Health care reform the perfect storm has come
By Melvin J. Howard
Health care costs are high, and rising even higher. The United States spent about $2.1 trillion on health care. Health costs is a strain American businesses, which directly finance about one-fourth of health spending. Employer-sponsored health insurance premiums rose by 98 percent between 2000 and 2007—four times faster than cumulative wage increases. The average cost of a family, employer-based insurance policy in 2007 was $12,105, nearly the full-year, full-time earnings of a minimum wage job. In addition to high premiums, people are paying higher amounts for deductibles and service use. Americans are spending more than 10 percent of their income on premiums and cost-sharing. This has a profound impact on seniors: the typical couple may have to save nearly $300,000 to pay for health costs not covered by Medicare alone.
The cost problem has contributed to an access problem. The number of nonelderly Americans covered by employer-based health insurance fell from 66 percent to 61 percent between 2000 and 2006, with small business employees affected disproportionately.8,9 Indeed, in 2007, only 45 percent of firms with three to nine employees offered health benefits, in contrast with 99 percent of firms with 200 or more employees.10 Firms that are less likely to provide health benefits also tend to have a significant part-time or low-income workforce, are not unionized, and are in nonmanufacturing.
With few affordable alternatives, people losing employer coverage often become uninsured. Nearly 16 percent of the population 47 million Americans, were uninsured, up roughly eight million since 2000. Approximately 80 percent of the uninsured are in families with at least one worker. While most uninsured have low incomes, more middle-income working Americans are falling victim to this trend. Nearly half of the increase in the uninsured population between 2005 and 2006 occurred among middle-income families.
For the first time in history there is bipartisan call for health reform. Leaders of such companies as AT&T, General Mills, Intel, Kelly Services and Wal-Mart have joined forces with SEIU and the Communication Workers of America to form the Better Health Care Together (BHCT) coalition. BHCT is seeking health reform that promotes quality, value-based coverage for all Americans, with an emphasis on shared responsibility, and an implementation goal of 2012.
THE FUNDING OF THE US HEALTH CARE SYSTEM
Let’s start with $2.1 trillion dollars. Of this amount, $1.1 trillion, or 54 percent, came from private sources of funding; $705 billion (34 percent) came from the Federal government; and $265 billion (12 percent) came from state and local government. Dividing further by major source of funding, the majority stemmed from private insurance, at $723.4 billion in 2006. Medicare was the next largest source at $401.3 billion, a rise of 18.7 percent from the prior year largely due to the introduction of the Part D drug benefit. Medicaid spending totaled $308.6 billion, and out-of-pocket spending comprised $256.5 billion.
In addition to government spending through Medicare, Medicaid, and public health programs, tax codes provide subsidies for over 90 percent of private health insurance and certain health care expenses. The most significant of these is the Federal and state individual income and payroll tax exemption for all employer premium contributions and many employee premium contributions. Under the codes, these premium contributions are not included as part of employee taxable income.
The cost of these exemptions, in lost Federal and state revenue, is estimated at $208.6 billion. This is the nation’s largest tax expenditure. The Federal tax exemption alone is equivalent to nearly half of what the Federal government spends on Medicare. The effect of these tax provisions extends beyond the impact on Federal revenues. In 2007, tax breaks were associated with $732 billion in employer and employee contributions toward health insurance.
The other major Federal health-related tax expenditures include deductions for medical expenses, self-employed medical insurance premiums and health-related charitable contributions. A tax break also exists for Health Savings Accounts (HSAs) tied to high-deductible health insurance. Consumers can make tax-deductible contributions to an HSA account that is then used for health-related expenses.
NOW HOW DO WE FIX THE PROBLEM
There is a disagreement on whether individual market competition or group purchasing can best achieve cost containment while promoting access to valuable innovations in care. This is very important because from what I witnessed in single payor government run health care systems innovations and creativity is sorely lacking. In addition to systems like Canada’s protectionism seems to be instilled in the frame work. Protection of the status quo which is also a big problem. There are proposals to change how people get insured, supporting a shift from employer-based and public coverage to the individual (i.e. nongroup) market. There all proposals, that seek to reform current coverage options by building on existing sources of coverage. Others support a shift from private to public insurance (e.g., a single-payor system). I am not convinced that this solution is the Holy Grail for America. Beyond these differences, health reform proposals are similar in their goals of improving the value, sustainability, quality, and coverage of health care for all Americans.
They often include policies that promote practices of sharing information through health information technology; make useful price and quality information available to patients, providers, and purchasers; and invest in health services research to better guide public policy decisions. Perhaps most critically, the need to constrain health care costs is an overarching theme of many health reform proposals. That, in turn, has yielded support for policies such as aligning financial incentives for providers and patients toward early and effective disease detection. One thing is clear this is the perfect time to reform US health care. This could not have happened before this time the current economic climate is the perfect storm so to speak for change. So the way I see it is whoever can come up with a way to cover all Americans, foster innovation and technological advances. Promote competition, contain costs, train additional physicians and nurses as well as fast track and train international physicians and nurses. Without destroying the free market innovations that makes America great has a beautiful mind.