The current economic crisis has not allowed President Obama and the new Congress much time to settle in. Although economic stimulus is the immediate focus of attention, other major campaign initiatives, including comprehensive health care reform, are expected to be back in the spotlight soon.1 Though the issues underlying health care reform are generally agreed upon — access to affordable, quality health care — it’s the solutions that cause so much difficulty. This article provides an overview of the health reform policies of key players in the new Congress and administration, focusing on the future role policy makers have in mind for employer coverage.
Before delving into the specifics of the proposals, let’s look at some basic background with respect to employer-provided health care. First (and critically important to health reform), rightly or wrongly, employer provided health is a major, integral part of health care in America. Employer coverage is the single largest source of health coverage in the United States, with over 60 percent of Americans receiving their health care through an employer.
According to the Kaiser Family Foundation 2008 Employer Health Benefits Survey,2 63 percent of employers offered health coverage in 2008, with the percentage varying by size. Just under half of firms with three to nine workers offered coverage, compared to 95 percent of firms with 50 or more workers. Thirteen percent of firms offering health benefits offered a high deductible health plan with a savings option. More than half (53 percent) of firms with 3-199 workers and 88 percent of firms with 200 or more workers offering health benefits offered at least one wellness program such as weight loss, smoking cessation, nutrition or healthy living classes, or a wellness newsletter. In 2008, the average annual premiums for employer coverage were $4,704 for single coverage and $12,680 for family coverage. This is about a five percent increase from 2007; since 1999 average premiums for family coverage have increased 119 percent.
Please click here to view Sources of Health Insurance Coverage chart.
What changes do employers see making in their health plans in the near future? The Kaiser Survey reports that large percentages of firms are very or somewhat likely to increase the amount workers pay for insurance (40 percent), increase deductibles (41 percent), or increase the amount employees pay for prescription drugs (41 percent). On the other hand, few firms report that they are likely or very likely to drop coverage (six percent). About one in four firms offering health coverage but not offering a high deductible option say they are very likely (four percent) or somewhat likely (21 percent) to do so.
With this backdrop, let’s take a look at what key policy makers have in mind for the future of health care in America.
“The very first promise I made on this campaign was that, as president, I will sign a universal health care plan into law by the end of my first term in office.” 3
President Obama outlined his health care reform proposal during the campaign; the major elements have not been refined significantly to date. His proposal seeks to build on the employer-based system by expanding coverage through a new public plan. Key points of his proposal:
- A “pay or play” requirement would be imposed on employers. Employers who do not provide “meaningful” health coverage or contribute a “meaningful” amount toward the cost of coverage would be required to pay an unspecified percentage of payroll to fund the public plan.
- Individuals and small businesses could obtain coverage through a new national health care plan, modeled after the Federal Employees Health Benefit Plan (FEHBP).
- A new National Health Insurance Exchange would be created to act as a clearinghouse for private insurance.
- States would be permitted to develop their own coverage options, provided the coverage meets the requirements for the public plan.
- Children would be required to have health insurance.
- Federal subsidies would be available to low income individuals and small employers.
- No changes to the exclusion for employer provided health care are specified.
Senator Max Baucus (D-MT), Chairman of the Senate Finance Committee
“Health care reform must enable employers large and small to continue providing coverage to workers, and to share the responsibility of maintaining a healthy, productive, globally competitive workforce.” 4
At the end of 2008, Chairman Baucus released his “Call to Action,” stressing the urgent need for health care reform and detailing his vision for the future of health care in America.5 By his own account, his “Call to Action” is not intended as a legislative proposal; however, it is well beyond initial stages. The chairman laid the ground work for his proposal in 2008, through a series of hearings and other events.
His proposal for increasing access to affordable health insurance includes the following key provisions:
- Mandated coverage for all Americans, generally enforced through the tax system.
- A “pay or play” system for large employers, who would be required to provide coverage to workers or pay an unspecified amount into a fund to cover the uninsured, most likely based on a percentage of payroll. All employers other than small employers would be required to allow employee premiums for health coverage to be paid on a pre-tax basis through a cafeteria plan.
- Individuals and small businesses would have access to private health insurance through a new Health Insurance Exchange. Low income individuals and small business would be provided tax credits to subsidize the cost of coverage. Private market reforms would be developed to address issues such as pre-existing conditions, adverse selection and rating practices.
- Individuals age 55 to 64 would be permitted to buy into Medicare (at least until the Health Insurance Exchange is up and running).
With respect to the current tax benefits for health care, he specifically rejects the idea of eliminating the exclusion for employer provided health care, due to concerns that this could cause significant disruption in the employer group market. He does indicate, however, that some changes to the exclusion to better target the tax subsidies for health care, such as a cap on the exclusion based on the value of the coverage, income or both, may be in order.
The Bipartisan “Healthy Americans Act,” sponsored by Senator Ron Wyden (D-OR)
“Insurance would … no longer be tied to employment. If an individual is laid off, leaves their job voluntarily, or develops a serious illness, he or she would continue to be covered.” 6
The Healthy Americans Act was originally introduced as S. 334 (110th Congress) in 2007 and has since been modified. The bill is supported by a bipartisan group of Senators and has as its champion Senator Ron Wyden.7 The bipartisan nature of the bill is remarkable. The proposal removes the tax exclusion for employer provided health insurance, an idea somewhat at odds with many of the current majority. The bill has just been reintroduced in the current Congress and includes changes from the prior version.
The Healthy Americans Act takes a different approach to increasing coverage than the Baucus Call to Action. In particular, the Healthy Americans Act seeks to place all Americans in private health insurance, rather than the employer market.
Key elements of the Healthy Americans Act include the following:
- Mandated coverage for all Americans.
- States would be required to set up purchasing pools through which individuals would purchase health insurance.
- Employers would generally be required to pay a percentage of payroll varying from three percent to 26 percent, depending on employer size and revenue.
- Premium payments are generally administered through the tax system.
- The current income tax exclusion for employer-provided health care would be repealed and replaced with a standard deduction for health care. Premium subsidies would be provided for low income individuals.
Congressman Pete Stark (D-CA), Chairman of the Health Subcommittee of the House Committee on Ways and Means
“My preferred approach to universal coverage is to build on the success of the Medicare program, which provides universal health care for our nation’s seniors and people with disabilities.” 8
Congressman Stark introduced the Americare Health Care Act of 2009, H.R. 193, earlier this year.9 The bill would
- provide for universal coverage by expanding Medicare coverage to all Americans;
- provide premium subsidies for low income individuals;
- require employers to pay for 80 percent of the cost of employer-provided coverage or pay a similar amount to pay for coverage under the public plan; and
- retain the exclusion for employer-provided coverage.
What Lies Ahead?
It’s very early yet to predict too much on specifics, but some outlines are developing. For one thing, most proposals seek to build on the employer-based system and use public or private coverage as a means of filling gaps, rather than move either toward a completely public or private system independent of employment. Employers may be forced to consider health care as a part of labor costs under “pay or play” requirements.
Total repeal of the employer-provided exclusion (even with a replacement deduction or credit) seems unlikely at this point. However, some changes to the exclusion are generally expected, such as a cap based on income.
Although not detailed here, most of the proposals contain a variety of reforms for the individual market, various cost cutting measures and proposals designed to encourage preventive care and disease management.
The proposals tend not to say much about consumer driven options, leaving the future of health savings accounts somewhat hazy. At the least, expansion of health savings accounts along the lines proposed by President Bush seems unlikely.
Most of the proposals also tend not to say much about ERISA preemption. Thus, the extent to which employers may be subject to both more stringent federal and state rules is unclear.
In terms of timing, while some are pushing for enactment of health reform this year, many believe an enactment date before next year just isn’t plausible. For one thing, even though the Democrats control both houses of Congress and the White House, major changes typically require bipartisan support as well as the buy-in of major stakeholder groups to be successful. Even within the Democratic-controlled Congress, there is not a single view as to what should be done. Several different committees in each house of Congress will be involved. Changes to Medicare and other public programs may also be the mix. It takes considerable time and effort to build a consensus involving such a broad range of issues and interests. President Obama and others have committed to trying.