By Larry Levitt, Anthony Damico, and Gary Claxton
Kaiser Family Foundation, Health Insurance and Reform, September 28, 2012

As with any economic policy issue, there has been much discussion of how the Affordable Care Act (ACA) will affect small businesses. But, there’s been very little focus on how the health reform law will affect the owners of those businesses as people.

As our recently released Employer Health Benefits Survey shows, small businesses are much less likely than larger businesses to offer health benefits to their workers. Half of businesses with 3-9 workers and 73% of firms with 10-24 workers provide health insurance. That contrasts with 98% of firms with 200 or more workers that offer health coverage.

The workers in these firms that do not offer coverage must rely on employer-based insurance through a family member, buying insurance in the individual market (assuming they can afford the coverage and do not have a pre-existing health condition), or in many cases going uninsured.

But what about the owners of these small businesses? They’re pretty much in the same boat.

A few striking things emerge from this analysis:

• About one in four small business owners is uninsured, roughly the same as for non-elderly adults generally.

• Just 40% of small business owners get job-based insurance, either from their own job or through a family member. In contrast, almost six in ten non-elderly adults get their insurance through an employer.

• Small business owners rely heavily on the individual insurance market, with 30% of them buying “other private insurance” (the vast majority of which is coverage purchased in the individual market).

This suggests that the biggest effects the ACA will have on small business owners may not be changes in the rules for the small business insurance market, but rather the changes in the individual insurance market: guaranteed access to coverage and no premium surcharges for people with pre-existing health conditions, limits on how much premiums can vary by age, a requirement that all insurers cover a set of “essential” benefits, the creation of health insurance exchanges, the requirement to be insured, and tax credits to make premiums more affordable. In fact, an estimated 60% of small business owners now buying insurance in the individual market have incomes up to 400% of the poverty level and would be eligible for tax credits in exchanges or Medicaid, and 83% of owners who are now uninsured would be eligible for subsidized coverage (split about equally between tax credits and Medicaid).

It may be that we can gain more insight into the implications of policy issues like health reform for small business by focusing less on the businesses themselves and more on the people who own them.

http://healthreform.kff.org/en/notes-on-health-insurance-and-reform/2012/september/how-small-business-owners-get-health-insurance.aspx

Census tables on firm sizes, receipts and payrolls:
http://www.census.gov/econ/smallbus.html

Comment: 

By Don McCanne, MD

In both policy and political debates, small business owners have been separated out for special attention as “job creators” who should not have to pay higher marginal income tax rates on the portion of their incomes over $1 million. This deceptive framing that falsely suggests that they are the primary drivers of our economy masks the fact that most small business owners have very modest incomes and are heavily dependent on the dysfunctional individual insurance market, and one-fourth of them aren’t even insured.

Over three-fourths of firms have no payroll, so these represent self-employed business owners, presumably with very modest incomes on average (see Census link above). Of firms with payrolls, over half have total receipts of less than $100,000 which is used for payrolls, all other business expenses, and the net income of the business owner. Most small business owners do not fall into the prototype “job creators” that the politicians keep talking about.

They have a problem with health insurance. This Kaiser reports shows that many of them will benefit from the improvements in the individual insurance market that are required by the Affordable Care Act. But, as we have shown many times in the past, these plans will still have unaffordable premiums and unaffordable out-of-pocket costs, even with the subsidies to be provided by the Act. Many of them will remain in the ranks of the uninsured, estimated by the CBO to be 30 million people. The Affordable Care Act will not meet the health care needs of far too many small business owners.

Our small business owners deserve what all of us deserve: an affordable health care system that takes care of everyone – an improved Medicare for all.

How Small Business Owners Get Health Insurance

By Larry Levitt, Anthony Damico, and Gary Claxton
Kaiser Family Foundation, Health Insurance and Reform, September 28, 2012
As with any economic policy issue, there has been much discussion of how the Affordable Care Act (ACA) will affect small businesses. But, there’s been very little focus on how the health reform law will affect the owners of those businesses as people.
As our recently released Employer Health Benefits Survey shows, small businesses are much less likely than larger businesses to offer health benefits to their workers. Half of businesses with 3-9 workers and 73% of firms with 10-24 workers provide health insurance. That contrasts with 98% of firms with 200 or more workers that offer health coverage.
The workers in these firms that do not offer coverage must rely on employer-based insurance through a family member, buying insurance in the individual market (assuming they can afford the coverage and do not have a pre-existing health condition), or in many cases going uninsured.
But what about the owners of these small businesses? They’re pretty much in the same boat.
A few striking things emerge from this analysis:
• About one in four small business owners is uninsured, roughly the same as for non-elderly adults generally.
• Just 40% of small business owners get job-based insurance, either from their own job or through a family member. In contrast, almost six in ten non-elderly adults get their insurance through an employer.
• Small business owners rely heavily on the individual insurance market, with 30% of them buying “other private insurance” (the vast majority of which is coverage purchased in the individual market).
This suggests that the biggest effects the ACA will have on small business owners may not be changes in the rules for the small business insurance market, but rather the changes in the individual insurance market: guaranteed access to coverage and no premium surcharges for people with pre-existing health conditions, limits on how much premiums can vary by age, a requirement that all insurers cover a set of “essential” benefits, the creation of health insurance exchanges, the requirement to be insured, and tax credits to make premiums more affordable. In fact, an estimated 60% of small business owners now buying insurance in the individual market have incomes up to 400% of the poverty level and would be eligible for tax credits in exchanges or Medicaid, and 83% of owners who are now uninsured would be eligible for subsidized coverage (split about equally between tax credits and Medicaid).
It may be that we can gain more insight into the implications of policy issues like health reform for small business by focusing less on the businesses themselves and more on the people who own them.
http://healthreform.kff.org/en/notes-on-health-insurance-and-reform/2012/september/how-small-business-owners-get-health-insurance.aspx
Census tables on firm sizes, receipts and payrolls:
http://www.census.gov/econ/smallbus.html

In both policy and political debates, small business owners have been separated out for special attention as “job creators” who should not have to pay higher marginal income tax rates on the portion of their incomes over $1 million. This deceptive framing that falsely suggests that they are the primary drivers of our economy masks the fact that most small business owners have very modest incomes and are heavily dependent on the dysfunctional individual insurance market, and one-fourth of them aren’t even insured.
Over three-fourths of firms have no payroll, so these represent self-employed business owners, presumably with very modest incomes on average (see Census link above). Of firms with payrolls, over half have total receipts of less than $100,000 which is used for payrolls, all other business expenses, and the net income of the business owner. Most small business owners do not fall into the prototype “job creators” that the politicians keep talking about.
They have a problem with health insurance. This Kaiser reports shows that many of them will benefit from the improvements in the individual insurance market that are required by the Affordable Care Act. But, as we have shown many times in the past, these plans will still have unaffordable premiums and unaffordable out-of-pocket costs, even with the subsidies to be provided by the Act. Many of them will remain in the ranks of the uninsured, estimated by the CBO to be 30 million people. The Affordable Care Act will not meet the health care needs of far too many small business owners.
Our small business owners deserve what all of us deserve: an affordable health care system that takes care of everyone – an improved Medicare for all.

Redistribution of Wealth in America

By Uwe E. Reinhardt
The New York Times, September 28, 2012
A recent article in The Washington Post and an audio clip accompanying it on the Web featured an excerpt from a speech in 1998 by Barack Obama, then an Illinois state senator, at Loyola University Chicago.
In that speech he remarked, “I actually believe in redistribution, at least at a certain level, to make sure that everybody’s got a shot.”
The article then quotes Mitt Romney: “I know there are some who believe that if you simply take from some and give to others then we’ll all be better off. It’s known as redistribution. It’s never been a characteristic of America.”
Really?
Aside from hard-core libertarians, who view the sanctity of justly begotten private property as the overarching social value and any form of coerced redistribution as unjust, how many Americans on the left and right of the political spectrum would disagree with Mr. Obama’s very general and cautiously phrased statement?
In fact, I wonder whether even Governor Romney actually disagrees with that general statement, aside from some dispute over “the certain level” at which redistribution takes place. After all, he has promised elderly voters to protect the highly redistributive Medicare program, which would remain highly redistributive, or become more so, under proposals by his running mate, Representative Paul D. Ryan, for restructuring Medicare.
The fact is that redistributive government policy — mainly through benefits-in-kind programs, agricultural policy and the like — has been very much a characteristic of American life, just as it has been in every economically developed nation, albeit at different levels.
At issue between the two political camps in this election season, then, is not redistribution per se, which is as American as apple pie. Rather, at issue is the “certain level” to which that redistribution is to be pushed. An honest and thoughtful debate on that would certainly be useful at this time. It would be useful at any time.
To be respectful to voters, such a debate should proceed at a level concrete enough to allow voters — or at least researchers and news organizations — to estimate fairly precisely how different families would fare under the different visions of that “certain level.”
It is the minimum voters ought to expect from political candidates.
http://economix.blogs.nytimes.com/2012/09/28/redistribution-of-wealth-in-america/

Comment originally published on the New York Times Economix blog.
Even though Mitt Romney derides redistribution, he too actually supports it. “Romneycare” was prompted by an opportunity to use a larger share of federal Medicaid funds if they could design a program that would comply with federal requirements. Although Medicaid is a program with redistribution to the poor, in this instance it was also a redistribution to Massachusetts from the taxpayers of all other states, since Massachusetts would have had to forgo the funds had they not acted.
Romney is now taking pride in that transfer, but at the same time he rejects “Obamacare,” even though it is a program which ensures a similar redistribution as he supported in Massachusetts, but with a greater degree of fairness in the redistribution between states.
We could dismiss this as the silliness typical of electoral politics, except that the politicians carry through with policy once they are in control. That has consequences. We have the most expensive health care system of all nations, yet also one of the most inequitable, partly because of our failure to adopt policies that would ensure the fairest redistribution through an efficient health care financing system.
The most efficient system that eventually would receive the support of the majority of U.S. citizens would be an improved Medicare program that served everyone. That would be the right way to redistribute our wealth to the benefit of our health, if only we citizens had the political wisdom to demand it.

By Anna Wilde Mathews
The Wall Street Journal, September 26, 2012

Two big employers are planning a radical change in the way they provide health benefits to their workers, giving employees a fixed sum of money and allowing them to choose their medical coverage and insurer from an online marketplace.

Sears Holdings Corp. and Darden Restaurants Inc. say the change isn’t designed to make workers pay a higher share of health-coverage costs. Instead they say it is supposed to put more control over health benefits in the hands of employees.

The approach will be closely watched by firms around the U.S. If it eventually takes hold widely, it might parallel the transition from company-provided pensions to 401(k) retirement-savings plans controlled by workers and funded partly by employer contributions. For employees, the concern will be that they could end up more directly exposed to the upward march of health costs.

“It’s a fundamental change…the employer is saying, ‘Here’s a pot of money, go shop,’ ” said Paul Fronstin, director of health research at the Employee Benefit Research Institute, a nonprofit. The worry for employees is that “the money may not be sufficient and it may not keep up with premium inflation.”

Darden did say that employees will pay the same contribution out of their own pockets that they currently do for approximately the same level of coverage. Employees who pick more expensive coverage will pay more from their paychecks to make up the gap. Those who opt for cheaper insurance, which may involve bigger deductibles or more limited networks of doctors and hospitals, will pay less.

“It puts the choice in the employee’s hands to buy up or buy down,” said Danielle Kirgan, a senior vice president at Darden. The owner of chains including Olive Garden and Red Lobster will let its approximately 45,000 full-time employees choose the new coverage in November, to kick in Jan. 1. Darden says that employees with families to cover will be given more money to buy insurance than employees covering just themselves.

The hope is that insurers will compete more vigorously to get workers to sign up, which will lower overall health-care costs. Darden and Sears are both currently self-insured, meaning that the cost of claims each year comes out of company coffers.

Several big benefits consultants and health insurers are betting on the employee-choice model. Major consulting firm Aon Hewitt, a unit of Aon PLC, is behind the insurance exchange that Sears and Darden will use, while rival Towers Watson TW & Co. in May bought Extend Health Inc., an online marketplace used by employers to hook retirees up with Medicare coverage. It plans to expand the marketplace to include active workers buying individual plans, starting in 2014.

“Within the next two or three years, it’s going to be mainstream,” said Ken Goulet, executive vice president at WellPoint Inc. The insurer will roll out a product next year called Anthem Health Marketplace that lets employers offer a variety of its plans to workers, paired with a fixed contribution. Mr. Goulet said it is close to signing up more than 30 midsize and large employers for early next year, including one with more than 50,000 workers.

Exchange operators today say they offer employers more predictable costs, as well as potential savings gleaned from workers’ voluntary choice of skinnier coverage and competition among insurers offering plans on the exchanges.

http://online.wsj.com/article/SB10000872396390444549204578020640220260374.html

Comment: 

By Don McCanne, MD

Many larger employers have said that they do not want to be the first to initiate major structural reforms in their employee health benefit programs – reforms that would bring the employers relief but at a cost to their employees – but that they would quickly follow others out the door. It looks like the door has opened.

This is a very fundamental change in employee health benefit coverage. The Affordable Care Act relies heavily on self-insured large employers maintaining their coverage of a large percentage on America’s workforce, so that the Act can concentrate on lower-income and uninsured individuals. Under the radical change described in this WSJ article, employers will discontinue their self-insured programs and switch to a defined contribution – a specific dollar amount that employees will use to shop for health plans in these employer insurance exchanges.

There has been considerable discussion recently over converting Medicare to a defined contribution – premium support or voucher program – in which the costs to the government would be fixed to some index of inflation, whereas the greater increases in health care costs would be borne by the Medicare beneficiary. Thus health care would become less and less affordable, especially for those with greater health care needs.

With this move by employers, they are putting in place the same perverse defined contribution approach which we have determined would be so destructive to our Medicare program. And, oh yes, the benefits consultants and health insurers are jumping in to draw off even more health care funds in administrative costs – already one of the greatest burdens in our health care system. The executive vice president of WellPoint says, “Within the next two or three years, it’s going to be mainstream.”

Further, as was reported in yesterday’s Quote of the Day, over 90 percent of individuals do not select the Medicare Part D drug plan that would be best in their individual circumstances. It shows that health insurance shoppers really do not know how to shop for health insurance. Obviously comprehensive health plans are much more complex, and it would be virtually impossible for individuals to select the best plan, even with the language of simplified plan descriptions called for in the Affordable Care Act.

In fact, several studies have shown that most individuals select plans based primarily on the lowest net premium, with very little attention paid to plan benefits and cost sharing. The most common strategy for insurers to keep premiums low is to use large deductibles and coinsurance, though they also manipulate benefits and provider networks to reduce costs. Besides the increasing deductibles, coinsurance is particularly a problem since it is a percentage of the charges rather than a dollar copayment which is usually much smaller. Low premium plans tend to set coinsurance rates at very high percentages. As this article states, the savings will be dependent upon “workers’ voluntary choice of skinnier coverage.” It’s all the workers’ fault!

It is likely that the initial defined contributions will be fairly close to the amounts that employers are currently paying for the health benefit programs, so the immediate impact will not be transparent. Only after many employees face bankrupting medical debt – a phenomenon that will increase as the employer contribution buys ever less insurance – will the implications be clear. It is tragic that so many will have to experience financial hardship before we are ready to get serious about fixing our system by enacting an improved Medicare for everyone.

Big Firms Overhaul Health Coverage

By Anna Wilde Mathews
The Wall Street Journal, September 26, 2012
Two big employers are planning a radical change in the way they provide health benefits to their workers, giving employees a fixed sum of money and allowing them to choose their medical coverage and insurer from an online marketplace.
Sears Holdings Corp. and Darden Restaurants Inc. say the change isn’t designed to make workers pay a higher share of health-coverage costs. Instead they say it is supposed to put more control over health benefits in the hands of employees.
The approach will be closely watched by firms around the U.S. If it eventually takes hold widely, it might parallel the transition from company-provided pensions to 401(k) retirement-savings plans controlled by workers and funded partly by employer contributions. For employees, the concern will be that they could end up more directly exposed to the upward march of health costs.
“It’s a fundamental change…the employer is saying, ‘Here’s a pot of money, go shop,’ ” said Paul Fronstin, director of health research at the Employee Benefit Research Institute, a nonprofit. The worry for employees is that “the money may not be sufficient and it may not keep up with premium inflation.”
Darden did say that employees will pay the same contribution out of their own pockets that they currently do for approximately the same level of coverage. Employees who pick more expensive coverage will pay more from their paychecks to make up the gap. Those who opt for cheaper insurance, which may involve bigger deductibles or more limited networks of doctors and hospitals, will pay less.
“It puts the choice in the employee’s hands to buy up or buy down,” said Danielle Kirgan, a senior vice president at Darden. The owner of chains including Olive Garden and Red Lobster will let its approximately 45,000 full-time employees choose the new coverage in November, to kick in Jan. 1. Darden says that employees with families to cover will be given more money to buy insurance than employees covering just themselves.
The hope is that insurers will compete more vigorously to get workers to sign up, which will lower overall health-care costs. Darden and Sears are both currently self-insured, meaning that the cost of claims each year comes out of company coffers.
Several big benefits consultants and health insurers are betting on the employee-choice model. Major consulting firm Aon Hewitt, a unit of Aon PLC, is behind the insurance exchange that Sears and Darden will use, while rival Towers Watson TW & Co. in May bought Extend Health Inc., an online marketplace used by employers to hook retirees up with Medicare coverage. It plans to expand the marketplace to include active workers buying individual plans, starting in 2014.
“Within the next two or three years, it’s going to be mainstream,” said Ken Goulet, executive vice president at WellPoint Inc. The insurer will roll out a product next year called Anthem Health Marketplace that lets employers offer a variety of its plans to workers, paired with a fixed contribution. Mr. Goulet said it is close to signing up more than 30 midsize and large employers for early next year, including one with more than 50,000 workers.
Exchange operators today say they offer employers more predictable costs, as well as potential savings gleaned from workers’ voluntary choice of skinnier coverage and competition among insurers offering plans on the exchanges.
http://online.wsj.com/article/SB10000872396390444549204578020640220260374.html

Many larger employers have said that they do not want to be the first to initiate major structural reforms in their employee health benefit programs – reforms that would bring the employers relief but at a cost to their employees – but that they would quickly follow others out the door. It looks like the door has opened.
This is a very fundamental change in employee health benefit coverage. The Affordable Care Act relies heavily on self-insured large employers maintaining their coverage of a large percentage on America’s workforce, so that the Act can concentrate on lower-income and uninsured individuals. Under the radical change described in this WSJ article, employers will discontinue their self-insured programs and switch to a defined contribution – a specific dollar amount that employees will use to shop for health plans in these employer insurance exchanges.
There has been considerable discussion recently over converting Medicare to a defined contribution – premium support or voucher program – in which the costs to the government would be fixed to some index of inflation, whereas the greater increases in health care costs would be borne by the Medicare beneficiary. Thus health care would become less and less affordable, especially for those with greater health care needs.
With this move by employers, they are putting in place the same perverse defined contribution approach which we have determined would be so destructive to our Medicare program. And, oh yes, the benefits consultants and health insurers are jumping in to draw off even more health care funds in administrative costs – already one of the greatest burdens in our health care system. The executive vice president of WellPoint says, “Within the next two or three years, it’s going to be mainstream.”
Further, as was reported in yesterday’s Quote of the Day, over 90 percent of individuals do not select the Medicare Part D drug plan that would be best in their individual circumstances. It shows that health insurance shoppers really do not know how to shop for health insurance. Obviously comprehensive health plans are much more complex, and it would be virtually impossible for individuals to select the best plan, even with the language of simplified plan descriptions called for in the Affordable Care Act.
In fact, several studies have shown that most individuals select plans based primarily on the lowest net premium, with very little attention paid to plan benefits and cost sharing. The most common strategy for insurers to keep premiums low is to use large deductibles and coinsurance, though they also manipulate benefits and provider networks to reduce costs. Besides the increasing deductibles, coinsurance is particularly a problem since it is a percentage of the charges rather than a dollar copayment which is usually much smaller. Low premium plans tend to set coinsurance rates at very high percentages. As this article states, the savings will be dependent upon “workers’ voluntary choice of skinnier coverage.” It’s all the workers’ fault!
It is likely that the initial defined contributions will be fairly close to the amounts that employers are currently paying for the health benefit programs, so the immediate impact will not be transparent. Only after many employees face bankrupting medical debt – a phenomenon that will increase as the employer contribution buys ever less insurance – will the implications be clear. It is tragic that so many will have to experience financial hardship before we are ready to get serious about fixing our system by enacting an improved Medicare for everyone.

By Florian Heiss, Adam Leive, Daniel McFadden, Joachim Winter
The National Bureau of Economic Researchm June 2012

From the NBER Digest:

Fewer than 10 percent of individuals enroll in what for them would be the most cost-effective plans.

In Plan Selection in Medicare Part D: Evidence from Administrative Data (NBER Working Paper No. 18166), co-authors Florian Heiss, Adam Leive, Daniel McFadden, and Joachim Winter analyze data on medical claims in Medicare Part D drug insurance programs. They find that fewer than 10 percent of individuals enroll in what for them would be the most cost-effective plans. This is apparently because seniors pay more attention to their out-of-pocket premiums than to the overall benefits of the dozens of drug plans available to them. Equally significant, the researchers believe that how seniors decide whether to enroll in Medicare Part D, and what plans they select, is important not only for management of the Part D program, but also is indicative of how consumers behave in real-world decision situations with a complex, ambiguous structure and high stakes. The researchers add that their findings may yield predictions for how seniors will handle plan choices in the new general health insurance exchanges that will implement the Patient Protection and Affordable Care Act of 2010.

http://www.nber.org/digest/oct12/w18166.html

NBER Working Paper No. 18166 (47 pages):
http://www.nber.org/papers/w18166.pdf

Comment:

By Don McCanne, MD

If over 90 percent of purchasers of the Medicare Part D drug plans fail to choose the plans that are best for themselves, then how could we ever expect them to make wise decisions in selecting the best plans from the much more complex plans of the state health insurance exchanges, or, for that matter, from the choice of Medicare Advantage plans or the plan choices to be offered in the proposed premium support (voucher) markets?

The last sentence from “Conclusions” in their paper: “Our results then do not support the proposition that consumers can make and benefit from good choices in private health insurance markets, and direct health care resources to their best use.”

This is really important. Inserting very expensive, profoundly wasteful insurer administrative intermediaries into the system under the guise of choice – choices that cannot be made on a rational basis, choices that are all worse than a single, comprehensive publicly-administered plan would be – is the ultimate of reckless decisions made by the policy community and the politicians that they work for.

Let’s improve Medicare by eliminating the Part D and Medicare Advantage intermediaries and folding an improved version of those benefits into the traditional Medicare program, and then provide it to everyone. It would be cheaper overall and would open up our choices to the choices we really want – that of our health care professionals and institutions. That would be far better than this nonsense of choosing from all the wrong choices.