How to Figure Kansas Unemployment Checks

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					     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
    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
    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
“Health Policy Brief: Medicare Advantage Plans,” Health Affairs, July 9, 2009
    Challenges in the EBC Market

 Affordability
 Mismatch in worker/employer
 Worker unhappiness with coverage and
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

                                =            Decrease in State
    Increase in                                                                                Increase in Increase in
      National                                                                                Medicaid and Uninsured
   Unemployment                                                                                   CHIP
                                                        3-4%                                                (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
        Average Annual Worker and Employer Contributions to
    Premiums and Total Premiums for 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.
    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
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
    • “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

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
     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
    • 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
 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
   predictions –
   about the

    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,”
       – 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”
    by House Energy &
    Commerce Committee
    (Reps. Waxman &
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
 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

    “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
   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
 “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
 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%

 Increase the Amount Employees
                                                      14%       23%        19%        43%        <1%
 Pay for Prescription Drugs

 Restrict Employees’ Eligibility for
                                                       4%        5%        8%         83%        <1%

 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?

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