Employment and Insurance: What’s the Connection?
Uwe Reinhardt’s recent commentary on CNN.com highlights the economic dangers that threaten the American middle class if efforts to reform the health care system fail. Reinhardt, a political economy professor at Princeton University, made some very interesting points about the relationship between health insurance and employment in our country.
Reinhardt warns that without health care reform “Millions [of middle class Americans] will lose their employment-based insurance… and millions will find themselves inexorably priced out of health care as we know it.” He also points out that companies view health insurance as part of an employee’s compensation package- therefore when costs increase, this financial burden falls on the individual. He’s right. Without reform, many more Americans will find themselves unable to afford health insurance because of the rising costs of health care.
Case in point, a story published Tuesday in The News & Observer pointed out that health insurance premiums in North Carolina have risen five times faster than salaries over the past decade. With unemployment high, it leads to the question – why is health insurance tied to employment in the first place? Part of the answer is that employment-based insurance in our country has long been based more in tradition than rationality. It was originally a perk- an enticement as part of a larger benefits package that employers offer to attract and retain high quality employees. Now, health insurance premiums are beyond the reach that many individuals can afford by themselves, making employer sponsored group plans one logical gateway to coverage.
But as the price of health coverage continues to climb it is tougher for businesses – both large and small to continue to foot these enormous costs. This is especially true for small businesses that currently are not offered price breaks due to economies of scale. And because of the growing number of uninsured Americans, cost shifting inevitably occurs. Additional health care costs are passed on to whoever is paying the bills – be that businesses or taxpayers. Businesses are clearly paying more than their fair share, and there is a lack of clear public policy to correct it. In effect, this is taxation without representation. Put simply: we taxpayers, businesses and individuals are paying to care for the uninsured anyway, and we’re doing it in the most expensive way possible.
As we’ve heard in town hall forums in Raleigh and across the country, small business owners fear that they won’t be able to compete with large corporations if they’re required to provide insurance to all employees. I am engaged in a number of active leadership roles in the community beyond health care. In those settings, I have been hearing these concerns from business leaders for many years now. And I would have the same fears if I were a small business person; I would want someone to assure me that we would all be sharing in the costs. Equalizing costs of health coverage will ensure that businesses both large and small can be competitive.
I don’t disagree that employment is the best place to cover the largest number of Americans, but this can only continue to be possible if there is a balanced distribution of the costs of the uninsured across the entire national economy. It’s not a matter of having a view that we’re responsible for everybody, but the reality is that the costs of health care are so high, no individual sector can afford to pay for it alone. I am always in favor of private sector solutions. But, if and when the private sector fails to find a solution or refuses to, and people continue to fall through the gaps, there is a time and place when public policy has to be brought to bear to define a solution. Public policy shouldn’t be a hammer, but should in fact be a tool that helps mend the breaks in the safety net to cover all Americans. On any given day any one of us could find our self in a situation without coverage. This is something that is bigger than us as individuals, and we must find a public/private sector approach that realistically addresses access, cost and quality of care for all.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
This is an anecdotal example, but one that I don’t believe to be unique regarding the reasons for an ever increasing health care cost. In the 90’s I worked for a small optometrist’s office.
In the early 90’s very few people had comprehensive coverage for vision exams and few insurance programs offered a discount. A comprehensive eye exam we were able to charge for $45 – competitive for the area.
Through the 90’s and into 2000’s, the situation changed dramatically. Where before we had 1 patient in a day with vision coverage, today the office might get 1 in a day without. Is this a good thing, since we’re pushing for universal coverage? What were the results?
The doctor receives roughly $25 (give or take, depending on the insurance), between copayments and reimbursement. Where the doctor could reasonably see 20 patients in a day and net $900, give or take, the same 20 patients today would net roughly $500. So, what are the options available to the doctor? How does she make up $400 every single day to stay in business?
In the first place, prices have steadily increased. Not for the insured, but for the uninsured. What was $45 for everyone is $70 for the uninsured now. But that hasn’t been enough, and the doctor is forced now to see more patients every day (decreasing quality of care for each), or eliminate overhead by offering fewer services. Dilation reversal drops, for example, would require a medical refrigerator and wouldn’t increase revenue, only costs. So, they’re not offered.
As a small office, the doctor can’t negotiate successfully with the insurance companies. Her choices are to accept what they mandate to her for reimbursement, or attempt to reopen office as a no-insurance provider.
So, as a direct result of insurance: quality of care goes down, costs go up.
Now, let’s set aside catastrophic insurance for a moment. That is, insurance in case you get a brain tumor requiring major surgery. Let’s just look at the routine medical office visit end of it for a moment.
Are patients paying more than the $15 the doctor is out in insurance costs? Between what’s taken out of their paycheck and what their employer pays – absolutely, and by a lot. So who wins there? It’s not the doctor, it’s certainly not the patient…
Be it vision exams, physicals, asthma checks, a colonoscopy, a dental cleaning… the routine exams we get every year (or should be getting), how much more do we pay for these services in insurance coverage than we actually spend in a free market? Just look at the profit margins insurance companies report.
Would these be catastrophic services to go without, over a short term, if you lose your job or in the event of a death of a spouse? Of course not. So you wear your glasses for an extra year, or you miss a teeth cleaning. It’s not ideal, but you’ll live. And, in most cases, doctors seeing a reliable patient fall on hard times would operate much the way they did in the old days: offering a payment plan, bartering of services, or doing it for free outright.
Is this situation so difficult to imagine? And it would accomplish a number of this: 1) decrease the cost of routine medical treatments and screenings – vastly increasing availability, 2) increase the quality of care, 3) push third parties out of the way of the doctor and the patient (third parties being: government and insurance bureaucrats).
Now, to get into your post, Dr. Atkinson. Employers are the current hot spot to get health insurance. The reasons are straight forward: the government doesn’t tax insurance dollars from an employer, and large corporations are able to get scaled pricing for coverage.
Getting insurance outside of an employer is not tax deductible. Workers who are not offered health insurance are forced to pay more both as a result of the taxation and because they cannot get scale pricing as you point out.
What would happen now if we woke up tomorrow and routine medical treatment and exams weren’t covered by any insurance? If insurance only covered major medical? Doctor offices would have to adjust, and very quickly. They would have to slash the prices in order to get any business at all. Let’s face it, if the patient were paying for their physical, very few would drop $230 on it every year. So, in order to attract business, the cost would have to drop.
Would this be bad for doctors? Not at all. Decreasing the price doesn’t decrease their revenue – remember, doctors only collect what the insurance companies mandate now, a fraction of the listed price. I could charge a billion dollars for a physical, it wouldn’t change what the insurance company sends me and what I’m permitted to collect for a copayment. The working poor, who are no longer supplementing the insured, are able to get their care at a far lower cost – the same as everyone else.
It’s competition, real competition. Where doctors are working to charge less than the next and provide better care, all to attract consumers.
In the reform debate in Washington currently, this solution is unheard of. The only solution is to increase third party payment. Why? Why don’t we investigate the elimination of insurance for routine medical treatment? Why don’t we investigate getting government out of the way?
When you can answer that, you’ll understand that the motive behind health care reform has very little to do with increasing coverage.
We can see the fallout of government control of health care all over the world. Government control of the economy in general. Forget the teams. Forget democrat and republican, liberal and conservative… just use some reason. Forget even the constitutional problems with what they’re trying to do. Forget the argument about a loss of freedom.
Just consider what has brought wide spread availability of goods and services in general in any nation anywhere and anytime in the world. Is it government that provides it? As a practical matter?
Was it the Soviets and their “society of equals” that brought widespread availability of goods and services? You could ask the millions who starved in the streets, but it’s a little late now. Was it in East or West Berlin that the economy thrived following World War II?
That’s an extreme example, I realize, but it is the practical results of government control over the economy. Meanwhile, where was America during those years? Was the economy contracting to the point of revolution and succession?
Sure, our economy dips from time to time – most often from government involvement as much as any other reason. But it’s not because we’re some chosen people that made us the lone superpower in the world. It wasn’t something in the water. And it hasn’t ever been the exploitation of others (granted, it’s happened, but that’s never been the driving force behind our success). Liberty enabled our success.
How do we get to the point I was describing above? Health care reform – on many levels. Firstly, stop offering a tax break for employer based insurance. Second, and mainly at the state level, stop dictating what services must be included in every insurance plan and allow individuals to negotiate for major medical coverage with insurance companies. Third, and this gets scary… stop supporting the insurance companies you condemn and hate. Stop buying health insurance for routine medical coverage.
With a little courage, we could achieve our common goals of wider availability, increased quality of care and decreased costs. And we can do it by expanding our freedom, not retracting it. But it won’t come from what’s in Washington today.
Jeff, while I agree with some of your thoughts, I think they are rather idealistic. You state, ‘Now, let’s set aside catastrophic insurance for a moment. That is, insurance in case you get a brain tumor requiring major surgery. Let’s just look at the routine medical office visit end of it for a moment.’ Let’s put that aside for a moment, I agree with you completely. Matter of fact, while researching creative ways to cut healthcare costs I found out about a physician in Apex who has done just that, http://www.aafp.org/fpm/20070600/19brea.html . He keeps is overhead costs low because he doesn’t have to hire personnel to deal with insurance claims. He receives discounted prices with diagnostic testing companies because they are ensured of payment and do not have to wait for insurance companies to process claims. He is permitted to spend quality time with each of his patients, because he doesn’t need to fill a large quota each day to sustain his business. He has expanded over the years as his patient base grows and is able to provide greater care to the community. If this model or something similar could/would be adopted throughout the nation it could make basic healthcare treatment affordable while sending a wake-up call to insurance companies.
How would you tackle catastrophic insurance issues? While basic treatment is costly, to think that none of us will ever have to face catastrophic medical issues throughout our lives is unrealistic. With those medical issues come the hospital stays, the specialists, the exorbitant costs of tests, and the outrageously priced medications and procedures. Who will pay for this type of insurance, will it be the consumer, employers, or government? I am one of the lucky ones who have excellent health insurance. Four years ago, my fit and healthy husband (who previously had never needed anything but basic health treatment) was diagnosed with leukemia. The diagnosis did not come quickly, his family practitioner who is an excellent physician, did lab work, diagnostic testing, and then ordered more of each before we gave up and went to the emergency room because we were so concerned. A compassionate and concerned ER physician broke the news to us. Then he endured the hospital stays, treatments, doctors’ visits, prescriptions, and the life changes. Throughout it he was unable to work, and we were forced, as upper middle class adults in our 30’s, to move in with family members during this time. Trying to make even the copayments and cover the other costs involved with the illness was challenging at best. However, without insurance we not only would have lost everything but would not have had an opportunity to build again. My husband is doing well and working again, we have rebuilt, and our family is financially stable once more. Without the insurance how would families be able to pick up the pieces and move on with life? No matter whether the costs are regulated or not, there are still costs, and for some illnesses those costs are still extraordinary.
I’ve read your posts before and haven’t always agreed with what you have stated. However, I can tell you are extremely passionate in your views and a great debater. This is the first post that I felt like you gave real solutions to consider when you’ve voiced your disagreement with current recommendations. While your vision would take care of basic treatment, what about the other issues surrounding health care costs?
-Patty
As we look at catastrophic health insurance, let’s assume a few things for the sake of the example.
First, we’ll assume that costs for treatment don’t go down even though they will. By example, lab tests would become less expensive in catastrophic care just as they do for routine care, but let’s assume they don’t.
Furthermore, let’s assume the medicare and medicaid remain in place for people over the age of 65 as well as the rest who pull it for disability / poverty / etc…
We’ll assume that everyone who buys complete medical insurance today will continue to purchase catastrophic care going forward.
Lastly, we’ll assume we intend these changes only for American citizens.
So, what do those standards leave us? Roughly 15 million Americans, earning $25,000 or less every year, who do not qualify for government aid. They’re the working poor, age day 1 to 65 years old who are not disabled. They are the very group that insurance companies like: they’re comparatively low risk, and thus a stable and safe investment.
Today, right now, catastrophic health insurance costs about $3,000 per year.
Assuming that the costs after eliminating routine medical insurance don’t go down, even though they will, covering those 15 million with a $3,000 health insurance voucher would cost the American tax payer 45 billion.
The current plan is estimated to cost 1 trillion over 10 years, even though it doesn’t go into effect for years.
So, at a top rate of 450 billion over 10 years, going into effect today, we’ve done a number of things:
1) We’ve lowered the cost of health care by increasing competition for routine medical coverage.
2) By reducing the cost, we’ve widely expanded availability of routine medical coverage.
3) We’ve insured every American with catastrophic medical care unless they make more than $25,000 a year and choose not to purchase it themselves.
4) We’ve increased government control over health care not at all. Even with the catastrophic care, I said voucher – not public option. The private industry – not government – would still have to compete for those health care dollars.
5) By eliminating tax benefits for employer based insurance, and by adding 15 million non-employer based consumers to the market, we’ve greatly increased competition among the insurance companies themselves. We’ve increased public demand and responsibility. If you want to stay with your catastrophic care after switching jobs, it’s not an issue, because you can buy your insurance as easily as your company.
In fact, while not mandated by the Jeff Plan(tm) public education could be used to decrease demand for catastrophic care through employers. There would be no benefit to it; even scaled pricing would have to give through public demand and competition.
This would allow employers to increase employee compensation in real dollars, since they’re not paying for health insurance any longer; decrease the cost of their goods and services; hire more employees; etc. All of which helps generate greater overall wealth and boost the economy.
And imagine that, all while bureaucrats get out of our way. Who’d have thunk it?
Is this plan perfect? By no means. It does not address the looming bankruptcy of medicare / medicaid, though I believe it would help these programs survive by decreasing costs. But then I don’t pretend to have the fix all answer, if I did, I’d be a politician.
But the plans we’re being offered from Washington today are ripe with the same problems and more. Worst of all, an ever decreasing role of personal responsibility and accountability. An ever increasing dependency on government. A greater looting of the productive sectors of our population for the sake of the unproductive, in government programs that are never efficient, cost effective, achieving of ultimate goals or without heavy unintended consequences.
Is mine the best option in the wide world? Probably not, it’s what I came up with from behind this little screen in a couple hours with limited details research. Just imagine how much better the plan could be with the resources of a congressman or senator who was interested in health care reform for the sake of the patients – not the sake of their own power.
By the way, I don’t link to my resources – not because they’re not out there – but because I really want anyone who’s interested in this to not take my word for it. There’s no reason to. I don’t even give you my full name. Who is this heartless jerk? I hope, if nothing else, that it gets people looking up as much information as possible. Inform yourselves, and see where you land. My bet is, most of us would end up against the current reform measures.
We need reform, but not what’s being offered.
As for as the idealistic bit goes… really? I thought my views were based on historical evidence. It might be idealistic to believe that we can get there again, when an ever increasing portion of the population is moving from the producing class to the looting class, but that doesn’t make the goal idealistic; it just means that it’ll take time to get there.
On the other hand, Obama, Pelosi, Reid, Frank, et al… are promising that government can cure all our ails. Reminds me of those new Prius commercials, the ones where the car seems to be powered by hopes and dreams, sunshine and rainbows. Now there’s idealism.
But the first step isn’t fighting the same battle we’ve been fighting for the past 80 years. That is, arguing which parts of our lives the government should move in on. We have to start the discussion of which parts of our lives the government should move out of.
Can we pay for the moral imperative of providing health care for all
Americans?
Answer this question, please: With a GDP of 14.5 Trillion, twice that of China, 3 times that of the nearest western European country …..and they, Germany, France, England, Netherlands, DenMark and Sweden, include Japan – How is it that they can provide,and have provided universal health care for all of their countrymen; and the United States cannot?
The point is, as complex as we have made this initiative, with the billions of dollars that the insurance industry is, has been spending to confuse and defeat the issue – this country can provide
the same coverage. I would like to see a 60-40 Senate vote. Get it done Mr. President. America will not have another chance like this one in many, many years to come. It does take courage.
Ken Humphrey, Morehead City, NC, former resident of Raleigh, 21 years.
“Can we pay for the moral imperative of providing health care for all Americans?”
In the first place, I deny your premise of health care as a “moral imperative.”
Health care requires the labor of many, many other people. You claim a “moral imperative” over their labor, their education. You deny them the free will to enter into contracts as they would see fit, and demand they provide their labor for whomever you choose, in a manner you see fit, for a compensation you deem appropriate.
I regard this premise as an immoral assertion, as bad as any we’ve heard through our national history. It seems to ring of the same “moral justifications” we heard to justify other forms of slavery.
“Answer this question, please: With a GDP of 14.5 Trillion, twice that of China, 3 times that of the nearest western European country …..and they, Germany, France, England, Netherlands, DenMark and Sweden, include Japan – How is it that they can provide,and have provided universal health care for all of their countrymen; and the United States cannot?”
Cannot? I don’t think many have suggested that it would be impossible to model our system after another socialized medical state. But this is akin to hollering “Yes We Can!” before asking if we should.
Compare the United States and England, since you bring it up: the US has a higher survival rate in major diseases. The United States doesn’t have dentists that pull teeth rather than provide crowns and bridges. The United States doesn’t tell women to go to birthing pools instead of the hospital. And still, the United States produces the vast majority of health care technology worldwide.
These are not separate issues.
How do you propose we save money, specifically, given that the president has outright said he does not support tort reform? You won’t be able to cut down on unnecessary testing. Save money by screening everyone for curable diseases? I covered this in a previous post: detecting a disease early in one patient does not cover the costs associated with screening every other patient who will never get sick. That’s from the CBO. Cutting out waste involved with Medicare and Medicaid? If this was a specific goal, why did Obama vote against such measures as a senator?
What you suggest in comparing to European socialized systems is single payer. But you fail to address the major flaws in their programs as compared to the United States. You don’t address any advantage at all, except that it covers everyone, all be it badly.
One of the most often heard arguments for the reform they propose is that America spends more (as a percentage of GDP) on heath care than any other nation. What they fail to do is explain why this is a bad thing. Is it possible that this spending is a reason why our survival rates for major diseases is higher? What are they really suggesting? Cutting spending – by mandate – so people can die sooner, as they do in your single payer systems? Change, maybe; but lacking in the hope department there.
Let’s take a moment and compare your single payer system to another public program: education.
So different? Not as much as you might think. Here we demand, as many politicians have, that every child attend a school of some sort. The vast majority land in public education since relatively few taxpayers can afford to pay for public education and private at the same time. Just as most taxpayers won’t be able to afford paying for a single payer medical program as well as private care.
Illegal immigrants are included in public schools because, we’re told, it would be unfair not to educate them for their parent’s crimes. Meanwhile, you have English teachers forced to offer Spanish language reading material and tests. That makes sense. Wouldn’t this same argument be used to justify health care for illegals? In fact, most bills in congress mandate it.
Are our public schools effective? No. Not in the least. Compared to most modernized nations, we rate pretty darn poorly. Private schools offer a better education at less cost per student, while public schools lower their expectations to the lowest common denominator – as every public program must. Just a few years ago, Wake County had a percentage of administrators versus teachers of 51% to 49%. It could be better or worse now, I haven’t bothered to look. But talk about bureaucratic waste. And that’s not even to begin with the farce that the Wake County School Board subjects students and parents to on a daily basis.
Would things be so different in a single payer medical service, such as you compare our current system to? Based on what evidence? Blind faith?
What about the Cash for Clunkers program? That was a great example of government inaction, wasn’t it? So fantastic was the bureaucratic mess that dealers refused to participate until the program was turned off just today, with the vast majority of the program’s reimbursement left tangled in the mess and unpaid. Is this form of forcing dealerships into long waiting lines, to collect borrowed money, the best the government can come up with for boosting the economy? Yep!
Obama promises to increase efficiency over the private sector in health care. Can we point to a single government agency that provides a service more effectively and cost efficiently than the private sector?
“But, but… yes we can! Hope and change! Hope and change!”
In the interest of full disclosure, Ken Humphrey happens to be the chair of the North Carolina Democrat Party, Carteret County.
Google it.
I’m not saying he’s wrong because of it, I just find it interesting that he attacks the insurance companies as being against this reform legislation but fails to mention his standing in the Democrat party.
I mention it to stress again: don’t take my word, or Ken’s, or Obama’s, or anyone else for that matter. It’s an important issue, do your research, base your decisions on the facts and rational thinking, not platitudes.