that are preposterously expensive and contain almost nothing meaningful — and that set of proposals, meanwhile, is being negotiated down even further by the endlessly negating Group of Six. It is a fight to the finish now between Really Bad and Even Worse. And it’s virtually guaranteed to sour the public on reform efforts for years to come.

Then again, some of the blame has to go to all of us. It’s more than a little conspicuous that the same electorate that poured its heart out last year for the Hallmark-card story line of the Obama campaign has not been seen much in this health care debate. The handful of legislators — the Weiners, Kuciniches, Wydens and Sanderses — who are fighting for something real should be doing so with armies at their back. Instead, all the noise is being made on the other side. Not so stupid after all — they, at least, understand that politics is a fight that does not end with the wearing of a T-shirt in November.


This may be the most important week in this window of opportunity for health care reform. Matt Taibbi’s well researched article tells us where we are and how we got here. It’s a must read for those who care. Hopefully it will motivate us to put down our Hallmark cards and join in the fight for real health care justice for all.

By Kip Sullivan, JD

In a previous paper I described the transformation of the “public option” from an enormous program that would insure 130 million people to a tiny program in the Democrats’ health “reform” legislation that will insure somewhere between zero and 10 million people. I predicted that the “options” in the Democrats’ bills would be unable to succeed in all or most markets in the country. I characterized the main barrier facing the Democrats’ shrunken “options” as a “chicken and egg” problem: A person or group trying to create a new insurance company can’t tell prospective customers what the premium will be until they have determined how much they will pay providers; but the person or group can’t know how much it will pay providers until it knows how many people it will insure.

In this comment I elaborate on this chicken-egg barrier by presenting an illustration of the barrier at work – the departure of the Prudential Insurance Company from the Minnesota managed care health insurance market in 1994. Although Prudential was (and still is) a huge Fortune 500 company, it was unable to survive Minnesota’s highly concentrated group health insurance market and was forced to withdraw. If a company as large and as experienced as Prudential could not crack the Minnesota market, why should we hold out any hope for the little “options” proposed by the Democrats?

A recap of the transformation of the “public option”

Jacob Hacker laid out his vision of what is now called “the public option” in papers published in 2001 and 2007.  Hacker spelled out five criteria he believed the “option” had to meet:

(1) It had to be pre-populated with tens of millions of people;

(2) Only “option” enrollees could get subsidies (people who chose to buy insurance from insurance companies could not get subsidies);

(3) The “option” and its subsidies had to be available to all non-elderly Americans (not just the uninsured and employees of small employers);

(4) The “option” had to be given authority to use Medicare’s provider reimbursement rates (which are typically 20 percent below the rates paid by insurance companies); and

(5) The insurance industry had to offer the same minimum level of benefits the “option” had to offer.

Although I question some of the assumptions Hacker made in these papers, including his assumption that the “option” will inevitably enjoy Medicare’s low overhead costs, I have little doubt that an “option” which met Hacker’s five criteria would stand an excellent chance of surviving its start-up phase in most markets in the U.S. (I am ignoring here the question of whether an “option” as strong as Hacker’s original has a better chance of being enacted than a single-payer system does. Events of the last few months should disabuse the entire world of that myth.)

But when the Democrats drafted legislation early in 2009 that included provisions creating an “option,” they abandoned the first four of Hacker’s criteria and kept only the last one (the one requiring insurance companies and the “option” to cover the same benefits). Proponents of the “option,” including Hacker, did not raise a fuss about this. Not surprisingly, the “option” provisions of the bills introduced in July – one by the Senate Health, Education, Labor and Pensions (HELP) Committee and the other by the chairs of the three House committees with jurisdiction over health care reform – were basically unchanged from those in the draft versions. The Congressional Budget Office estimates the HELP Committee’s “option” will insure approximately zero people and the “option” in the House bill (HR 3200) will insure roughly 10 million people.

The advent of managed care augmented the chicken-egg problem

Prior to the advent of what came to be called “managed care,” an entrepreneur or group seeking to start a new insurance company only needed to focus on amassing a large number of customers as opposed to providers (clinics and hospitals). But with the advent of managed care in the 1980s, groups seeking to start a brand new insurance company also had to amass a supply (or “network”) of clinics and hospitals as well. Some insurers amassed this critical supply of providers by buying them out (or merging with them), but most did so by signing contracts with them.

This new provider-network requirement for market entry arose because the spread of managed care tactics meant that survival and success would go to the insurance company with the greatest ability to exert influence over providers. Insurance companies throughout the country sought to increase their influence over providers by limiting patient choice of provider so that they could steer their enrollees to fewer providers. Developing this power to steer more patients to some providers and away from others gave an insurance company two substantial advantages over an insurance company that did not do that. First, it gave the insurer the ability to force the providers they dealt with to give them discounts off their usual charges. Second, it enhanced the power of the insurer to force providers to play by the insurer’s “managed care” rules (for example, rules requiring providers to get permission from the insurer before hospitalizing a patient).

But creating a network of providers that is large enough to satisfy a widely dispersed customer base but still exclusive enough to give the insurer leverage over the in-network providers is a time-consuming and expensive process. This requirement gives an enormous advantage to the home team – the insurers that have been doing business for a long time in a given market – and, conversely, creates an enormous barrier to entrepreneurs seeking to create new insurance companies.

When the U.S. Department of Justice investigated a proposed merger between Aetna and Prudential in 1999, it concluded that “effective new entry for an HMO or HMO/POS [point-of-service] plan [that is, an insurance company that limits patient choice of provider] in Houston or Dallas typically takes two to three years and costs approximately $50 million.” Because insurance markets have become more concentrated in the decade since the DOJ published this report, the time and money required to break into today’s markets is even greater than that required a decade ago.

Insurance companies which failed to grasp this new rule of the managed care era – that success will depend not only upon the size of your customer base but also your ability to limit patient choice of provider – lost market share and many went out of business. The decision by Prudential Insurance Company to leave the highly concentrated Minnesota health insurance market in 1994 illustrates this trend.

Prudential’s departure from Minnesota’s group market

As of 1994, Minnesota’s four largest health insurance companies insured 80 percent of all Minnesotans who had health insurance of any sort. Blue Cross Blue Shield of Minnesota enrolled 1.33 million people, Medica enrolled 900,000, HealthPartners enrolled 650,000, and PreferredOne enrolled 450,000. Two of these insurers – Medica and HealthParters — were so powerful in the Twin Cities area they could extract discounts from Twin Cities hospitals that were approximately equal to Medicare’s (at that time, a discount of about one-third). They extracted these discounts not because they were as big as Medicare was (nationally Medicare insured 40 times more people than Medica did in 1994 and about 55 times as many as HealthPartners), but because they were big in the Twin Cities insurance market and, unlike Medicare, they made a point of limiting patient choice of provider. This meant they could exercise enormous leverage over the providers they did choose to deal with.

Even though Prudential was and still is a huge company nationally (it is a Fortune 500 company and is among the nation’s largest health insurance companies) and had been selling health insurance for decades, it did not react fast enough to the gradual spread of managed care tactics in Minnesota during the 1970s and 1980s. (Minnesota, along with California, led the nation down the managed care path.) By 1994 Prudential decided it couldn’t compete in the Minnesota market.

Prudential made its decision known on July 8, 1994. As the following excerpt from a Minneapolis Star Tribune article published the next day indicates, Prudential had established a toehold – it was well on its way to creating both a customer base and a provider network – but the toehold wasn’t enough.

… Prudential Insurance Co. said Friday that it will discontinue its Twin Cities managed care health plan due to intense competitive pressures. Eighty metro-area jobs will be eliminated….While Prudential … is now in 42 cities, only the Twin Cities market posed a particular problem and will be shut down….

Prudential Plus of Minnesota operates mainly in the Twin Cities and deals with 800 primary care physicians and 1,500 specialists. Nationwide, the managed care plan has 5 million members. Regardless, Prudential did not grow large enough or fast enough in the Twin Cities market to maintain a substantial lead, analysts said. The firm was easily overshadowed by heavyweights such as HealthPartners and Medica…. And these bruisers and others like them are merging or forming alliances that kept welterweights like Prudential Plus on the ropes. Gary Schultz, executive director of Prudential Plus of Minnesota, said, “Recent mergers, acquisitions and strategic alliances involving health care plans and providers … have combined to make it increasingly difficult to compete in this market place….

“Prudential only has 30,000 (members) in the Prudential Plus plan,” [Prudential marketing director Pat] McLaughlin said. “They are not the big player they needed to be and as a result may not have been able to negotiate the best deals with providers” (Dee DePass, “Prudential to discontinue managed care health plan,” Star Tribune, July 9, 1994, 1D).

An article in BNET reported an identical explanation for Prudential’s demise in Minnesota: “A Prudential spokesperson said the clout of its bigger competitors had made it difficult to recruit a critical mass of new employers and enrollees.”

Lessons for “option” advocates

This story illustrates three facts “option” advocates must address.

First, it clearly illustrates the “chicken and egg” problem facing the “option” program, or to be more precise, facing the corporations that will be hired by the Secretary of the Department of Health and Human Services to create the “option” program. (Both the HELP bill and HR 3200 authorize the Secretary to contract with corporations that the HELP bill calls “contracting administrators” for the purpose of creating the “options” throughout the U.S.) The contracting administrators are going to have to build up provider networks and a customer base from scratch, simultaneously, and market by market, even though they will suffer the disadvantage of entering the insurance business long after the insurance companies they are competing with began introducing themselves to customers and cobbling together their own provider networks.

Second, this story should put the entire country on notice that the “option” may never be able to deliver on the promise, made over and over by “option” advocates, that the “option” will offer complete freedom to choose one’s doctor and hospital. If the contracting administrators who create the “options” around the country refuse to create “options” that limit enrollees’ choice of provider, those “option” programs will have less power to drive provider rates down. That means, of course, those “option” programs will have to set their premiums higher than existing insurers that do limit patient choice of provider. That will in turn make attracting a critical customer base very difficult if not impossible.

The third fact the Prudential story illustrates is that the size of an insurer at the national level is not an important factor in decisions by clinics and hospitals about whether to sign contracts with an insurer and whether to give that insurer discounts. What matters to clinics and hospitals is size at the local level. Minneapolis hospitals, for example, could have cared less whether Prudential insured 20,000 people in Tulsa or half-a million in Florida. (Size at the national level does have some bearing on whether an insurer can extract discounts from drug and equipment manufacturers. But drugs and equipment amount to roughly 15 percent of medical costs for the non-elderly. It is clinic and hospital costs that make or break an insurance company.)

The “chicken and egg” problem is, of course, not limited to entrepreneurs trying to break into the Minnesota market. The conditions that create the “chicken and egg” problem – high concentration levels within the insurance industry and near-universal use of managed care tactics including limited choice of provider – exist throughout the country. As Senator Charles Schumer (D-NY) said in a press release about a May 2009 report from Health Care for America Now, the entire U.S. health insurance industry suffers from “extreme … consolidation.” According to the HCAN report, eleven states have more concentrated insurance markets than Minnesota does.

“Option” advocates should stop comparing the “option” to Medicare

To test your understanding of the “chicken and egg” problem, let me end with a pop quiz:  Did Medicare face a “chicken and egg” problem when it started up?

The answer is:  No, it did not.  It did not because it didn’t have to create a “customer” base from scratch. Its base was created by the law (signed on July 30, 1965) that created Medicare.

Medicare is, by design, the sole insurer for people over age 64. That means that Medicare’s administrators had a precise idea of how many Americans they would be representing on July 1, 1966, the day Medicare commenced operations. Equally importantly, every clinic and hospital in America had a good idea of how many elderly patients they would be getting if they participated in Medicare and, conversely, how many they would lose (and how much money they would lose) if they refused to accept Medicare patients. And because the Medicare law gave the nation’s entire elderly population – the portion of the population with the greatest need for medical care – to Medicare, Medicare’s administrators had a good idea of how much leverage they had on day one over the nation’s providers. This allowed them (eventually) to make an offer to America’s providers that the providers could not refuse – accept Medicare’s below-average rates or lose a lot of money. The offer was not refused. Today, virtually all American clinics and hospitals accept Medicare enrollees even though there is no requirement in the Medicare statute that providers accept Medicare enrollees. In short, having pre-established enrollment, which in turn gave Medicare the ability to set its rates below those of the insurance industry, meant that Medicare did not face the “chicken and egg” problem.

More importantly, Medicare didn’t face a “chicken and egg” problem because it has always been the single insurer for the services covered under Medicare. Medicare has never had to compete with the insurance industry for “customers.”  A pernicious consequence of the tendency of “option” advocates to describe the “option” as “just like Medicare” is that “public option” supporters and members of Congress have been lulled into thinking the “option” is bound to succeed just as Medicare did. The tendency of “option” advocates to ignore the daunting “chicken and egg” problem is one manifestation of the lazy thinking that has been induced by the constant comparison of the “option” to Medicare.  “Option” advocates should stop comparing the “option” to Medicare.

Kip Sullivan is a member of the steering committee of the Minnesota chapter of Physicians for a National Health Program.  He is the author of The Health Care Mess: How We Got Into It and How We’ll Get Out of It (AuthorHouse, 2006).

As we recall, a high-profile event at the White House in May 2009 brought together most of the major corporate stakeholders in the U. S. health care system in an effort to build momentum toward reform. The Obama Administration welcomed the cooperative spirit and combined pledges of some stakeholders to shave 1.5 percent off the growth in health care spending over ten years, amounting to “savings” of about $2 trillion. The meeting was proclaimed “an historic event” boding well for the goals of reform — gaining near-universal coverage to affordable health care while reining in costs and improving quality of care.

Having considered the voluntary, unenforceable pledges, together with the agendas and subsequent actions by five of the major stakeholders, it is now useful to re-assess the impacts on reform by the corporate “alliance” struck at that time. Table 1 summarizes the pledges and agendas, as well as the tactics and likely rewards, for the Big Five stakeholders.

As is evident from Table 1, all five stakeholders, with the possible exception of some
Large employers, will do well with health care reform along the lines of bills now before Congress. The House bill (H.R. 3200), with a cost of some $1 trillion over 10 years and without effective cost containment mechanisms, would add greatly to the revenues of all corporate stakeholders in the medical industrial complex. Their revenues, of course, are our costs, especially since the insurance industry will likely be protected by lenient standards (such as by a requirement being considered by the Senate Finance Committee that insurance should have to cover only 65 percent of health care costs).

The Big Five that we have looked at are only part of the cost problem. There are many other major players in the health care industry, mostly investor-owned, with a primary mission to make money, not save the money of either patients, their families or taxpayers. These players range from medical device and medical equipment industries to nursing homes to information technology. As just one example, General Electric, the 12th largest corporation in the world, has a big market share for imaging equipment and information technology. It has initiated a big national advertising campaign supporting health care reform, while its lobbyists fight against cuts in Medicare reimbursement for imaging procedures.

Congress goes on break, health lobbying heats up. Wall Street Journal, August 5, 2009: A1) The 3,300 lobbyists now in Washington, D.C. lobbying for one or another health
care interest, for or against specific provisions in the proposals before Congress, are
consuming $1.4 million dollars a day in this effort.

Most health care industries welcome government subsidies to grow the insured
population, but not at the price of burdensome regulation. There is little common ground among the stakeholders in the medical industrial complex except the goal to expand markets and grow future profits for each industry The “alliance” is in name only, hardly partners in most instances. When their respective interests conflict with other corporate stakeholders, the circular firing squad starts shooting. Examples include the insurance trade group AHIP’s battle against physicians’ high out-of-network fees, while medical organizations sue insurers for non-payment of fees and call for elimination of overpayments to private Medicare plans.

As the battles rage on between and among corporate stakeholders, their lobbyists, and reformers in and out of government, the public interest is being overlooked as stakeholders work toward carving out a bigger piece of an expanded pie for themselves. The neutering of the public option is but one of many examples whereby the public is losing out. (Link to Blog 21) Instead of cost-containment in a reform bill, we can expect to see continued inflation of health care costs at rates much higher than cost-of-living or median wages. Judging from the bills taking shape in Congress, the outcome will be a bonanza for health care industries and a bail-out for an unaffordable and dying insurance industry.

Bob Herbert, well-known Op-Ed columnist for the New York Times, is right on target with this observation:

“The drug companies, the insurance industry and the rest of the corporate high-
rollers have their tentacles all over this so-called reform effort, squeezing it for
all it’s worth. Meanwhile, the public — struggling with the worst economic
downturn since the 1930s — is looking on with great anxiety and confusion. If
the drug companies and the insurance industry are smiling, it can only mean that
the public interest is being left behind.”

John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008. With permission of the publisher, Common Courage Press

Buy John Geyman’s Books at: http://www.commoncouragepress.com

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How much will reform cost me?

Posted by on Friday, Sep 4, 2009

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

KHN Exclusive: Congressional Documents Show Health Cost

Kaiser Health News
September 4, 2009

These documents, prepared by the House Committee on Ways and Means and obtained by KHN, show the maximum premiums and out-of-pocket costs low- and moderate-income people might face under the House health overhaul plan, called America’s Affordable Health Choices Act (HR 3200).

One example selected from the tables:

Family of four with an income of 400% of the federal poverty level ($88,200):

Maximum monthly premium: $809 ($9708 per year)

Out-of-pocket cap (in addition to premium): $10,000


Under the House bill for reform (HR 3200), a family of four with an income of $88,200 that had health care needs could be responsible for $19,708 of their health care costs, which is 22% of their income (23% under the Energy and Commerce amendments). That would leave them with an income of $68,492 for all of their other needs and wants (and some of that could be burnt up in out-of-network costs and non-covered services that do not apply to the cap).

When people want to know what reform is going to cost them, it is usually the numbers in these tables that they want to see. Because of concerns about federal budget deficits, it is likely that the financial responsibility for individuals and families will be even greater than these tentative tables depict.

What is not included here is the amount that we are paying through the tax system for government-financed health care, which is roughly one-half of all health care expenditures (including health plans purchased for government employees, but excluding tax subsidies of employer-sponsored plans which have an uncertain future).

Health care is very expensive, and Congress is selecting the most expensive model that has ever been devised to pay for it.

We’re retired and on Medicare, so the numbers above have little meaning for us. But they mean a lot to our children and will mean even more to our grandchildren. Selecting reform using numbers that don’t work this year and will be even worse in future years is not a legacy that we want to leave to our children and grandchildren nor anyone else’s either.

Let’s improve the least expensive model – Medicare – and then share it with all of our future generations. That’s an American solution of which we would all be proud, and, to the point, one which we could afford.

More lessons from Massachusetts

Posted by on Thursday, Sep 3, 2009

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Consumers’ Experience in Massachusetts: Lessons for National Health Reform

By Carol Pryor and Andrew Cohen
Kaiser Family Foundation
The Access Project
September 2009

In developing its health reform initiative, designers of the Massachusetts system tried to ensure that programs were available to help almost everyone get either insurance coverage or assistance in paying for health care. MassHealth continues to serve traditional populations, such as low-income families with children. Commonwealth Care plans are designed for low-income adults without access to other sources of coverage. People with employer-sponsored coverage are expected to keep that coverage. For higher income people without access to employer-sponsored coverage, non-subsidized Commonwealth Choice plans were created to provide what was considered affordable non-group coverage. And for people who still “fell through the cracks,” the Health Safety Net subsidizes certain costs for uninsured people or people with inadequate insurance.

One issue for consumers is that the protections provided to Commonwealth Care and MassHealth enrollees regarding limits on premium and out-of-pocket health care costs were not extended to all lower and moderate income people. As a result, workers in employer-sponsored coverage, especially those with lower incomes, may end up with insurance premiums and out-of-pocket costs that are unmanageable given their incomes. For moderate income workers without access to employer-sponsored coverage, especially those just over the limits for Commonwealth Care eligibility, the options available to them may be an improvement on what was available prior to health reform but still unaffordable. Although the HSN (Health Safety Net) provides some back up coverage, it does not cover everything and the support it provides may not be adequate for everyone.

These problems in part reflect affordability decisions that set coverage limits based on the state resources available. They may also reflect misconceptions about the costs that people at various income levels are able to absorb. People generally think of financial problems resulting from health care costs as the result of catastrophic bills people incur because of major illness. However, a recent study found that most people who reported problems paying medical bills had relatively modest levels of out-of-pocket spending.

The second issue is that the reformed system is complicated for consumers to navigate, which may lead to gaps in coverage as people move among different types of insurance, both public and private.

The Massachusetts experience shows that to make affordable health care accessible to consumers, it is not sufficient to ensure that programs are available to cover everyone. The quality of the coverage provided and the interrelationships between the programs are also important.


Although there are many reports on the deficiencies of the Massachusetts reforms, this report stresses two serious design flaws that impair affordability and access for low and middle income patients: 1) both public and private plans often fail to provide adequate financial protection even for those with only modest health care needs, and 2) the complex maze of programs and plans are very difficult to navigate with ever changing eligibility for the various programs, leading to frequent unavoidable lapses in coverage or no coverage at all.

Many have recommended that we use the Massachusetts model as the basis for national health reform. Basically, that is what Congress is doing. If you read this full report to see what the authors believe are the lessons for national reform, you will see that they recommend yet another half dozen or so patches to be applied to this system with a failing financing infrastructure – failing because it began as a patched together system in the first place.

Perhaps the most telling of their recommendations: “Even in a reformed health system, a health care safety net will be needed.” They assume that we will always have significant numbers of uninsured and underinsured individuals. Providing everyone adequate health care is not possible, that is unless we adopt an improved Medicare program for everyone. But that isn’t feasible.

That last line reminds me of a comment Andy Rooney once made after noting that so many people were told by a doctor that they had only six months to live and yet they lived on for years or decades longer. He said that we should conduct a national manhunt to find that doctor and arrest him.

Likewise, we need to find the person who is telling everyone that the one health care reform program that would actually work isn’t feasible, and then arrest him. At least the people who went to the doctor Andy Rooney mentioned survived his bad advice. This guy who is blocking reform because of some “feasibility” nonsense is killing people wholesale. We have to stop him.

Paying for community health centers

Posted by on Wednesday, Sep 2, 2009

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Using Primary Care to Bend the Curve: Estimating the Impact of a Health Center Expansion on Health Care Costs

By Leighton Ku, PhD, MPH, Patrick Richard, PhD, Avi Dor, PhD, Ellen Tan, MSc, Peter Shin, PhD, MPH, Sara Rosenbaum, JD
The George Washington University
School of Public Health and Health Services
Geiger Gibson / RCHN Community Health Foundation Research Collaborative
September 1, 2009

This research brief, the third in a series examining the link between national health reform proposals and community health centers, estimates the cost savings that would be realized by making important investments in non-profit health centers as an element of national health reform.

These projected savings to the nation’s health care costs become possible because of the insurance reforms on which they build, supplemented by a direct health center investment. Health insurance coverage expansions, coupled with investments in the nation’s primary health care infrastructure, can spur high quality and sustainable primary health care in medically underserved rural, urban, and suburban communities, and help bend the curve of health care cost growth.

Under the health reform proposals, a large number of people will gain insurance coverage from the health insurance exchanges, which will primarily offer private plans (although the House bill also offers a public plan option). As reported earlier, private insurance plans tend to pay health centers considerably less than the actual costs of providing care at health centers; data from the 2007 Uniform Data System indicate that private insurance underpays by about 43 percent. One option under health reform would be to require plans offering care under the exchange to pay health centers according to the prospective payment system (PPS) used in both Medicaid and Medicare, which comes much closer to paying full costs. In 2007, Medicaid payments were about 15 percent below health centers’ estimated costs.

As has been demonstrated by a number of studies, in addition to this one, health centers are a cost-effective means to furnish primary health care, which can lead to better health and lower health care expenditures. Investments in health centers can serve as a complement to health reform efforts to expand the number of people with health insurance, by ensuring that there is an increased availability of primary health care providers to serve the newly insured, as well as those who remain uninsured. This will be particularly important in medically underserved areas where there is already an insufficient supply of primary care providers. Thus, this is a case in which the national economic value of the investment is further enhanced by its ability to bring better health to the nation’s most underserved communities.


Regardless of what proposals for health care reform are adopted, it is essential that financing be included for non-profit community health centers in underserved rural, urban and suburban communities. Would these centers be better served by health insurance exchanges and their private plans, or by a public financing program?

Although the insurance industry whines that public plans would provide unfair competition because they pay less than private plans, what is the record with community health centers? Unfortunately, Medicaid does underpay – by about 14 percent below the health centers’ estimated costs. But the private plans, which the members of Congress are so diligently protecting, are underpaying by about 43 percent!

There are two financing considerations for community health centers: 1) capital investments to build and expand the facilities, and 2) operating expenses, including payment for health care services.

Capital investments can be authorized through various legislative efforts, including as a component of the current health care reform legislation. But such efforts tend to be sporadic and not always well aligned with need. In contrast, the single payer model separately budgets capital improvements, providing more coordinated capital allocations based on community need. It ensures a perpetual resource that is responsive to fluctuating needs.

For operating expenses, the thousands of private health plans each do whatever they can to avoid paying health care costs. Community health centers serving vulnerable populations do not have the clout to demand that their expenses be met by the private insurers. Medicaid, a chronically underfunded welfare program, comes much closer, but still falls short. In contrast, a single payer system is designed to pay for the legitimate costs of appropriate health care. The community health centers would be served much better by an improved Medicare-like plan that covers everyone.

Community health centers have strong bipartisan support. Now if only we could could get our legislators to agree on adopting an efficient and equitable system of financing the centers…


Posted by on Tuesday, Sep 1, 2009

I walked several blocks from the hospital at lunch time the other day. A basement storefront sign at a hair dresser’s read “walk-ins welcome.” Impulsively I went in.

The young woman made pleasant small talk. I am a clod when it comes to small talk.

I said that yes, the weather seemed suddenly hot instead of cold and rainy. But what was really on my mind was how real health care reform would come to the United States.

“Health care. Oh my god. What is wrong with this country?” she started.

The young woman’s many points precipitated in an expository flurry:

“I thought that maybe with Obama it would be the great change and at last it would happen. But it doesn’t look that way, does it?” she said.

“Do you know that we here pay $600 a month for insurance?” she confided. “600 a month! And it doesn’t have dental. It doesn’t cover the eye doctor. Mental health – maybe 2, 3 visits maximum, no more. And the co-pays! Then the doctor says you need a test – but they deny it! How can an insurance company make the diagnosis or prescribe the treatment?”

She said she was shocked that some friends’ opposed any kind of health reform.

“My friends said, ‘Oh I like my insurance. I don’t want to lose that.’” She rolled her eyes. “So I asked them, ‘what about your insurance do you like? Paying the premium? Is it the co-pays? Or maybe that you have to pay cash to see a dentist? Do you like asking permission to see a specialist or get a test?’”

“‘Ok,’ my friends said, “we hate our insurance company. But we don’t want to pay for someone else to have health care.”

“Oh my god!” her story continued, “We are talking about health care. God forbid something really bad should happen! Everyone should have health care! I mean, in this country they have the idea that health care is a privilege. That some people don’t deserve it? C’mon! No one really believes that. No one. You can go to Europe. France or Italy or England or any country in Europe. If you get sick they will take care of you. They will help you. If I get sick, god forbid, that’s what I will do: Go back home.”

She explained that she paid $600 per month but that was not her real insurance policy. Her real insurance policy was that she could return to Europe if she became seriously ill.

“They will take care of me there, without question. It will not be about the money. What is wrong with this country?”

When the G-20 meet in Pittsburgh this month there will be only one nation represented in which millions of people suffer bankruptcy due to medical debt, only one nation in which health care is deemed a privilege instead of a right, only one nation where more than one sixth of the population lacks access care: the United States of America. The U.S. also sits dead last, 20th out of the G-20, on major health indicators while spending money than all the rest, per person per year, on medical care.

What is wrong with this country?

Single-payer national health insurance is the very least we can do to improve health care in the United States. It will liberate hundreds of billions of dollars now wasted in the private insurance industry, for the good of our health. Everybody in, nobody out.

Having considered four of the major corporate stakeholders in our medical industrial complex — the insurance, drug, and hospital industries as well as business — it is now time to turn our attention to organized medicine. Since physicians order almost all services that are provided within our health care system, they are obviously a key player and interest group in the debate over health care reform.

Organized medicine has a poor track record in terms of reform. Although a universal system of health insurance was considered favorably for a short time by a committee of the American Medical Association (AMA) during Teddy Roosevelt’s abortive attempt to establish such a program during the 1912 to 1917 period, the AMA has played a consistently reactionary role against such reform since then.

During the 1930s the AMA was a much stronger political force than it is today, to the extent that FDR did not include national health insurance as part of his New Deal policies. Three decades later, the AMA fiercely opposed Medicare as socialized medicine and a government takeover. It jumped on the bandwagon only after the American Hospital Association and Blue Cross got together in its support. Its initial opposition, however, soon turned to making best use of the program. Physicians’ fees jumped almost eight percent in the first year after the program was enacted, more than twice the rise in the consumer price index.

Since World War II, organized medicine was fragmented into many smaller specialty and sub-specialty groups. As specialization advanced in following years, the AMA lost much of its political influence. Its membership dropped by 20 percent between 1993 and 2004. Of the approximately 900,000 U. S. physicians today, the AMA’s membership is less than one-quarter, and the “house of medicine” is split into some 180 specialty and sub-specialty organizations and societies.

In the late spring of 2009, President Obama was busy getting the major stakeholders aboard his train for health care reform. We have seen how the insurance, drug and hospital industries made specific pledges in an effort to help pay for reform. While organized medicine made no such specific pledge, it was offered a deal by the White House if it would give its general support to the reform effort.

Once again, it was all about money. Whereas physicians had been facing cutbacks each year in Medicare reimbursement, usually reversed by Congress, the Obama Administration offered $245 billion to physicians as the “doc fix”. At first, the Administration did not want to count this amount as costs of reform, but the CBO soon scored it as the additional costs that they are, coming up with a $239 billion increase in the federal deficit over the next ten years.

So what are the attitudes among these many physician organizations toward the various reform proposals working their way through Congress? True to form, the AMA and most groups are supportive of anything that will increase their  reimbursement while opposing much else in the proposals. Reassured that the “doc fix” would provide more generous Medicare reimbursement (about 20 percent higher than it would have been under the original formula), at least for a time, the AMA and American College of Surgeons (ACS) expressed their support for the center piece of the reform bills — efforts to expand affordable health insurance through employer and individual mandates, subsidies for lower-income people to purchase insurance, and expansion of Medicaid. But for the AMA and most medical organizations, that is where their support melts away. Instead, they vigorously oppose these provisions:

• The public option. In a letter to the Senate Finance Committee, the AMA had this to say: “Creating a public health insurance option for non-disabled individuals under age 65 is not the best way to expand health insurance coverage and lower costs. The introduction of a new public plan threatens to restrict patient choice by driving out private insurers, which currently provide coverage for nearly 70 percent of Americans.”

• An empowered independent Medicare rate-setting commission. The AMA and ACS quickly expressed their opposition when White House budget director Peter Orzag proposed a new federal commission with the authority to set payment policy for physicians, hospitals, and other providers.

• Targeted Medicare reimbursement cuts. In July 2009, the Administration  proposed a plan to cut Medicare payments to cardiologists and oncologists by  more than 10 percent each while increasing reimbursement to family physicians by 8 percent and nurses by 7 percent. This prompted leaders of the American College of Cardiology to warn that “The cuts could have the unintended consequences of rationing care, especially in rural regions with a large number of Medicare patients. In other areas, specialists may decide to pull out of Medicare, or ask patients to make up the difference with higher out-of-pocket payments.”

Organized medicine has become so fragmented that no one group speaks for the profession. In fact, some groups have endorsed major health care reform, even to the point of single-payer national health insurance (NHI). As the second largest medical organization in the country with some 125,000 members, the American College of Physicians (ACP) has endorsed single-payer as one of two major options to reform our system. The American Public Health Association (APHA) has come out in favor of NHI. And of course, Physicians for a National Health Program (PNHP), a growing organization with 16,000 members, has pushed strongly for NHI since it was established in 1989. Meanwhile, many physicians across most specialties have come to see NHI as the only way to provide universal access to affordable health care. A large national survey involving more than 2,200 U. S. physicians in 2008 found that 59 percent support government legislation to establish national health insurance.

In our next post, we will reassess how the “alliance” of these five major stakeholders stack up for or against reform proposals being fought over in Congress.

John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008. With permission of the publisher, Common Courage Press

Buy John Geyman’s Books at: http://www.commoncouragepress.com

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The politics and attitudes of business toward health care reform can be summed up in two words — fragmented and disunity. Unlike the insurance and drug industries, American business is by no means monolithic. There are big differences between the interests of big business, with its many multi-national corporations, and small business, which employs the majority of Americans. And there are also big differences within the large and small business sectors that put many members at odds with each other over health care reform.

Again, the driving factor driving business attitudes toward health care reform is money, and whether any bill in Congress will cost them more or less than they are now paying. Business of any size needs a healthy work force, but the costs of providing employer-sponsored insurance (ESI) have become an unsustainable burden for those employers providing coverage as well as unaffordable for many, if not most small businesses.

While important details are still in flux in Congress, we can expect that the House bill, as represented by H. R. 3200 will introduce an employer mandate requiring employers to offer health coverage to their employees and contribute at least 72.5 percent of the premium cost for single coverage (65 percent for family coverage) or pay 8 percent of payroll into the Health Insurance Exchange Trust Fund. This is the so-called “pay or play” approach. Small business employers with annual payrolls less than $400,000 would see reductions in their payments to the Exchange and would be exempted entirely if their payrolls are less than $250,000. Amendments by the House Energy and Commerce Committee (E & C) would provide hardship exemptions for employers adversely affected by job losses because of this requirement, fully exempted employers with annual payrolls of less than $500,000 and would reduce the payment schedule for those with payrolls from $500,000 to $750,000. Meanwhile, over in the Senate, under pressure from many business interests, the Finance Committee is considering dropping the employer mandate altogether or just requiring employers to pay for those workers receiving government-subsidized coverage.

Big business, as expected, is wary of the costs of the employer mandate and threatened by new requirements likely to be imposed by the government on their coverage plans. Large employers have long been protected by a little-known 1974 law, the Employee Retirement Income and Security Act (ERISA), which exempts all self-funded employee benefit programs from government regulations. Fearing weakening of ERISA protections, a coalition of large corporations, ranging from American Airlines to Xerox, are objecting to new federal “one-size-fits-all” standards after a five-year grace period.

But Wal-Mart, as the world’s largest private sector employer in the county as well as the world (1.4 million employees in the U. S. and 2 million overall), recently threw a bombshell into the large business community by coming out strongly in favor of an employer mandate. This is a surprise turnabout for Sam Walton’s non-union company, with its long history of avoidance of minimum wage laws and its track record of offering high-deductible health insurance that less than one-half of its low-income labor force can afford to buy.

Reacting to Wal-Mart’s endorsement of the employer mandate, the National Retail Federation (the primary lobbyist for the retail industry) strongly urged its members, which includes 1.6 million businesses and employs about one in five working Americans, to oppose Wal-Mart’s action. Within the retail industry, only 45 percent of retailers provide ESI. Wal-Mart’s break from the retail pack was seen by industry observers as a shrewd tactic to gain political advantage over its competitors.

Other big lobby groups that represent the interests of small business, including the National Federation of Independent Business (NFIB) and the U. S. Chamber of Commerce have long been allied with Republicans and lobbied hard against both an employer mandate and a public option. The Chamber of Commerce, for example, sent more than 50,000 letters to Capitol Hill expressing serious concerns with the pending legislation in Congress. Other new, less conservative groups, such as the Main Street Alliance, took the other side in support of the employer mandate. (Small business owners deliver mixed messages to Capitol Hill. Kaiser Daily Health Policy Report, July 9, 2009)Since the current cost to employers of providing ESI is about $5,000 for individuals and $13,000 for family coverage, most small employers cannot afford to provide coverage. They may have a lot to gain from a government-subsidized individual mandate. The non-partisan Congressional Budget Office has recognized that some employers would likely reduce wages to compensate for the costs of providing new health benefits, but has concluded that most non-exempt small businesses would see little adverse impact on employment or profits. But many employers still worry that they may have to pay more for coverage than they do now, and that health care reform may be a job-killer.

Although lobbying efforts of the business community concerning health care reform are energetic and well funded, they are conflicting and incoherent. While many business groups were generally in favor of reform, as more details emerge in bills taking shape in Congress, many fall into internecine warfare. As an example, although an early coalition had been formed in favor of reform, including the National Federation of Independent Business, the Business Roundtable, the Service Employees International Union (SEIU) and the AARP, only the AARP and SEIU supported H. R. 3200 when it was introduced in the House.

How whatever reform bill that is enacted into law, if any, will affect business is anyone’s guess. The financial impact on business will depend on arcane provisions buried in the small print of a 1000-plus page bill, which will be best understood by accountants and financial analysts. These kinds of provisions will make all the difference to employers — how small business is defined (eg., by less than 25 or 50 employees?); whether or not an employer mandate will be enacted?; what new requirements are added to ERISA?; and what will the penalties be for employers not participating in an employer mandate?.

Most important, none of the proposals now being considered by committees in Congress will rein in health care costs, so employers, employees and their families can look forward to continued escalation of health care prices and costs well above the cost of living and median wages. Business groups are starting to look sideways at industries that will clearly profit from health care “reform”, such as the insurance and drug industries, their Alliance “partners”, fully realizing that their revenues will be passed along to them as increased costs and decreased opportunities.

John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008. With permission of the publisher, Common Courage Press

Buy John Geyman’s Books at: http://www.commoncouragepress.com

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