Employment Based Health Insurance David A. Hyman Professor of Law and Medicine University of Illinois What Does the Public Think about Health Care? They don’t think about it, by and large Generally like their own doctor – but serious doubts about the health care system and its performance. Very worried about rising costs, gouging and their ability to keep their insurance. Think pharmaceuticals, insurance profits, fraud/waste/abuse and malpractice are key drivers of increased costs. Don’t talk about costs with their doctors. Consumer Perceptions vs. reality of costs Source: BCBSA and Wall Street Journal Online / Harris 3 Interactive Health Care Poll – Vol 3, Issue 13 – July 19, 2004 Where Does The Money Come From? Total: 2.34 trillion (17% of GDP) • Private: 53% • Public: 47% – Medicare: 444B – Medicaid: 190B + 198B (state) – 8.4% of GDP – Expected to increase above 50% in 2011 “Health Policy Brief: Medicare Advantage Plans,” Health Affairs, July 9, 2009 http://www.healthaffairs.org/healthpolicybriefs/ Who is Likely to Get EBC? Employees of large firms Employees of unionized firms People who don’t work in agriculture or retail sectors People who have full-time jobs (not temporary or part-time) Older/higher income/better educated Those who opt-in Why is Insurance Bundled With Employment for 162M Americans? History Tax subsidy Potential efficiencies: • Solution to adverse selection problem • Efficiencies of bulk purchasing/aggregation The Key Question: How does health reform change the significance of these factors? “Health Policy Brief: Medicare Advantage Plans,” Health Affairs, July 9, 2009 http://www.healthaffairs.org/healthpolicybriefs/ Challenges in the EBC Market Affordability Mismatch in worker/employer perspectives Worker unhappiness with coverage and choices Health care is personal. . . Challenges in the EBC Market Lose your job, lose your coverage • COBRA Job lock Mismatch of preferences/budget Impact of a 1% Point Increase in Unemployment on State Revenues, Medicaid, CHIP & Uninsured 1.0 1.1 1% = Decrease in State Revenues & Increase in Increase in Increase in National Medicaid and Uninsured Unemployment CHIP Rate 3-4% (million) Enrollment (million) Source: John Holahan and Bowen Garrett, Rising Unemployment, Medicaid, and the Uninsured, prepared for the Kaiser Commission on Medicaid and the Uninsured, January 2009. Mismatch in Perspectives: Who Pays For EBC? Employers write the checks • $3,891 for individual; $9,773 for families • 81% of individual and 70% of family cost of coverage Average Annual Worker and Employer Contributions to Premiums and Total Premiums for Family Coverage, 1999-2010 $5,791 $6,438* $7,061* $8,003* $9,068* $9,950* $10,880* $11,480* $12,106* $12,680* $13,375* $13,770* * Estimate is statistically different from estimate for the previous year shown (p<.05). Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2010. Average Percentage of Premium Paid by Covered Workers for Single and Family Coverage, 1999-2010 * Estimate is statistically different from estimate for the previous year shown (p<.05). Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2010. Mismatch in Perspectives: Who Pays For EBC? But employees foot the bill • “83–100 percent of the costs of health insurance are shifted to employees through reduced wages.” • “Rising health-care costs are partly to blame for stagnant wages. . . In effect, about half the money you should be earning for being more productive is being sucked up by ever more expensive health-insurance premiums.” Cumulative Changes in Health Insurance Premiums, Inflation, and Workers’ Earnings, 1999-2009 Note: Due to a change in methods, the cumulative changes in the average family premium are somewhat different from those reported in previous versions of the Kaiser/HRET Survey of Employer-Sponsored Health Benefits. See the Survey Design and Methods Section for more information, available at http://www.kff.org/insurance/7936/index.cfm. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2009. Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1999-2009; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey, 1999-2009 (April to April). “Is General Motors an automobile manufacturer that provides healthcare benefits for its workers? Or is it a health insurance provider that also happens to make cars?. . . At the company's annual meeting in Detroit last week, CEO Rick Wagoner told shareholders that health benefits add a staggering $1,500 to the price of every vehicle GM makes. Jeff Jacoby, Boston Globe, June 16, 2005 “It’s strange. When I joined GM 28 years ago, I did it because I love cars and trucks. I had no idea I’d wind up working as a health care administrator.” – Rick Wagoner, GM CEO, interviewed by George Will, May 1, 2007 A health insurance provider that also happens to make cars. . . 2005: $5 billion/year in medical costs; $47 billion in retiree costs Medicare spending < $5 billion/year (2005): Alaska, Arkansas, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Kentucky, Maine, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Utah, Vermont, Washington, West Virginia, Wyoming Problems with the tax subsidy Over-consumption Horizontal inequity Vertical inequity • Estimates of average tax benefit – Make less than 20k - $319 – 20-40k - $1,002 – >150k - $2,823 How should we fix these problems? • Level up or down? Tax credit? • Cap? Why Does it Matter Who Pays For EBC? Obscures trade-offs Cheap (and expensive) moralizing • Blame employers for not providing better coverage • Mandates (“pay or play” - Money for nothing v. on- budget taxes • Do you want to index minimum wage to health care costs? International competitiveness • “Health care costs add $1,525 to the price of every General Motors vehicle. The company spent $4.6 billion on health care in 2007, more than the cost of steel. As a result of these crushing health care costs, American businesses are losing their ability to compete in the global marketplace.”) Dysfunctions in Two Markets Financing-side dysfunctions • Selective and skewed tax subsidy • Employment-based coverage (“EBC”) • Fragmented/thin risk pools for non-EBC • Cost-increasing regulation Delivery-side dysfunctions • Highly fragmented system • Compensation bears no relationship to quality or outcome • High variance in cost/treatment patterns, with little evidence of benefit. • Health care v. health What did Health Reform Do? Individual Mandate Employer Mandate Exchanges Subsidies Regulation of Insurance • Elimination of annual and lifetime caps • No preexisting conditions • Limitation on premium differentials • Price controls with premium rebates Tax on High Cost Plans (starting in 2018) What did Health Reform Do? IPAB (spending reduction proposals) CMI (payment and service delivery models) Outcomes Research Institute (Comparative clinical effectiveness) Various demonstration projects on bundling/quality/payment reform What effects will health reform have on EBC? “It’s tough to make predictions – especially about the future” Yogi Berra CMS, Estimated Financial Effects of the PPACA (Apr. 22, 2010) Impact of PPACA on EBC Current issues • “Grandfathering” of old plans • Medical loss ratio calculation - what counts as “clinical services,” “quality improvement,” administration? – 85% for large plans; 80% for small group/individual plans • Financial impact on firms (retiree benefits) – Medicare Part D Among All Large Firms (200 or More Workers) Offering Health Benefits to Active Workers, Percentage of Firms Offering Retiree Health Benefits, 1988-2010* *Tests found no statistical difference from estimate for the previous year shown (p<.05). No statistical tests are conducted for years prior to 1999. Note: Data have been edited to include the less than 1% of large firms who report “yes, but no retiree” responses in 2010. Historical numbers have been recalculated so that the results are comparable. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2010; KPMG Survey of Employer-Sponsored Health Benefits, 1991, 1993, 1995, 1998; The Health Insurance Association of America (HIAA), 1988. First Quarter Charges for Retiree Drug Benefits AT&T: 1B Verizon: $970M Deere & Co. $150M Boeing $150M Caterpillar $100M Prudential Financial $100M Total > $4.5B for companies in S&P 500 Charges are “premature and irresponsible” (Gary Locke, Secretary of Commerce, WSJ “Assertions are a matter of concern” Hearing/Investigation by House Energy & Commerce Committee (Reps. Waxman & Stupak) Not with a bang, but with a whimper. . . Hearing cancelled the day before it was scheduled to be held, after documents reviewed by staff. Staff finding: “The companies acted properly and in accordance with accounting standards in submitting filings to the S.E.C. in March and April. These one-time charges were required by applicable accounting rules.” What wasn’t in the staff memo? A March 3 internal Verizon memo on the impact health-care law said new taxes on insurance companies and health-care equipment manufacturers will be passed onto employers through higher prices. Facing such increased costs, employers like Verizon “may consider exiting the health-care market and send employees to the exchanges,” the memo says. . . [T]he Verizon memo said, the fines [for not providing coverage] would be “modest” compared to providing coverage for employees. If you like your health insurance, you can keep it. . . “In a March 25 e-mail, John Deere’s director of labor relations, Kenneth Hugh, said, “We ought to look at … denying coverage and just paying the penalty … we would need to figure out which one was more expensive.” Whether or not companies are being forced to rescind employee coverage, they may need to raise insurance premiums, the documents show.” A Caterpillar executive made a similar point in an e-mail message to colleagues, saying the tax changes could “drive many employers to just drop coverage for retirees altogether, and let the government foot the whole bill.” AT&T “will be evaluating prospective changes to the active and retiree health care benefits offered by the company.” Don’t say you weren’t warned: American Benefits Council Letter (12/11/09) “Taxing the subsidy means that more companies will eliminate or reduce the coverage, and more retirees will shift to Medicare Part D, which will create more cost for both the government and the retirees.” “Further, this change would result in large earnings statement reductions due to…income tax accounting rules, which would require employers to immediately account for the present value of this tax Problems that are here/coming soon Richer benefits/coverage of higher cost risk pool – what effect on premiums? “It has come to my attention that several health insurer carriers are sending letters to their enrollees falsely blaming premium increases for 2011 on the patient protections in the Affordable Care Act. I urge you to inform your members that there will be zero tolerance for this type of misinformation and unjustified rate increases.” HHS Secretary Kathleen Sebelius letter to Karen Ignagni, AHIP Problems that are here/coming soon Asymmetry of coverage subsidy • Demand for broader availability/potential for erosion of EBC for lower-paid workers • Potential for dramatic growth in exchange, with associated on-budget costs for subsidies Horizontal & Vertical Inequity Redux Problems that are here/coming soon Deferral of excise tax and absence of cost constraints Déjà vu all over again Universal Coverage ≠ Cost Control “If we don't address cost, I don't care how heartfelt our efforts are, we will not get this done. If people think we can simply take everybody who is not insured and load them up in a system where costs are out of control, it’s not going to happen. We will run out of money.” President Barack Obama, March 5, 2009 press conference Among Firms Offering Health Benefits, Distribution of Firms Reporting the Likelihood of Making the Following Changes in the Next Year, 2009 Very Somewhat Not Too Not At All Don’t Likely Likely Likely Likely Know Increase the Amount Employees 21% 20% 14% 44% <1% Pay for Health Insurance Increase the Amount Employees 16% 20% 18% 46% <1% Pay for Deductibles Increase the Amount Employees Pay for Office Visit Copays or 15% 25% 19% 41% <1% Coinsurance Increase the Amount Employees 14% 23% 19% 43% <1% Pay for Prescription Drugs Restrict Employees’ Eligibility for 4% 5% 8% 83% <1% Coverage Drop Coverage Entirely 2% 6% 6% 86% <1% Offer HDHP/HRA‡ 5% 15% 19% 59% 1% Offer HSA-Qualified HDHP‡ 6% 16% 24% 54% <1% ‡Among firms not currently offering this type of HDHP/SO. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2009. The salary is excellent and the benefits are outstanding. So. . . Which would you prefer?