Health care reform legislation continues to move through Congress, and it looks like Congressional leaders may be able to develop a compromise bill that could pass both houses of Congress by the end of the year. Amounting to about one sixth of the U.S. economy, health care costs keep climbing each year. The one thing on which everyone seems to agree is that something must be done to lower costs.
Pallet companies spend a sizeable amount on insurance each year, and small businesses need to know how proposed changes may impact them and their employees.
A study conducted by our staff earlier this year confirmed that on average 76.3% of responding companies provide some sort of health care coverage to their production employees. This figure jumped to 84.4% for salaried employees. The cost of this coverage was shared by the employee and company for production workers in 87.9% of respondents compared to 66.6% for salaried employees.
According to the U.S. Commerce Department, without major changes to the current system the price of an average family health insurance plan will nearly double over the next decade – going from $13,000 to $25,000.
U.S. Commerce Secretary Gary Locke, said, “In 1960, U.S. firms spent 1.2% of their payroll on health insurance contributions. In 2006, they spent 9.9%. That growth curve is unsustainable. And it’s putting U.S. firms at a competitive disadvantage compared to foreign companies that almost universally have lighter health care cost burdens.”
Government statistics indicate that many small businesses are getting out of the health coverage business altogether. Just 49% of firms with 3 to 9 workers and 78% of firms with 10 to 24 workers offered any type of health insurance to their employees in 2008 – compared to 99% for firms with over 200 workers.
Health care costs are expected to increase from 18% of American GDP this year to 28% in 2030 and 34% in 2040.
Locke added, “A business environment where one out of every three dollars is spent on healthcare would be a disaster.” It would likely lead to higher taxes and/or unsustainable deficits that could spike interest rates.
Healthcare reform is such a large issue that there is no way to cover every important detail in this one article. But I do intend to highlight questions that should be asked by small business owners.
Strategy – What is the main goal?
The focus of any reform effort will be a key issue to examine as the Senate crafts a final bill this winter. Is the focus expanding coverage, cutting costs, encouraging preventative medicine, or improving choice and care? Will the final bill have a public option?
Small business organizations and conservatives want reform efforts to focus on cost savings first. They are also concerned about new taxes or unfunded mandates that do little to cut costs while requiring businesses to do more for employees. Democrats’ primary focus appears to be expanding coverage. The health care industry seems willing to negotiate as long as its pool of customers is significantly expanded. Some politicians hold out hope on a reform bill that hits a number of key reform goals.
The Heritage Foundation, a conservative think tank, has called for reform in stages that would ensure new programs work before trying to roll out solutions that could make things worse and leave the country with new programs that are difficult to change or fund in the future. The Heritage Foundation encourages two major reforms that already have broad support: 1) Give states more freedom from federal rules to experiment with reform measures, like medical malpractice reform and allowing people to buy insurance across state lines. 2) Fix the tax treatment of health insurance in a budget-neutral way so that people can buy it outside of their workplace. That way, you would no longer lose your coverage if you change or lose your job.
Who’s Going to Pay?
That is the trillion dollar question that Washington is fighting over right now. President Obama has said he would tax high-value insurance plans. He would also fund his proposal through Medicare “savings.” State officials across the country are concerned that some proposals on the table would shift significant unfunded mandates to state governments. Remember there is a big difference between real cost savings and merely shifting the cost burden.
The House bill raises $544 billion over the next decade from new income taxes on single people making $280,000 per year and couples making more than $350,000 per year; $37 billion in business tax increases, and about $500 billion in cuts to Medicare and Medicaid. It would also impose sizeable penalties on individuals and businesses that don’t obtain health coverage.
The Baucus Senate bill includes no new income taxes although it does tax high-value insurance plans and those who don’t get coverage as well as cuts in Medicare and Medicaid. It appears that the Baucus bill coming out of the Senate Finance Committee will be the key backbone of any legislation finalized by Senate Majority Leader Harry Reid.
If anything dooms healthcare legislation it will be wrangling among the Democrats since they have firm control of both Congress and the White House. Senate Minority Leader Mitch McConnell said, “The Democrats were given a big majority… They ought to be able to do anything they want to.”
Republicans waited until late in the debate to come up with their own reform bill. They did this because they felt the Democrats would not have given their ideas real consideration. The result is that the Democrats have been able to frame the debate although recent efforts by the Republicans have highlighted differences. This summer Republicans introduced the Patient’s Choice Act in the Senate which hopes to increase coverage by cuts in Medicare and Medicaid without imposing new taxes. The Republican bill would redirect the $300 billion annual tax subsidy for employment-based health insurance to individuals in the form of refundable tax credits. Families would get $5,700 per year and individuals would receive $2,300 to buy insurance and invest in Health Savings Accounts (HSAs). People would have an incentive to spend money wisely because some of the unspent money in the accounts could be rolled over to the next year. This approach is much less aggressive in terms of ensuring coverage than either Democratic bill in Congress.
All sides agree that cuts and improved oversight in Medicare can save money. Medicaid fraud and mismanagement waste at least $32.7 billion in taxpayer dollars each year.
Employer Mandates
Requirements for employers should be a top concern for any pallet company. One concern is that underground businesses will ignore healthcare requirements just as they do tax, worker’s compensation, safety and environmental regulations. This would certainly add to the uncompetitive playing field in some markets. The legitimate businesses would bear the brunt of the costs.
The House Democratic bill requires employers to provide insurance coverage or pay a penalty of 8% of payroll. Companies with payrolls under $250,000 are exempt. Employers can apply for a two-year exemption if they can prove the requirements would result in job losses.
Although the Baucus Senate bill does not require coverage, companies with more than 50 full-time workers would have to pay a fee for each worker who claims tax credits to buy insurance. These fees could vary although they are capped at $400 times the total number of employees per company.
The Republican Senate bill takes the incentive approach not the mandate approach. It offers small businesses tax credits to offer coverage. Additionally, employers are encouraged to move to opt-out rather than opt-in rules for coverage.
Opening Up Competition
A major problem with the current system is the lack of competition in the marketplace today. The National Federation of Independent Business (NFIB), the nation’s leading small business organization, recently pointed out that more than 85% of all employers are able to offer only one insurance plan to their employees. And the five largest insurers control the majority of the marketplace.
Currently, health insurance plans are regulated and sold on a state-by-state basis. The NFIB calls for the laws to be changed to allow the purchase of insurance across state lines in the hopes of improving competition. Various states have different requirements in terms of what must be covered, which can have a big impact on cost.
One suggestion is that the development of national plans for specific trade associations, companies or groups could lower cost. Bruce Scholnick, the president of the National Wooden Pallet & Container Association (NWPCA) said that his organization has called for this reform for a long time.
Experts disagree about the outcome of opening state lines. Many claim it would mean expanding the power of the federal government by taking regulatory oversight from the states to oversee plans that cross state lines. Some claim purported savings would be short lived as consolidation would likely occur. Others believe this would reduce the amount of actual coverage by most insurance carriers moving to operate in the states with the minimalist requirements, such as Alabama. Costs indeed might drop for a while as would the actual benefits offered by these companies.
In the end, open access across state lines would likely increase the variety of plans and the potential for increased competition. But there is no real magic bullet to ensure how the market will respond.
Besides choice, access to information remains a major roadblock to market competition. Both parties agree that an essential piece of reform is the development of more choice – a shopping mall of affordable coverage in each state.
A Public Option
A major controversy has erupted over the inclusion of a public option that would allow for a government run program to compete with private insurance. Critics fear that a government option would lead employers to push health care concerns off on the government and would make it hard for private insurance companies to compete. They claim this would lead to more people being dumped on the public program with no option for private insurance.
Another criticism of the public option is that the government tends to underpay doctors and hospitals. Some believe this trend would continue in the future thereby forcing those costs to be pushed onto people with private insurance. If this were to hold true, private insurance might go away for many people, which would reduce competition in the long run.
House Democrats have insisted that some form of a public option be included as a way to keep insurance companies honest and provide coverage for those who can’t afford private options. Senate leaders, including some key Democrats, oppose the public option and have promised to stonewall any bill that allows for it.
Senate Democrats may have reached a compromise on this issue by inserting language that would allow states to negotiate with insurers to arrange coverage for low income people who may not qualify for Medicaid, the government’s health care program for the poor. Senator Maria Cantwell pushed through this change in the bill before the Senate Finance Committee.
Tort/Legal Reform
One thing that is missing from the major Democratic reform bills are significant changes to medical malpractice law. Former Democratic National Committee Chairman Howard Dean said that Democrats in Congress did not include tort reform in the health care bill because they were fearful of “taking on” the trial lawyers.
Dean said, “Here is why tort reform is not in the bill. When you go to pass a really enormous bill like that the more stuff you put in, the more enemies you make, right? And the reason why tort reform is not in the bill is because the people who wrote it did not want to take on the trial lawyers in addition to everybody else they were taking on, and that is the plain and simple truth. Now, that’s the truth.”
The real truth is that Congressional Democrats don’t want to anger a major support base in the trial lawyers lobby. Medical malpractice lawsuits and insurance are a major driver for higher costs as well as a reduction in access to care and the number of doctors that are willing to do certain procedures. American doctors pay as much as $126 billion to protect themselves from lawsuits while only 17% of lawsuits filed involve actual physician negligence. Defensive medicine adds another $70 billion to health care costs.
Republicans support the development of special medical courts and panels that can streamline procedures and reduce the amount of time it takes to process malpractice lawsuits.
Public Support for Reform
A recent poll by Rasmussen Reports indicates that only 41% of voters nationwide now favor the health care reform proposed by President Obama and congressional Democrats. The health care issue has been fairly partisan from the beginning. Democrats have favored major reform and Republicans prefer more moderate changes.
Scott Rasmussen, president of Rasmussen Reports, recently wrote in the Wall Street Journal, “The most important fundamental is that 68% of American voters have health insurance coverage they rate good or excellent … Most of these voters approach the health care reform debate fearing that they have more to lose than to gain.”
Polls show that most voters favor limits on jury awards for medical malpractice claims and think that tort reform will significantly reduce the cost of health care.
Other Major Reform Considerations
There are a lot of little details that could have a profound impact on all Americans. These questions are huge. Smart business owners must keep them in mind as Congress crafts the final legislation over the next few months.
Will the federal government require people to get health insurance or else pay a penalty? What about poor people who can’t really afford it? Will health care reform set limits that strictly limit the difference that health insurers can charge various age groups? This effort to curb price spikes for older Americans could raise the cost of health care for younger Americans.
Will health care reform push major unfunded mandates onto states or businesses? Additional pressure on businesses could encourage even more layoffs and reduce the ability for those who are out of work to find jobs.
Electronic records promise to cut administration costs. But it also raises fears that privacy protections will be eroded.
President Obama has proclaimed that Medicare benefits will not be cut.
But a number of the Democratic bills are seeking to cover part of the new health care plan based on savings in Medicare. While some of these cuts may come by reducing fraud or wasted expenses on unnecessary procedures, it appears that these savings will result in some Medicare cuts. The government has subsidized additional benefits covered by Medicare Advantage, private supplemental insurance for seniors. This subsidy is likely to be reduced, which would drive up co-pays and deductibles for Medicare Advantage plans according to the Congressional Budget Office.
No matter what bill gets finalized – there will be winners and losers. It is simply a matter of resources and priorities. Small business owners need to make their voice heard before it is too late. The Democrats appear to have the votes to pass through legislation if they can come to an agreement on what reform should look like. A number of Congressional Democrats face serious competition for re-election. This will keep them responsive to public pressure back at home.
Are Congressional Democrats willing to pass reforms that take billions from Medicare, impose billions in taxes on both individual and corporations when polls show that the majority of Americans like their current plans? Nobody knows for sure. But it looks like a reform bill will likely get passed this year. The final language in the bill will largely depend on what public reaction demands over the next few months.
