Transcript Reasons for and How To Help Employers Go Gently

Health Reform Transitions:
Reasons for and How To Help
Employers Go Gently
Into That Good Night
Len M. Nichols, Ph.D.
Director, Health Policy Program
New America Foundation
Alliance for Health Reform Briefing
Washington, DC
September 21, 2007
Overview
• Why Now
• Visions and Nightmares
• Facts and arguments for your consideration
• Pathway to a Future
2
Percent of median family income
required to buy family health insurance
16.8
18
16
14
12
10
8
7.3
6
4
2
0
1987
2006
Source: Author’s calculations, using KFF and AHRQ premium data,
CPS income data.
3
Premium Payments v. GDP
Growth Rate
14%
12%
10%
8%
esi
gdp
6%
4%
2%
0%
1999
2000
2001
2002
2003
Source: NIPA, BEA/Commerce Dept.
2004
2005
2006
4
5
Percent of Employees with Employer Sponsored
Insurance at Firms with Fewer Than 50 Employees
80.0%
70.0%
60.0%
78.8%
78.0%
67.8%
62.1%
62.2%
60.1%
50.0%
Offered Insurance
Eligible for Insurance
Enrolled in Insurance
40.0%
30.0%
20.0%
10.0%
0.0%
2000
2005
Source: AHRQ/MEPS-IC data, various years.
6
Percent of Employees with Employer Sponsored
Insurance at Firms with More Than 50 Employees
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
98.1%
96.4%
78.9%
78.6%
64.6%
63.0%
Offered Insurance
Eligible for Insurance
Enrolled in Insurance
2000
2005
Source: AHRQ/MEPS-IC data, various years.
7
What’s Different Than 1993-94
• Premium / Income is far higher
• International competition is more pervasive
• More awareness of spotty quality, low value per
dollar
• Stresses appear more unsustainable and more risky
to more people
8
Visions and Nightmares
• FREE markets
• Unregulated insurance
markets
• Single Payer
• Rationing bureaucrats
• Individual + Shared
Responsibility
• Complex regulations
in sheep’s clothing
9
What Do … Have in Common?
• Romney (in MA), Schwarzenegger, Edwards,
Clinton, Wyden-Bennett, Federation of American
Hospitals, ERISA Industry Committee?
• Individual + Shared Responsibility !
–
–
–
–
–
Cover Everyone
Build new marketplaces
Centrality of individual responsibility
Employer as ONE of many financing sources
Focus on long run cost growth containment/value
enhancement
10
Why Employers Should Transition Out
• Competitiveness
• Economists say, “no problem”
• CEOs say, “BIG problem”
11
Employer Contribution Rates and Hourly Cost of
Health Benefits, Selected Top Trading Partners
Country
(rank in total trade
with the US, 2005)
Employer
Contribution Rate
Hourly Pay,
Manufacturing
U.S. dollars, 2005
Hourly Cost of
Health Benefits,
Manufacturing
US dollars, 2005
United States
11.3% (March 2007)
13.0% for
Manufacturing
$18.32
$2.38
Canada (1)
4.5%*
$19.21
$0.86
Japan (4)
3.74%
$18.06
$0.68
Germany (5)
6.65%**
$25.53
$1.70
United Kingdom
(6)
1.92%***
$20.91
$0.40
France (9)
12.8%****
$16.93
$2.17
12
Weighted average
4.9%
$19.79
$0.96
Sources
• Analysis and calculations are from a forthcoming paper by Len Nichols and
Topher Spiro, “Employer Health Costs in a Global Economy: A
Competitive Disadvantage for U.S. Firms,” The New America Foundation.
• Data for the “Relative Unit Health Costs of Selected Industries” comes
from:
– The Relative Unit Health Costs is calculated as employer premium
contributions divided by value added (net output).
– Data on employer premium contributions by industry is from the Agency for
Healthcare Research and Quality (2004)
– Data on value added by industry is from the U.S. Department of Commerce,
Bureau of Economic Analysis (2004).
• Data for the “Employer Contribution Rates and Hourly Health Cost of
Health Benefits…” comes from:
– U.S. Census Bureau, Foreign Trade Division.
– International Social Security Association, Social Security Programs
Throughout the World, 2005(Canada) and 2006 (all other countries).
– Bureau of Labor Statistics, International Comparisons of Hourly
Compensation Costs for Production Workers in Manufacturing, November
2006.
– * Maximum, varies by province, ** Also finances cash sickness and maternity
benefits, *** 15% of 12.8% employer contribution is allocated to the National
Health Service, ****Also finances cash sickness, cash maternity, disability, and
survivor benefits.
13
Burden is NOT being fully shifted
• Theory works in long run equilibrium
• Labor market norms and competition prevent complete backward
shifting into wages in the short run
• Health cost growth > general inflation + productivity, and
by large amounts each year => we never get to long run eq.
• International competition constrains forward shifting into prices
• IF employer burden were zero:
– They would not be dropping coverage, reducing benefits, reducing
employer share, increasing employee/patient cost-sharing
– Leading employers would not be supportive of comprehensive reform
• Wal-Mart, BRT, CED, ERIC, Safeway, etc.
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Why Employers Should Transition Out
• Competitiveness
• Financing easier
– Tax exclusion is BIG money
• Portability
• Comparative Advantage (see next slide)
• Political philosophy of personal responsibility
15
Relative Unit Health Costs of Selected Industries
Column A
Active Workers Only
Average=100
Column B
Active Workers and
retirees
All industries
100.0
106.8
Manufacturing
123.5
138.8
Retail Trade
104.1
105.8
96.3
100.0
Transportation and
Warehousing
140.6
152.1
Information
103.1
122.9
Accommodation and
food services
111.0
114.8
Wholesale Trade
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Pathway to a Better Future
• Build a new marketplace that works for all
• Coverage becomes de-linked from place of
employment
• Finance income-based subsidies any way you want
• Use exchange / marketplace rules to drive competition
to health insurance arrangement that adds the most
clinical value rather than selects the best risks
17