David Post: Companies win or employees lose
The Chamber of Commerce, of which I’m a disagreeing member, adopted as one of its priority issues this year opposition to the new health care law.
On the one hand, by opposing the new law, the chamber wants to revert to the old system: employer provided health care. On the other hand, the chamber opposes any effort to require employers to provide health care benefits to their employees, though it suggests that employers be “encouraged to offer benefits consistent with their ability to afford them.”
That’s contradictory: preserve a system that relies on the business community to provide health care to its employees, but oppose both a government-based system and requiring employers to do it. That’s like the old joke: heads I win, tails you lose. Employers win. Employees lose.
The compact between the government, employer and employee a half century ago was to use the tax code to provide incentives for employers to take on the health care responsibility.
Employers are allowed to deduct the cost of health insurance premiums they pay for employees, while employees don’t have to report as income and pay tax on the value of the insurance that they receive. This is the largest single tax give-away in the federal budget. Next year, this benefit will costs the government almost $200 billion more in lost tax revenues, and that amount is increasing alarmingly.
The new law requires insurance companies to pay out 85 percent of premiums collected in benefits and use the other 15 percent for operating expenses and profits. Some insurance companies pay out 60 percent or less. Fifteen years ago, I was chief finance officer of a small bank. During one year, our insurance premiums were $40,000, our employees filed claims of $20,000. Insurance paid $10,000 of those claims and then raised our rates17 percent. I changed companies.
Despite political rhetoric that the “big bad wolf,” the government, is inefficient and wasteful, it spends about 3 percent on administrative expenses and pays out 97 percent. To quote Walter Mondale, where’s the beef?
Today, the average annual cost of health insurance for a family is more than $12,000 and rising. That the chamber opposes mandatory health insurance is completely understandable. The median household income in the United States is $50,000 before the cost of health insurance. Few employers can afford to give their employees a $12,000 raise, and few employees have $12,000 to buy health insurance.
Employer and employee — and the chamber — universally agree on one thing: the cost of health care is too high and out of control. As we keep kicking the can down the road, the temporary solution has been for employers to shift more of the cost to employees each year or, in an increasing number of cases, terminating these benefits completely.
What has the chamber proposed as a solution?
First, allow cross state competition. Does the chamber really believe that allowing North Carolina Blue Cross and South Carolina Blue Cross to compete against each other is going reduce costs materially?
Second, tort reform. Tort reform sounds like a good scapegoat, but are frivolous malpractice lawsuits the real drivers of U.S. costs being double that of the rest of the world? Admittedly, medical malpractice accounts for 1 percent of health care costs, but do we want to eliminate the ability of injured patients to right their wrongs? Juries of citizens decide the fate of the injured versus the doctor. Lawyers don’t work for free and only take cases they think can win. Here’s a tort reform idea: since insurance company lawyers get paid, win or lose, why not disallow payment to them if they lose?
Third, lower costs. That’s equivalent to Oscar Rogers on Saturday Night Live calmly addressing national problems and then screaming, “Fix it!!!” Come on, chamber, this isn’t a comedy show. If the new law — largely patterned after Republican presidential frontrunner Mitt Romney’s Massachusetts’ health care law — is not a move in the right direction, how about a real answer?
Maintaining the status quo is to rely upon 1,000 powerful insurance companies and 20 million businesses — 15 million being single-owner businesses and only 8,000 being publicly traded (according to IRS Statistics of Income) — to fight it out and get it right. Clearly, that’s not working.
The only way to reduce costs is for government to get in the game — as it does in every other country on the planet where costs are half and coverage is broader than in the U.S. — and negotiate costs and coverage for all 300 million of us. Don’t forget, the government is us.
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David Post is an owner of MedExpress Pharmacy and Salisbury Pharmacy and teaches in the Ketner School of Business at Catawba College.