Chris Farrell’s Straight Story Misses the Mark

June 24, 2009

To Chris Farrell

Chris Farrell is Economics Editor for American Public Media’s Market Place which airs on approximately 330 public radio stations including WAMU in Washington, DC.

You almost had a break through moment.  Then you broke down. Your straight story took a nose dive.

On June 19th, your Straight Story opined on health care reform.  Health care needs to be de-coupled from employment, you stated boldly.  Your words were, “sever the link between your job and your health care.”  You went on to say:

It makes no economic sense to me  that if someone loses their job their family loses their health care insurance  and don’t tell me that COBRA covers it, because COBRA is so expensive very few people who lost their job can pay for it even with the new subsidy.  It makes no sense; it is so inefficient; and it is immoral.

But wait a minute.  You also said that by “severing the link between your job and your health care” you could lose your job and still have health insurance.

How does this work?

Do you really have any idea what health care costs in this country?

COBRA rates are so expensive because they reflect the actual cost of group health insurance.  Unless you are working for a company with a bunch of old sick people, you are unlikely to buy an individual policy with comparable coverage for less than COBRA rates.  The key word here is comparable.

Please don’t misunderstand me.  I think you make one of the most important points in this current health care debate.  Health care needs to be de-coupled from employment.

But payment should be tied to income.  Otherwise you put it out of reach for too many people.  Not just out of reach for the recently unemployed, but also for young people just trying to enter the job market, and for low wage workers in general.

This is not just a health care issue; it is an economic development and work force development issue.  Health care costs distort our competitive economy.

More important, it distorts incentives in the workforce.  How many people with bright creative ideas are reluctant to test them in the market place, because the one market entry barrier they don’t know how to overcome is the cost of health care?

The 18,000 people a day that die for lack of health insurance are not just tragic personal stories, they are tragic economic stories.  They are stories of people who have been denied the opportunity to contribute to the American economy.

Mr. Farrell, I trust your instincts.  But on this one, you need to go back to the drawing board.

Please don’t tell me you are enamored with the idea of competing insurance companies.  On what will you base your decision?  Do they cover lap band surgery, but not cardiac rehab?  They have your primary care doctor in their network, but not your cardiologist.  They have your internist in the network, but they don’t cover cardiac rehab.  Oh, you didn’t notice that language, until after you had your heart attack?

Please Mr. Farrell.  I am not one to criticize the insurance companies.  I work with them every day.  Like you, I fault the connection between health care and employment.  Insurance companies do what those who hire them ask them to do.

We can keep the insurance companies.  I am not sure we should, but they do seem to have a loyal and devoted following in Congress and the White House, even if nowhere else.  But let’s make them play by our rules.  I propose a set of very simple rules. They would apply to both public and private plans.

1.    No medical underwriting, guaranteed issue and guaranteed renewability.
2.    Rates would vary based only on age, location and benefits.
3.    All carriers would pay the same provider the same amount.  Our current system pays providers next to nothing for treating poor people (Medicaid), a bit more for treating old people (Medicare), and a healthy profit for treating employed people.  That makes no sense and should be replaced by a payment system that rewards good outcomes.
4.    There would be very limited set of benefit options, similar to the current Medigap regulations.

I think I just described Medicare, almost.  There’s the solution – Medicare for everyone. And we can even keep the insurance companies.  After all, aren’t they the ones paying Medicare claims now?

On this issue, Mr. Farrell, your story may be straight, but it falls way short of its target.

The COBRA Subsidy – a Taste of the Future?

June 20, 2009

maze2An E-mail came across my desk recently.  It was from one of the many employee benefit-consulting firms and information services that have uncovered my e-mail address and bombard me with information.

This one had some startling advice.

It advised employers to deny all applicants for the COBRA subsidy.

Why, you ask.

Well, it seems that our federal government speaks with forked tongue on whether to make it easier for recently unemployed workers to continue their health insurance.

The American Recovery and Reinvestment Act (ARRA) says that employees who are involuntarily terminated can apply for COBRA continuation coverage.  If they have been involuntarily terminated, they become an Assistance Eligible Individual (AEI to the cognoscente).

An AEI (you are now part of the cognoscente) pays 35% of the normal COBRA premium – a fairly substantial premium subsidy, although for the unemployed, still a hefty burden.

Guidance from the Department of Labor (DOL) appears to give weight to the individual’s determination on whether the termination was “involuntary”.  They  offer this guidance:

If you believe you meet the criteria for the premium reduction, complete the attached “Request for Treatment as an Assistance Eligible Individual” and return it with your completed Election Form.  Under federal law, you have 60 days after the date of this notice to return your completed Election Form and Request for Treatment as an Assistance Eligible Individual.

If you are denied treatment as an “Assistance Eligible Individual” you may have the right to have the denial reviewed by {the Department of Labor (for private sector employees) or the Department of Health and Human Services (for federal, state, and local governmental employees) as appropriate}.  Additionally, certain high-income individuals may have to repay the amount of the premium reduction through an increase in their income taxes.  (Your income for the year would have to be more than $125,000 ($250,000 for married couples) before you would have to repay all or part of the premium reduction.)

Here is what the Employee Benefit News writes:

And, employers should keep in mind that guidance from the Internal Revenue Service has made clear that “involuntary termination” is to be interpreted very broadly, including employees who quit in advance of a threatened layoff, seasonal employees, and even those employees who quit instead of being relocated by their employer.

The rub comes later.

The way that an employer gets the other 65% of the COBRA premium is by claiming the COBRA subsidy as a credit on the quarterly tax withholding reports that an employer files with the IRS – Form 941.

The IRS apparently takes a dim view of employer mistakes.  If for any reason, the plan takes a credit for the COBRA subsidy and it is subsequently determined that the presumed AEI is, in fact not an AEI at all, the employer will be considered delinquent in their quarterly remittance to the IRS.  The employer will be assessed interest and penalties for the shortfall.  Anyone who has had experience with IRS interest and penalties, knows that they can mount very quickly.  Depending how long it takes the IRS to come to the conclusion that the COBRA subsidy credit was taken inaccurately, the interest and penalties could exceed the subsidy credit.

Thus the advice – deny the claim first

The ARRA has an expedited process to appeal COBRA subsidy denials.  If the feds say its OK, then you, the employer, are protected against excessive fines from the IRS.

One can only hope that this consultant advice is playing to employers who want to hear that kind of advice.

So once again, the federal government comes up with a temporary and half baked solution to a permanent problem – health care coverage for the recently unemployed.  It makes it complicated and confusing from the outset with approximately 15 pages of forms and instructions.  Then it throws a few more roadblocks in the way with contradictory motives from another federal agency.

The amazing maze of health care in the United States of America!  What does this portend for health care reform?

Single Payer – Gaining Momentum

June 13, 2009

New York Times columnist, Nicholas Kristof, injected some balance into the health care reform discussion on Thursday.  In a forceful counterpunch to conservative criticisms of the Canadian health care system, he reported the “real life story” story of Diane Tucker, an American living in Canada, who has had significant encounters with health care on both sides of the border.  The one in Canada was positive, the one in the US was not.

in his follow on blog, Mr. Kristof writes that

Canada does have health care problems, including waits and escalating costs, but the U.S. has even worse problems – including that we spend twice as much per capita and get significantly worse results.

What is most refreshing is that it quickly became the number one e-mailed article on the New York Times on-line edition.  Comments to both his column and his blog clearly indicate that, at least among Mr.Kristoff’s readers, a Canadian style health care delivery system would be a significant improvement over our current system.

Mr. Kristoff admits that he would prefer a single payer system, but concedes that is unlikely to happen.  A public plan option is an adequate alternative, he argues.

But Mr. Kristoff reflects a creeping awareness among the media establishment that single payer is “on the table.”  This is to the credit of the single payer activists who demanded to be heard beginning with their protest of President Obama’s health care summit and the Senate Finance Committee hearing in May.

Since then single payer voices are being heard on the streets, in the media and in Congress.

On the Streets

In cities across the country, activists have called for a single payer health care system.  There was a rally in San Francisco, Nancy Pelosi’s back yard.  There were rallies in Montana, Sen Baucus’ state.  There was even a rally in my home town, Harrisburg, PA.

In the Media

The main stream media is only slightly less dismissive of single payer than Congress.  Trudy Lieberman, in the Columbia Journalism Review, reminds us just how rare Mr. Krisoff’s voice is.   Ironically the most exposure to single payer seems to be in the home state of Senator Max Baucus.  Bill Moyers, true to form, showed the media how to do it on the Bill Moyers Journal on NPR.  Single payer advocates did appear on the Ed Schultz Show, not main stream yet.  And locally, single payer has had air time on Baltimore public radio and somthing approaching an objective discussion on the Dianne Rehm show on WMAU in Washington DC.  But the media has not shown any great understanding of the issue.

In Congress

Single Payer got a chance to appear before the Senate Health Education and Labor Committee on June 10 and June 11.  Kevin Zeese, an activists with Maryland Health Care Now, reported on the site, Prosperity Agenda.

Yesterday, as Senator Tom Harkin (D-IO) left the health care hearing room he leaned over to me and said:

“I used to sell insurance. The basic rule is the larger the pool the less expensive the health care. Today we have 1,300 separate pools – separate health care plans – and that is why health care is so expensive; 700 pools would be more efficient and less expensive and one pool would be the least expensive. That’s why single payer is the answer.”

Nothing like common sense.

But, common sense was not on display in the Senate yesterday. Instead, the senate is seeking a path to the goal of universal coverage by protecting the least efficient model – the for-profit insurance industry that through waste, fraud, abuse and bureaucracy eats up 31% the cost of health care.

Back to the Streets, the Media and Congress

All of this may come together on Thursday, June 25th when single payer advocates from across the country will converge in Washington DC, 11:30 in Upper Senate Park, to rally and swarm their congressional representatives.

Hopefully the media will notice.

Taxing Health Care – Tiresome but Persistent

June 6, 2009

The old saw, “The devil is in the details” does not seem to apply in the discussion on taxing health care benefits.  While there appears to be a certain momentum behind this idea, the details of the consequences (other than raising revenue) are barely discussed.

mad_hatterJonathan Cohn, a writer I generally admire, gives high praise to a new report by the Center for Budget Priorities, arguing that this report should prompt people like me to rethink our opposition to the idea.

So perhaps their latest message will get through to liberals and liberally inclined interest groups that oppose tinkering with the tax exclusion for health benefits. The title of their new report says it all: “Limiting the Tax Exclusion for Employer-Sponsored Insurance Can Help Pay for Health Reform: Universal Coverage May Be Out of Reach Otherwise.”

I recently detailed  the devils that I was concerned about.  The CBP attempts to address some of them.  So let’s take a closer look at their arguments, using the reports own headings.

The Exclusion is the nation’s costliest tax subsidy.

Duh?  Health care is one of the fastest growing expense items in the federal budget.  It is also one of the fastest growing cost items for private business.  Which costs less, the loss of tax revenue or paying the full freight for the health care now provided by the private sector?

Am I missing something?  A tax subsidy is how the federal government provides incentives to the private sector to do what it doesn’t want to do itself.  The real issue is this.  Does the private sector do a good job of providing health care to the public?  If yes, continue the subsidy.  If no discontinue the subsidy and let the government take over that responsibility.  But don’t take away the tax subsidy and expect the private sector to continue their responsibility for providing health care.  That’s a bit like getting off the toilet, and then, well you get my drift.

The exclusion is poorly targeted. It increases health care spending

Yes, it is poorly targeted.  Go back to item one.

The point that it increases health care spending is an argument that appeals to some.  But to support it you would have to show that the rich with health insurance use more health care than the poor with health insurance.  And also show that somehow that difference is explained mostly by the preferential tax treatment.  I don’t see that argued at all; let alone successfully.

Exclusion Can Be Reformed Without Eroding Employer-Sponsored Insurance

Very doubtful.  But this is a topic all by itself.  But what about eroding the income of middle class tax payers?   Where is that discussion? After all, where is this pot of money coming from?

Our experience and the experience of others with the taxation of domestic partner health benefits tells us that taxing the benefits of just one person, not the family, of a middle class ($30k – $50k) wage earner reduces take home pay by $30 to $50 dollars per week.  Let me repeat that.  Taxing health care benefits of middle class tax payers will reduce take home pay by at least $30 to $50 PER WEEK.

Some writers dismiss this argument without even describing it.  Just an off hand comment that “labor hates it.”  It seems no one else is sticking up for the middle class on this point.

Structuring a limit on tax exclusion

This section goes part way to addressing some of the arguments I raised in my previous post.  But the CPB arguments step through the looking glass, as do their arguments about eroding employer sponsored insurance, with this statement:

If properly designed, a limit on the tax exclusion could be administered equitably and without large compliance burdens for employers or workers.

Perhaps I have just a bit too much experience with the phrase “without large compliance burdens.”  Or maybe I just feel that our health care system spends far too much on administrative expenses.  We should find ways to spend less, not dismissing ever mounting marginal increases in administrative “compliance burdens” that have absolutely nothing to do with the delivery of health care.

Charley James of the LA Progressive offers the best response.

The Kennedy plan is relatively simple; the emerging Baucus plan sounds as if it is being written by Jackie Mason.

First, you take health plans that are tax free now and you make some of them taxable, but not all of it, and not for everybody. But who? We don’t know who! Then, a new tax deduction puts money in the pocket of the people who we don’t know who they are so they can take it out again and buy what they had for free in the first place. Next, the money the states use to pay for medical care for people who don’t have health insurance could be used to pay for people who don’t have health insurance which means they can’t get good health care. But we don’t know who they are, either. Well, maybe we know, but we’re not sure, so we won’t say. Then, three million people who don’t have any health insurance will have money from the tax deduction they didn’t want, to buy health insurance on their own if they have enough income to take advantage of a $15,000 deduction and can actually can buy a policy that provides coverage. There might be six people in America who can do this. So we’re taking money from here, and moving it over there, and then back to here, which where it was in the first place and now let’s have some tuna because I’m exhausted.

Taxing health care benefits is a bad solution on top of a bad idea – employer sponsored health care.  Give the money currently spent on health care by employers to the employees, then tax it.  Then let the governement provide health care.

Employer Health Plans – Is there a Future?

May 30, 2009

Is there a future for employer based health insurance?

This is not a rhetorical question.

This is not an anxious question from an employee benefits professional.

This is not wishful thinking by a single payer advocate.

In the Call to Action by the Senate Finance Committee,  Chairman Senator Max Baucus (D-MT) calls for “Strengthening the Employer-based system.  We must ensure the continued viability of the employer-based system – the principal source of health coverage for most Americans.”

Fine words.  But the weak point in the statement is the phrase “continued viability”.  It is fair to ask whether the current system is viable and whether it can continue.

Both the percentage and the number of people covered by employer provided health insurance and the percentage of firms offering health insurance has declined over the last two decades. 

There are fundamental contradictions in the commitment of conservatives and employer groups to employer based health care plan.  And the two are not entirely in sync.

Conservatives for ideological reasons cling to things “private” and abhor government intervention, even when it makes markets work better.

Employers are a bit more practical in their approach.  But for the most part don’t seem able to see their way out of the box they are in.  They may have an ideological aversion to government action, or they may just not be willing to give up their current way of doing things.

But some employers are willing to question the current system.  Jonathan Weber, CEO of New West, challenges the assumption that employers should have a responsibility to pay for the health care of their employees.

He writes:

Why is this my responsibility? 

Quality health care is a societal good, so why should it be the obligation of private-sector entities to provide it?

 A recent Reuters article by Andy Sullivan describes how “job lock” inhibits entrepreneurs, an argument also made here.  He quotes Todd Stottlemeyer, former CEO of the National Federation of Independent Businesses (NFIB).

 “There are lots of factors that go into why somebody starts a business or doesn’t start a business: Do I have a good idea, do I have capital, do I have risk tolerance?,” said Stottlemeyer, now an executive at a hospital chain. “Being able to get health insurance … should not be one of those determinant factors.”

But even if they acknowledge the box they find themselves in, employers are schizophrenic about their way out of the box.  Few employers would go as far as Jonathan Weber.

A 2007 article in USA Today by Julie Appleby observed discussions in Congress at that time to de-couple health insurance from employment.

The measures can be lumped into differing philosophies about the direction the USA should move: either toward a health insurance market in which people buy policies on their own while armed with tax credits or deductions, or one in which people are able to buy insurance through group-like “exchanges,” with some government oversight. Some of the plans likely would encourage employers to drop coverage because the employers would lose all or part of their ability to write off insurance as a business expense.

Noticeably absent is a public plan alternative, either the single payer proposal or the public plan option.

Employers also speak by their actions.  Two very clear trends indicate what employers really think about their obligation to provide for the health care of their employees.  The first is cost shifting to employees in the form of increased out of pocket expenses at point of service and increased deductions from pay for health care premiums.

The second trend is toward something resembling a defined contribution approach to health care financing.  This is characterized by High Deductible Health Plans and Health Savings Account, a favorite concept of conservatives in the last administration.  The theory behind the practice is that by giving employees cash instead of benefits, they will become wiser shoppers for health care services and thus help to constrain health cost inflation.

What is the conclusion?

Employers don’t want the responsibility for the health care of their employees.  They occasionally admit this.  They will concede that it is not good for small and new businesses.  Their practices clearly tell the true tale.

They just won’t admit it.  The just can’t get past old practices and ideological constraints.

But employers need to let go.  Health care needs to be de-coupled from employment.

Julie Appleby quotes Sara Horowitz, founder and director of the Freelancers Union whose members are independent workers in finance, non-profits, domestic services, publishing, advertising and health care – says something needs to change, because the working world has.

“The nature of work is changing: Jobs are much more short-term and flexible,” Horowitz says.

Employers need to catch up.  Maybe Congress will catch on.

The Baucus Plan: Reform or Bailout?

May 23, 2009

On Friday, I received an e-mail from someone who had just visited with several Capitol Hill staffers on health care reform. He was discouraged with the general response that health care reform was done – there was no room for new ideas.

He was promoting EMBRACE, the plan offered by the Healthcare Professionals for Healthcare Reform

Even more discouraging was the perception that Congress had a busy agenda and they were just eager to get this issue behind them.  In addition, he was disheartened by the lack of provider unity on this topic.

He made the comment in his e-mail, “This isn’t health care reform, it’s insurance reform.”

I beg to differ. It is not insurance reform; it is an insurance industry bailout. It is a status quo bailout. Read the rest of this entry »

Tax My Benefits? The Devil in the Details

May 16, 2009

Taxing everyone’s health care benefits seems to be a back in vogue.  But it is also a reality for some right now.  One of those situations can help us understand the real implications of taxing health care benefits.

Small Businesses

Many small businesses are acutely aware of the inequity in the tax code when it comes to health care.  A small business that files as an individual entrepreneur, files an individual return.  Like you and me, he or she must meet the 7% test.  Only health care costs that exceed 7% of adjusted gross income are exempt from taxation.  For most people with decent employer sponsored health care, that’s a tough threshold to meet.

For small businesses, it means that the they are paying taxes on the 7% of their income that they pay for health care.

But there is another even more relevant example of wage earners who pay taxes on their benefits. Read the rest of this entry »