Matthew Holt

The bleedingly obvious

It makes no sense for small businesses to provide health insurance to employees. This testimony from a small business owner to the House Tri-committee yesterday shows it. (Same is true for all employers but none save Ron Wyden dare say that).

Health insurance should be paid for by some form of taxation (VAT, income tax or payroll tax) that is in  proportion to businesses and individuals profitability/income, and small businesses (and big ones) should be left to do whatever it is they do. I cannot fathom how NFIB manages to convince its members otherwise, but it does appear that there’s a crack in that dike with various small business groups coming out in support for real health reform.

Having said that, I don’t think there’s too much likelihood that a typical low wage business will get much help anytime soon.

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  1. Means testing is a waste. Where money goes to the extent that a competitive market works, is determined by a competitive marketplace.
    To the extent that no competitive marketplace exists, allocation is made administratively, but ideally on a broad-brush, rather than detailed basis. No alternative aside from the current mess.
    The simple, but enlightening framework presented by Prof. Christensen, et. al. is useful. In regard to medical services which make up the bulk of activity/costs: (1) precision medicine (competitively determined), (2) subscription medicine for chronic disease management (administered and potentially somewhat competitively determined) (3) fee-for-service (administered).
    No reason why suppliers to medical service providers cannot be determined on a competitively market basis.
    The payments to specialists can be reduced with a stroke of the pen, so to speak, through changing the conversion rate for specialist codes in the RBRVS. I see no reason to change reimbursement rates to primary care physicians.
    Funds allocated for healthcare IT should be moved elsewhere or dedicated to training/education payment to both providers and patients.
    HHS should “sponsor” one or more FOSS EMR/PM systems. Sponsorship only involves promotion of their existence, pointers where to find them and nominal (in the tens to hundreds of thousands of dollars at most) funding for development of high-quality documentation, an area where FOSS product tends to be weak. But no other funding.

  2. Wendell, who is going to do the means testing and who is the money going to be paid to? Your idea still does not control costs.

  3. Peter,
    Deductibles would be means tested. Some people can afford to pay off $5,000 in deductibles in a year or two, and some can afford to pay off $1,000.
    The “take politicians out of health care” obviously is a sarcastic and unrealistic recommendation, but we shouldn’t give politicians a bigger role, as Obama is trying to do.
    As for the education recommendations, good luck with that, too. Politicians spend on plans that make someone richer, not smarter, because making someone rich attracts campaign contributions. Making someone smarter doesn’t.
    Indeed, for politicians, dumber is better. Look at how Obama convinced the gullibles to vote for him and support his public option, which is designed for the gimme generation.

  4. Nate: in brief, nothing simplistic. My comment was in response to another comment to the effect that businesses which cannot afford to pay health insurance premiums for workers should go out of business because implicitly poorly managed.
    In fact ability of a company to pay benefits including health insurance premiums for workers is a reflection more of distance for a given company from a competitive market and/or operation in an industry where average wages are higher than normal so that benefits as a percentage of wages are relatively low and therefore less of a factor competitively.
    The market for medical services is for all intents and purposes an administered, not a competitively determined, market. It will be that for the foreseeable future. Hence the more explicit and intelligent the administration of the market the better for all. The current system in its grossly mish-mashed state thwarts most efforts toward intelligent administration.
    The point on that is substituting a system that rationalizes financing of medical service costs and has leverage to reduce costs to, say, the average for other OECD countries, would permit a significantly lower payroll tax equivalent or value-added tax, if that works better, than the current cost of insurance premiums which are directly borne by employer and employee and largely experience-rated. It would also operate in the same way as current payroll taxes, as an automatic add-on to wages incurred (if that is the tax base), that is spread evenly over the population and thereby it would materially lessen the burden on smaller businesses.

  5. The entire unemployement system is screwed up. There are millions of highly skilled people looking for work. There are millions of small businesses that would love to have them as long as they could. For higher paid people they make more money on unemployment then jobs can afford to pay so they sit at home and don’t work. How is anyone benefited by paying people not to work? The current system is completly counter productive. In good times I can’t afford people that skilled and talented, in bad times I should be able to hire them becuase I am the best job opportunity they have, instead I am competing with the governemnt who will give them as much or more money to not work. How, as a small business, do I compete with that? The genusis in DC are even extending the time people can go without working, as it stands now there is no reason to come work for me, besides the fact I am an ass ontop of the low pay.
    Then throw in the disaster ARRA COBRA, besides costing businesses millions in mailing and compliance it waste money. Younger people are laid off at a higher rate then older people, this usually means those laid off could purchase cheaper individual policies then what COBRA cost, the government won’t pay 60% of the individual policy so young workers either go without or over pay for coverage.

  6. Wendell you have a simplistic view that ignores the consequences of the changes you request. Lets say employers are removed from the provision of benefits, they save 5% of their payroll. The federal government now provides benefits in the same inefficient way it does Medicare and Medicaid, rampant with fraud and waste, and in order to pay for it charges them 8% in payroll taxes. Ya we saved 5%, doh now someone with no interest in controlling cost provides it and my taxes go up 3% more then I saved. So what has that small employer gained? When employers provide insurance they have control over it, if it is a rough year they can scale back benefits, if times are good they can offer richer benefits. I assume you know the IRS does not offer this same flexibility?
    There is a reason the vast majority of business owners prefer an employment based system over government provided.
    You also ignore the fact our businesses already pay some of the highest taxes in the world. If they were not already being taxed to death they could afford to offer insurance. If politicians didn’t keep over regulating insurance driving up the cost employers could afford to offer it. If Democrats stopped blocking Association Health Plans small employers could band together and afford insurance.
    “Needless to say no business of any size has any control over the level and almost none over the volume of medical service spending.”
    Actually employers of all sizes have considerable control by the benefit plan they design, large employers have almost complete control. If this was not true insurance would not exist, insurance is based on the fact that I can predict over a sufficiently large population exactly how much will be insured in claims and this charge premium sufficient to cover it. The fact we are discussing insurance proves you are wrong on this.
    “The only way any control can be exerted is through strong, centralized and, one hopes, enlightened administration.”
    Yes and all the control Medicare has over it’s spending proves this right? LOL
    “They should be left free to manage their business and not burdened by too many benefits.”
    Then why don’t you start with unemployment insurance? If I fire someone because they are a knucklehead why do I think have to pay them while they sit at home for 12 months “looking” for a job? My unemployment rating got hit when an employee who quit with 2 days notice to go back to an old job then got laid off. Since she was only with them a month or two I took more of the hit then the company that laid her off. That was in NV, in OH I had to pay unemployment to an employee that gave two weeks notice and spent all of it looking for a job and interviewing, when she didn’t show up the 2nd to past day we told her don’t bother coming back for the last day. State considered that firing her and she got unemployment, for not putting up with her crap for an extra day we pay out the nose. Regulation is a far bigger expense then insurance, if I wasn’t wasting money on crap like the above I could afford to spend more on insurance. Medicare and Medicaid taxes are a bigger impediment to hiring new workers then the cost of insurance.

  7. Deron, my support of government run single-pay is one issue and in the end will prove to be the only system that works at driving down costs and delivering healthcare, but I also recognize that fixing “government for money” will also need to be done to get it to work properly(along with a whole bunch more). Maybe we can get both fixed at the same time?? Politicians can’t just give us a public option by spending (and printing) money, they’ll have to make some enemies to get it to work, and that means reducing someones income.

  8. Peter – I’m going to need you to reconcile something for me. How can you use the term “spineless politicians” in one of your comments above when you have made it clear many times that you are an unwavering advocate for a government run healthcare system? Something’s gotta give.

  9. Wow John and I almost agree. Employers shouldn’t be vehicles of insurance. But in his perfect world, you’d need such vicious regulations and mandating of both insurers and insurees to make it work that his friends at PRI and Cato would declare him a crypto-marxist. That would be fine with me, but not with his friends!
    Of course Pauly is a loon who thinks that the individual market works fine for 80% of the people in it. He missed the day in economics class when they expalined the 80/20 law 🙂
    But on the flip side there’s growth in nutty professors outside of Pauly and Coachrane–there’s that Tyler Cowen guy at George Mason, and that Manikw dude at Harvard….it’s a movement I tell ya!

  10. This is a great series of comments. Quite right: small businesses are not effective at pooling risk, which is done at the insurer. An individual with a portable, guaranteed renewable, incentive compatible, health- status policy (see Mark Pauly of Wharton or John Cochrane of U. of Chicago) is insurable with actuarial stability. A small business is not because neither the employer nor the insurer know who the employees will be next year or how many there will be.

  11. “But this is America, not Canada, the U.K. or some other fantasy land.”
    And all this time I had no idea that Canada and the UK were figments of my imagination.
    Thanks for clearing that up or is this just the new “American exceptionalism”?

  12. Donald, do really think that the workers at Alpha Express Inc. would be able to pay the deductibles from a high deductible plan? And if accompanied by an HSA could they afford to take enough money from other living expenses to actually put meaningful money into the account? High deductible plans do nothing to stop the ever increasing exponential cost of healthcare, they only shift cost and reduce risk from insurers to patients. Hospitals now are feeling the result of the economy because those with insurance don’t have the money to pay their deductibles and are postponing treatment.
    http://www.commonwealthfund.org/Content/Publications/Fund-Reports/2005/Apr/How-High-Is-Too-High–Implications-of-High-Deductible-Health-Plans.aspx
    http://www.boston.com/news/local/massachusetts/articles/2009/06/21/costs_are_keeping_patients_from_care/
    You also want to “Take politicians…” out of the health insurance markets” but then you go on to say that we should “fix education”, “make good nutrition and exercise habitual at early ages”, “convince the producers of foodstuffs and operators of restaurants that it is unethical to make and serve unhealthy foods”, “Insurance market regulations could ban health insurance pricing designed to drive sick people away.”, “Regulate health insurance markets” – whose going to do all of that if not government?
    Tom, most American small businesses are low profit and under capitalized. The increasing cost of healthcare is NOT a result of their mismanagment, but from factors not within their control as it doesn’t seem within anybodys control. I also think that too much attention is paid to these marginal businesses and their value, especially when the NFIB lobbys to cut their taxes (in reality shift their taxes), but on healthcare I am on their side and would be willing to take that burden away from them so that they could fail/succeed by other means. But owners of small businesses, as with all businesses, have to realize that they won’t get away with free healthcare. They’ll have to pay for it through their taxes. That’s why getting costs under control is so important because no one is going to stand by a pay taxes to prop up an expensive and broken system.
    Wendell, taking health insurance away from employers would have relieved you of the pain and expense of navigating insurance for your workers – good or bad, one year service or five.

  13. Now, I believe, comes Matthew’s turn to smooth the sheets over the strange bedfellows he’s attracted to this edition of his single payer call-to-action.
    Right on, dude, single-payer! Just so long as pays via a high-deductible health plan…. 😀

  14. Individuals should buy high deductible, catastrophic health insurance that covers them for life, not employers nor governments, which are very dishonest brokers in health insurance markets.
    Health insurance can be made more affordable for the privately insured, and the 6 million to 8 million uninsured American citizens who can’t afford health insurance and aren’t eligible for existing government programs. Health markets can be fixed for a lot less than $1.6 trillion trillion over the next five years.
    There are six changes in America, the health markets and health insurance markets that can vastly improve our health and slow the rate of increase in health costs and expenditures:
    Take politicians and employers out of the health insurance markets, which they have managed to distort to the detriment of every American. Politicians respond to political pressures from special interests and campaign contributors, not to the needs of consumers. Employers select insurers and health plans for their workers that help them maximize profits, not serve the health insurance needs of their workers. Let workers buy insurance directly from insurers, not through employers. This would allow workers to change jobs without losing their health insurance. As a result, workers would climb the income and career ladders faster, which would make it easier for them to buy the insurance they want and need. Individual policies should be community rated by insurers. State insurance regulations should be pre-empted by federal laws that require each insurer to create state, regional or national risk pools for everyone rather than small groups. Individual and small group medical risk rating should be banned. This would raise premiums for the young but lower their premiums as they aged and became higher cost medical risks. Community rating is not socialism.
    Fix education in America for all age groups. Teach kids to read and write and to analyze problems. Make good nutrition and exercise habitual at early ages. Use multi-media to promote healthy lifestyles and personal responsibility. Use multi-media to convince the producers of foodstuffs and operators of restaurants that it is unethical to make and serve unhealthy foods and drinks. Employ professional heath educators to counsel and teach healthy lifestyles. Take costly physicians and nurses out of the prevention and wellness business and let them focus on delivering acute medical care. This will both reduce the cost of health training and relieve physician and nurse shortages. Finally, show Americans that it is unethical to sue providers for making human errors ad opposed to being criminally negligent. Cap malpractice payments to plaintiffs and their lawyers.
    Require everyone to buy high-deductible catastrophic health insurance and some kind of long-term care insurance that would cover chronic illnesses and permanent disabilities caused by addictions and accidents. If everyone bought real insurance, premiums would be contained. Pre-existing conditions would no longer be an issue. And insurance market regulations could ban health insurance pricing designed to drive sick people away. Insurers no longer would be able to cherry pick low-risk customers. Preventive care and wellness care make health insurance much more expensive than it should be. It makes no sense for us to pay insurers 15% to 25% more for preventive and wellness insurance than it would cost us to buy those services with our credit cards. It is not the government’s job nor the jobs of employers and insurers to force us to buy preventive and wellness services. Paying insurers for preventive and primary care is like paying a bank 20% interest to hold our money until we spend it on an oil change for our car.
    Regulate health insurance markets so that insurers compete based on their ability to control administrative and marketing costs. Give them financial incentives to control those costs and negotiate good contracts with providers without imposing the onerous HMO-type gatekeeper rules of the 1990s, which are in the $1.6 trillion Kennedy bill. No matter what health insurance reforms are achieved, there will be administrative costs. These costs include claims processing by providers and insurers, the cost of negotiating and enforcing contracts with providers and other suppliers, the cost of preventing fraud and abuse, marketing costs and the cost of providing customer service. Medicare’s administrative costs look cheap, but they aren’t because Medicare shifts those costs to providers and then reimburses providers for their administrative costs. Insurers’ net profit margins are so small that they’re barely worth discussing.
    Use evidence-based, cook book medicine where appropriate. I think the literature shows that less than 50% of symtoms can be addressed by evidence-based treatments. The human body and mind are so complex that not every illness can be treated based on evidence and guidelines. Just as it is important to be honest about the effectiveness and workability of evidence-based medicine, it’s important to be honest about the cost-effectiveness of electronic medical records and efforts to measure quality, which are much less cost-effective than their advocates claim.
    Use federal regulations to ensure transparency in health markets. This will help contain costs and improve quality. Providers, insurers and medical products suppliers all should be required to post understandable and detailed transaction prices, not list prices, and contract terms on the Internet the day they are updated. Today, it is common for hospitals to charge the self-insured wildly and dishonestly inflated list prices and charge insurers incredibly discounted prices. Similarly, makers and distributors of medical supplies and equipment sharply discount inflated list prices. Require all players to publish their latest transaction prices daily. Markets work when all players have good information. They don’t work when they’re distorted by game playing.
    Bonus. If regulations can be devised that sharply reduce the profitability of using campaign contributions to get politicians to further distort the health insurance markets, the markets will work much better. We’ll get better and more health care for every dollar spent.
    But this is America, not Canada, the U.K. or some other fantasy land. Whatever reforms are devised will reflect the American political system, culture, geography, demographics and our very high standards of living, which allow us to spend more on health care than any other country.

  15. Richard S. correct. Tom Leith wrong. The small business world (outside of protected industries such as medical services notably) is intensely competitive in almost all ways.
    I started, owned and operated a small manufacturing business of a basic industrial product in northern NYState in the 1990s. It was difficult enough finding workers who would show up for work or show up for work and actually work. For unskilled or even skilled blue collar workers, net pay is crucial. Many for whatever reason (smokers, poor hygiene, lack of access to basic medical services, genetics) have personal health problems, but still the need to have enough net income to cover personal and usually family needs is paramount.
    I offered an insurance plan, but any worker had to pay the premium for the first 6 months, the premium was split for the next 6 months, then fully paid by the company after that point. The premium paid added significant incremental dollars of expense to the hourly cost of each worker. The company paid above-average wages for a variety of reasons, but adding company-paid insurance premiums for any worker who had not already proved his (too heavy-duty for female workers) value by persisting for at least a year, was unrealistic for both worker and employer.
    Mr. Leith’s comment reflects clearly no personal experience with that kind of work setting which is the norm rather than the anomaly.

  16. Sigh.
    Unless we agree that medical insurance (mostly on Nate’s definition) is optional, someone has to pay for it for every family. There are a number of ways to accomplish that of course, but there is no way to take healthcare off the plate of all the businesses — at the end of the day business pays for EVERYTHING. And one wonders about the value of a business that can’t pay enough to support its employees’ families. Or its owners’ families, for that matter. As a pragmatic point, until “we” manage to find a way to better distribute income in the first place, then some modicum of re-distribution seems a necessary evil. But why oh why should we fawn over businesses that don’t add or can’t capture enough value to support its employees’ families?
    t

  17. I thought that Ms Young’s comment about her husband was telling: he can’t afford to come home to help run the business because he can’t afford coverage for his family. The lack of portable universal coverage is a major drag on the recovery. How many people pass up employment opportunities because they can’t relinquish their current plan? How many people with a chronic condition and a great entrepreneurial idea are prepared to quit their job and start a new business?
    A traditional hallmark of the American economy has always been the willingness of people to relocate and to risk new ventures. Taxing small businesses for healthcare coverage is a terrible idea. Wringing out the waste with a universal single payer solution is the right answer.

  18. Here’s the problem with a government solution. The government doesn’t have the money. So even if they implement a non-profit solution, they’ll simply print more money that us, our children, and grand-children will be stuck paying interest on. They must get other spending under control (all spending) in conjunction with any health care initiative. For example, a study by Price Waterhouse Coopers (see details and a link at http://pharmastats.blogspot.com/2008/04/12-tillion-wasted-each-year-in-our.html)shows that half of the $2.2 trillion spend on health care is waste. This is where the true reform needs to happen.
    Unfortunaely, none of our politians want to make the real hard choices.

  19. SMBs are biggest employers. They work in a narrow space and have to work hard to survive. They should be left free to manage their business and not burdened by too many benefits.
    Today not all the businesses in this category provide insurance – so it is already bad. Now big businesses are tending towrds that by gradually reducing the coverage or increasing the employee contribution.
    Futuristically speaking, let healthcare be taken off the plate of all the businesses. It should be throuth government and personal basis.
    We buy our own house insurance and sure can buy health too.
    rgds
    ravi
    blogs.biproinc.com/healthcare
    http://www.biproinc.com

  20. I want a public plan that will compete on an ‘unfair’ basis with the for-profit insurance companies. We need to run them out of business. They have no cost control. They pay bonuses for denying needed coverage. Is it ‘unfair’ to have a lower administrative cost and forgo profits?

  21. Her statement that we need, “a public option that will COMPETE ON A FAIR BASIS with the private plans” does not make sense, nor do I understand what she means by that. Does she know what she means by that? Do we just need a publically funded plan that continues to pay the same to providers as private plans? That will pay for any procedure the patient or doctor wants. That charges the same for similar coverage? That still denies coverage for pre-existing? That still engages in recission of coverage? How will the public plan defend the sure to come charge that it is competing unfairly with private plans, if it offers the coverage and price that this small business owner and her employees need to have health coverage? I certainly DON’T want a public plan that is a clone of private plans, nor do I want my tax dollars proping up a grossly expensive and corrupt system just because spineless policians want their cake and eat it too.

  22. Right on, Matthew!!! It’s just beyond reason to suggest that the woman in this clip should be assessed an 8% payroll tax like the Tri-Committee bill would do to pay for health coverage. You just don’t get a recovery if you do that. My significant other has a small business (seven employees) and provides just two of them health coverage.
    She still isn’t paying herself a salary (!) and is right on the edge of terminating the coverage she has because she cannot afford it. The amount of subsidies required to make small businesses like hers actually afford coverage are FAR larger than anyone is admitting, so either very large, broad-based tax increases or a major incursion into Medicare will be needed to pay for this. A large exemption for small businesses will leave a huge fraction of the uninsured still uninsured, requiring pretty much complete subsidies for them to buy individual coverage.
    It is flipping obvious that the right solution is to take this benefit burden off the wage base. The real resistance isn’t going to come from Republicans (“read my lips”), but from the unions, who are suddenly out of the Santa Claus business on health benefits. I don’t think any of the current participants in this process have enough guts or political capital to get this done.

  23. I have always wondered why no “marverick” Republican politician did not seize this as an issue, what I generally refer to as a “Nixon goes to China” kind of action.
    A Republican politician, particularly given the unbelievable nonsense that all prominent Republicans politicians seem to now utter on any topic including on healthcare policy, would gain instant credibility by pointing out the obvious.
    Specifically, assuming that Republicans at least nominally represent business of one type or another – ostensibly small business, but behind the scenes any big business – any strong initiative to eliminate the funding of medical service costs through business is ultimately very beneficial to business, to its employees and to society, assuming that replacement funding is intelligently created.
    Needless to say no business of any size has any control over the level and almost none over the volume of medical service spending. The only way any control can be exerted is through strong, centralized and, one hopes, enlightened administration.
    A Republican politician could rightfully assert that he/she is truly adhering to at least traditional Republican principles (as opposed to the current lack of adherence to any principle), i.e. relieving businesses particularly small ones from a wasteful burden imposed haphazardly by an historical fluke, while doing significant benefit to society as a whole.

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