95
MANY WILL BE HURT: ANOTHER VIEW OF MANDATING PROPOSALS* STANLEY B. JONES Private Consultant on Health Insurance Policy Washington, D.C. M/[ R.
NEEDLEMAN HAS MADE MY JOB EASY. He has presented mandating proposals in a way that both warts and promise stand out clearly. My role is to describe the problems that I see in the direction we are headed with this family of proposals. I am particularly concerned about how these proposals are likely to come out of the political process. Anyone who works in Washington knows it is not the bill as introduced that counts, but the law as finally passed-including all its compromises. I would like to start, so you know where I am heading, with a case study of how mandating can fail: bring to your mind the case of a young woman with several children living in the inner city. She has a full time job, earns more than the minimum wage-not much more, but above the minimum wage and qualifies for Medicaid. For health care she uses the neighborhood health center or public clinics and hospitals nearby; she pays no cost sharing (because she is judged unable to afford it) and no insurance premium. Nor does her employer pay any insurance premium on her behalf. What difference would be made by the legislation that is likely to emerge out of these mandated proposals? First, the woman would in all likelihood gain private insurance. There is a chance this might not happen-that instead she might be laid off or forced into part-time employment by an employer cutting back the number of fulltime employees to escape the mandate. But let us assume that she stays employed full-time. However, it is very possible, and I think likely, that her wage would be decreased. The employer might well tell his employees in a note in their paychecks, or directly when they come to be paid, that "there's this new law *Presented in a panel, The Present and Future of Employee Health Benefits and Managed Care, as part of the Annual Health Conference, The Changing Agenda for Health Care in America: Balancing Need and Commitment, held by the Committee on Medicine in Society of the New York Academy of Medicine May 9 and 10, 1989. Address for reprint requests: P.O. Box 25366, Washington, D.C. 20007.
Vol. 66, No. 1, January-February 1990
96
S.B. JONES
96S.B.~~~
and it is going to be costly and I am sorry but everybody is going to have to take a wage cut to help pay for the increase." Or, perhaps, the employer will let it go for now but not let wages increase for two or three years. The bottom line is that our young mother earns less. She takes home less either immediately or in future years in order to get private health insurance. Medicaid, in fact, will save money on this woman and her children. Medicaid is a "secondary payer," and now that she has private insurance, private insurance will pay first. Of course, she will still use the neighborhood health center and the public hospital and clinic for health care. It took me a half an hour and $10 to get across town this morning. In all likelihood, even though she now has private insurance, she is not going to make the trip across town or to the suburbs to a private physician's office. She will go to the same place as before. And the neighborhood health center or public hospital and clinic will bill the new insurance program. They are obliged to do that. The neighborhood health center will not retain its grant funds unless it at least tries to collect private insurance. And, ultimately, whatever the center receives in grant funds will be reduced by the amount of these new private insurance payments. The centers and clinics are not likely to have a windfall of dollars to add new services for this woman or her children. Their grants and appropriations will be adjusted accordingly. With this woman and people like her mandating all seems to come out with them getting roughly the same care they are getting now but after paying an insurance premium from their wages. But let me walk through the problems with mandating laws in the current political environment in a little more detail to tell you why a mandating law would result in fewer people being helped than we intend and many hurt. First, I remind you that mandating will not reach everybody. A lot of employers will not be reached even if the program says, "Thou shalt play or pay" or "Thou shalt provide insurance." In fact, it is technically difficult to do it. It is difficult to extend insurance to seasonal and to part-time employees. And employers can avoid the mandate by hiring more part-time and fewer full-time workers. Some of the bills include provisions intended to ease this problem: tax breaks or other subsidies to the employer to decrease their burden so that they can buy insurance, and publicly funded "last resort systems," where parttime and seasonal employees and others can obtain publicly provided insurance. Unfortunately, tax subsidies and publicly funded systems are the parts Bull. N.Y. Acad. Med.
ENTITLEMENT PROGRAMS
ENTITLEMENT PROGRAMS
97 97
of proposed bills that will cost government money and raise taxes; they are least likely to make it into final law. The part of the mandating proposals likely to pass is the employer mandate. This would allow legislators to tell employers to buy something for voters without increasing the cost to government or increasing the deficit. In fact, the mandate offers legislators the opportunity to lower the cost of government programs even as they give something to voters. As has been pointed out, Medicare could save, Medicaid could save. There would actually be a cost shift outward to individuals from government programs. Legislators can even reduce the deficit a little, but only if they drop those pieces of these proposals that would cost the government money. A second basic problem with mandating is that it relies on a labor market that will inevitably place the costs on those who earn least. Much of the labor market simply will not support higher pay and fringes for low-skilled, lowpaid workers. If one employs people at just above the minimum wage and competes with other companies employing people at just above the minimum wage, the fact is that one can probably get away with reducing wages or holding down wage increases over several years to make up for the costs of the new health insurance. One will still be able to get the workers needed. Other employers will be doing the same thing. That is why these employers did not buy insurance in the past. These workers can be hired without offering that level of benefits. The law will not change this. What all this means is that the individual, especially the low income worker, will pay out of pocket a substantial portion or all of the premium for this new insurance program. Deborah Chollet offered a good example earlier of family health coverage costing $3,000 a year, or 5% of $60,000 income. Think of it as 25% of a family's income of $12,000! Public health experts have said they would prefer to see such low income families have higher wages for housing, shelter, nutrition, and many other things rather than private health insurance. This is particularly true when these families already get a lot of needed care and at little or no cost! Mandating is a very regressive tax. Ironically, the people who will pay would be helped the least-they would be paying a new and very high premium for something they are already getting. And, as in the example of the woman described in the beginning, they may get the same services at the same place that they have in the past. The only difference is, now they pay. A third basic problem with mandating legislation is that it is inflationary. It will increase employers' and everyone's costs. Vol. 66, No. 1, January-February 1990
98
S.B. JONES JONES~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
A hospital that currently has high bad debt and charity care burdens would find that it gets more payment mandating. That may be why hospitals have come around to supporting these measures. Physicians also are supporting them and likewise will face less bad debt and charity care. The question is, what will they do with the additional money they get? I have sat at conference tables with hospital administrators and asked "Will you put the money back into the community in the form of services that are not currently being offered?" They do not have a whole lot of enthusiasm for that. What they need that money for is to offer services that will allow them to compete better for paying patients. There is a long list of hospital improvements-technology, support staff things that attract physicians-that they need to compete with the hospital down the road. What that will mean is inflation. Sad to say, the windfall that will drive the inflation will to a disproportionate degree come from the pockets of people like the women I described, who will have to pay a premium for services she once got for nothing. Finally, mandating health insurance is a clumsy way to get the health care they really need to lots of people. Health insurance simply does not cover the services that many people need most. Such people above all need better housing and sanitation, better nutrition, prenatal and well baby care, alcohol and drug abuse prevention and treatment, job training, literacy training, transportation to physicians' offices, and a physician willing to accept them. They need these things more than coverage for the classic acute medical services that health insurance would provide them under mandating proposals. Now it is true that some of the proposals require prenatal and well baby care to be covered. And while they allow cost sharing, deductibles, and coinsurance on other services, they do require that well baby and prenatal care be covered without deductibles and co-insurance. The problem, again, is that these provisions are costly. They raise the cost to the employer; they raise the cost of any tax subsidy program, and make it politically vulnerable. I am afraid that the mandating bill most likely to be enacted is a catastrophic insurance benefit with very high deductibles and co-insurance. It is most likely because, first, it will eliminate or lessen the cost to government of tax breaks or subsidies to employers by reducing benefits that employers are required to buy. Second, it will make employers happier. Third, it will provide, additional insurance revenues for hospitals that would most benefit from the catastrophic coverage. Fourth, while the very poor will be hurt most by it, they of course do not have much voice in compromises of this sort. Bull. N.Y. Acad. Med.
ENTITLEMENT PROGRAMS99 PROGRAMS
ENTITLEMEN
99
MEDICARE CATASTROPHIC: AN EXAMPLE OF How GOOD PROPOSALS CAN BE COMPROMISED INTO BAD LEGISLATION
For an example of a compromise that comes of what initially looked like a good idea but turned out to offer very little to the people whom it purported to help, look at the Medicare Catastrophic Law. Why do we get into such situations in this country? The truth is that politicians and legislators need proposals that answer the problem if they are to get ahead. Without a bill, they are like a ship without a sail; they are just not going to move anywhere. So one needs a proposal. Similarly, national associations of providers, insurers, and others need proposals to keep their members feeling that they are doing something, that they are making progress against problems that everybody sees and realizes are critical. Even advocacy groups that look out for the poor need a proposal to support so they can say to the troops back home, "This is what we are doing for you. " I really think this is what happened with Medicare Catastrophic: everyone wanted to show that they were doing something, and as we got farther and farther down the road, no one could afford to pull out. Even though the proposal had been so compromised that it no longer made sense, everyone stood behind it. MANDATING WILL BE BAD LAW
Also, I think that it can happen again, and we can end with a bill that really does not help the people we set out to help. Summing up, I think that mandating will not get benefits and help to the right people. First, in our current political and budgetary environment, we shall get a bill that covers the wrong kinds of services. Second, it will be clumsy because it assesses the costs from the wrong people, laying what amounts to a very regressive tax on low-income people whose position in the labor force is so vulnerable that employers can pass on to them any increased cost that government lays on employers. We would be setting up a chain to tax the poor in this program. Third, the proposal will drive up everyone's costs, including employers'. I do not think that employers will get much saving out of this, even though some argue that if all employers buy insurance, the cost-shift to current buyers will diminish. I think that the new money mandating could bring into the system will disappear as providers use it to do things that increase the cost to all of us. Vol. 66, No. 1, January-February 1990
100 100
SB. B. JONES S.
BETrER LEADERSHIP Is NEEDED
The invitational letter from Dr. Lieberman said "we would also appreciate knowing what you would do about all of this." It is very difficult, given the environment in Washington, to stick one's head above the trench and say "I think this is a bad idea. " You will immediately be attacked by all the different interests who need a bill, and if you do not have a proposal, you are somehow made to feel immoral. It is not enought to just see a problem; one must also have an answer proposal. If pushed, I think that we have to find a way to spread the costs of health care for our population across the whole population, more equitably than insurance premiums will ever allow. I do not believe that the labor market and the employer-based insurance system will ever fairly distribute the cost of health care in the country, not even remotely fairly. We will always be stuck with parts of our population taxed at incredible rates and not given what they need. We need to increase taxes and we need to do it now. This may sound politically naive, but I suggest that what we need is some braver politicians to wake up to this reality. More courageous political leadership is needed. And it would be better to do it now rather than tomorrow when the cost will be greater than today. It would have been easier and a lot cheaper to pass a "universal and unitary" system when health care was consuming four percent of the gross national product than today when it consumes 11 to 12%. In addition, I believe we should use these taxes to buy health care but exert better control over costs. We need to incorporate in our thinking much stronger cost-containment provisions than these mandated approaches contain. In fact, they incorporate very little. But suppose you push me further, tell me that we cannot raise taxes, tell me that this mandating approach is all we can get politically. Would I rather have mandating or nothing? It is a tough call. I am reminded of a friend who used to remind me that God told Joshua not to blow an "uncertain trumpet," or the walls would not come tumbling down. I suggest on balance that if I had to choose right now I would not want this bill. I think that the mandating bill that will come out of this political process will be a bad bill. It will hurt people. It will divert our attention and our energies from the bigger problem that needs to be solved. It will allow our legislative representatives to claim they are doing something when in fact they are doing very little. Better to do nothing today and wait for a better opportunity tomorrow.
Bull. N.Y. Acad. Med.
MANY WILL BE HURT: ANOTHER VIEW OF MANDATING PROPOSALS* STANLEY B. JONES Private Consultant on Health Insurance Policy Washington, D.C. M/[ R.
NEEDLEMAN HAS MADE MY JOB EASY. He has presented mandating proposals in a way that both warts and promise stand out clearly. My role is to describe the problems that I see in the direction we are headed with this family of proposals. I am particularly concerned about how these proposals are likely to come out of the political process. Anyone who works in Washington knows it is not the bill as introduced that counts, but the law as finally passed-including all its compromises. I would like to start, so you know where I am heading, with a case study of how mandating can fail: bring to your mind the case of a young woman with several children living in the inner city. She has a full time job, earns more than the minimum wage-not much more, but above the minimum wage and qualifies for Medicaid. For health care she uses the neighborhood health center or public clinics and hospitals nearby; she pays no cost sharing (because she is judged unable to afford it) and no insurance premium. Nor does her employer pay any insurance premium on her behalf. What difference would be made by the legislation that is likely to emerge out of these mandated proposals? First, the woman would in all likelihood gain private insurance. There is a chance this might not happen-that instead she might be laid off or forced into part-time employment by an employer cutting back the number of fulltime employees to escape the mandate. But let us assume that she stays employed full-time. However, it is very possible, and I think likely, that her wage would be decreased. The employer might well tell his employees in a note in their paychecks, or directly when they come to be paid, that "there's this new law *Presented in a panel, The Present and Future of Employee Health Benefits and Managed Care, as part of the Annual Health Conference, The Changing Agenda for Health Care in America: Balancing Need and Commitment, held by the Committee on Medicine in Society of the New York Academy of Medicine May 9 and 10, 1989. Address for reprint requests: P.O. Box 25366, Washington, D.C. 20007.
Vol. 66, No. 1, January-February 1990
96
S.B. JONES
96S.B.~~~
and it is going to be costly and I am sorry but everybody is going to have to take a wage cut to help pay for the increase." Or, perhaps, the employer will let it go for now but not let wages increase for two or three years. The bottom line is that our young mother earns less. She takes home less either immediately or in future years in order to get private health insurance. Medicaid, in fact, will save money on this woman and her children. Medicaid is a "secondary payer," and now that she has private insurance, private insurance will pay first. Of course, she will still use the neighborhood health center and the public hospital and clinic for health care. It took me a half an hour and $10 to get across town this morning. In all likelihood, even though she now has private insurance, she is not going to make the trip across town or to the suburbs to a private physician's office. She will go to the same place as before. And the neighborhood health center or public hospital and clinic will bill the new insurance program. They are obliged to do that. The neighborhood health center will not retain its grant funds unless it at least tries to collect private insurance. And, ultimately, whatever the center receives in grant funds will be reduced by the amount of these new private insurance payments. The centers and clinics are not likely to have a windfall of dollars to add new services for this woman or her children. Their grants and appropriations will be adjusted accordingly. With this woman and people like her mandating all seems to come out with them getting roughly the same care they are getting now but after paying an insurance premium from their wages. But let me walk through the problems with mandating laws in the current political environment in a little more detail to tell you why a mandating law would result in fewer people being helped than we intend and many hurt. First, I remind you that mandating will not reach everybody. A lot of employers will not be reached even if the program says, "Thou shalt play or pay" or "Thou shalt provide insurance." In fact, it is technically difficult to do it. It is difficult to extend insurance to seasonal and to part-time employees. And employers can avoid the mandate by hiring more part-time and fewer full-time workers. Some of the bills include provisions intended to ease this problem: tax breaks or other subsidies to the employer to decrease their burden so that they can buy insurance, and publicly funded "last resort systems," where parttime and seasonal employees and others can obtain publicly provided insurance. Unfortunately, tax subsidies and publicly funded systems are the parts Bull. N.Y. Acad. Med.
ENTITLEMENT PROGRAMS
ENTITLEMENT PROGRAMS
97 97
of proposed bills that will cost government money and raise taxes; they are least likely to make it into final law. The part of the mandating proposals likely to pass is the employer mandate. This would allow legislators to tell employers to buy something for voters without increasing the cost to government or increasing the deficit. In fact, the mandate offers legislators the opportunity to lower the cost of government programs even as they give something to voters. As has been pointed out, Medicare could save, Medicaid could save. There would actually be a cost shift outward to individuals from government programs. Legislators can even reduce the deficit a little, but only if they drop those pieces of these proposals that would cost the government money. A second basic problem with mandating is that it relies on a labor market that will inevitably place the costs on those who earn least. Much of the labor market simply will not support higher pay and fringes for low-skilled, lowpaid workers. If one employs people at just above the minimum wage and competes with other companies employing people at just above the minimum wage, the fact is that one can probably get away with reducing wages or holding down wage increases over several years to make up for the costs of the new health insurance. One will still be able to get the workers needed. Other employers will be doing the same thing. That is why these employers did not buy insurance in the past. These workers can be hired without offering that level of benefits. The law will not change this. What all this means is that the individual, especially the low income worker, will pay out of pocket a substantial portion or all of the premium for this new insurance program. Deborah Chollet offered a good example earlier of family health coverage costing $3,000 a year, or 5% of $60,000 income. Think of it as 25% of a family's income of $12,000! Public health experts have said they would prefer to see such low income families have higher wages for housing, shelter, nutrition, and many other things rather than private health insurance. This is particularly true when these families already get a lot of needed care and at little or no cost! Mandating is a very regressive tax. Ironically, the people who will pay would be helped the least-they would be paying a new and very high premium for something they are already getting. And, as in the example of the woman described in the beginning, they may get the same services at the same place that they have in the past. The only difference is, now they pay. A third basic problem with mandating legislation is that it is inflationary. It will increase employers' and everyone's costs. Vol. 66, No. 1, January-February 1990
98
S.B. JONES JONES~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
A hospital that currently has high bad debt and charity care burdens would find that it gets more payment mandating. That may be why hospitals have come around to supporting these measures. Physicians also are supporting them and likewise will face less bad debt and charity care. The question is, what will they do with the additional money they get? I have sat at conference tables with hospital administrators and asked "Will you put the money back into the community in the form of services that are not currently being offered?" They do not have a whole lot of enthusiasm for that. What they need that money for is to offer services that will allow them to compete better for paying patients. There is a long list of hospital improvements-technology, support staff things that attract physicians-that they need to compete with the hospital down the road. What that will mean is inflation. Sad to say, the windfall that will drive the inflation will to a disproportionate degree come from the pockets of people like the women I described, who will have to pay a premium for services she once got for nothing. Finally, mandating health insurance is a clumsy way to get the health care they really need to lots of people. Health insurance simply does not cover the services that many people need most. Such people above all need better housing and sanitation, better nutrition, prenatal and well baby care, alcohol and drug abuse prevention and treatment, job training, literacy training, transportation to physicians' offices, and a physician willing to accept them. They need these things more than coverage for the classic acute medical services that health insurance would provide them under mandating proposals. Now it is true that some of the proposals require prenatal and well baby care to be covered. And while they allow cost sharing, deductibles, and coinsurance on other services, they do require that well baby and prenatal care be covered without deductibles and co-insurance. The problem, again, is that these provisions are costly. They raise the cost to the employer; they raise the cost of any tax subsidy program, and make it politically vulnerable. I am afraid that the mandating bill most likely to be enacted is a catastrophic insurance benefit with very high deductibles and co-insurance. It is most likely because, first, it will eliminate or lessen the cost to government of tax breaks or subsidies to employers by reducing benefits that employers are required to buy. Second, it will make employers happier. Third, it will provide, additional insurance revenues for hospitals that would most benefit from the catastrophic coverage. Fourth, while the very poor will be hurt most by it, they of course do not have much voice in compromises of this sort. Bull. N.Y. Acad. Med.
ENTITLEMENT PROGRAMS99 PROGRAMS
ENTITLEMEN
99
MEDICARE CATASTROPHIC: AN EXAMPLE OF How GOOD PROPOSALS CAN BE COMPROMISED INTO BAD LEGISLATION
For an example of a compromise that comes of what initially looked like a good idea but turned out to offer very little to the people whom it purported to help, look at the Medicare Catastrophic Law. Why do we get into such situations in this country? The truth is that politicians and legislators need proposals that answer the problem if they are to get ahead. Without a bill, they are like a ship without a sail; they are just not going to move anywhere. So one needs a proposal. Similarly, national associations of providers, insurers, and others need proposals to keep their members feeling that they are doing something, that they are making progress against problems that everybody sees and realizes are critical. Even advocacy groups that look out for the poor need a proposal to support so they can say to the troops back home, "This is what we are doing for you. " I really think this is what happened with Medicare Catastrophic: everyone wanted to show that they were doing something, and as we got farther and farther down the road, no one could afford to pull out. Even though the proposal had been so compromised that it no longer made sense, everyone stood behind it. MANDATING WILL BE BAD LAW
Also, I think that it can happen again, and we can end with a bill that really does not help the people we set out to help. Summing up, I think that mandating will not get benefits and help to the right people. First, in our current political and budgetary environment, we shall get a bill that covers the wrong kinds of services. Second, it will be clumsy because it assesses the costs from the wrong people, laying what amounts to a very regressive tax on low-income people whose position in the labor force is so vulnerable that employers can pass on to them any increased cost that government lays on employers. We would be setting up a chain to tax the poor in this program. Third, the proposal will drive up everyone's costs, including employers'. I do not think that employers will get much saving out of this, even though some argue that if all employers buy insurance, the cost-shift to current buyers will diminish. I think that the new money mandating could bring into the system will disappear as providers use it to do things that increase the cost to all of us. Vol. 66, No. 1, January-February 1990
100 100
SB. B. JONES S.
BETrER LEADERSHIP Is NEEDED
The invitational letter from Dr. Lieberman said "we would also appreciate knowing what you would do about all of this." It is very difficult, given the environment in Washington, to stick one's head above the trench and say "I think this is a bad idea. " You will immediately be attacked by all the different interests who need a bill, and if you do not have a proposal, you are somehow made to feel immoral. It is not enought to just see a problem; one must also have an answer proposal. If pushed, I think that we have to find a way to spread the costs of health care for our population across the whole population, more equitably than insurance premiums will ever allow. I do not believe that the labor market and the employer-based insurance system will ever fairly distribute the cost of health care in the country, not even remotely fairly. We will always be stuck with parts of our population taxed at incredible rates and not given what they need. We need to increase taxes and we need to do it now. This may sound politically naive, but I suggest that what we need is some braver politicians to wake up to this reality. More courageous political leadership is needed. And it would be better to do it now rather than tomorrow when the cost will be greater than today. It would have been easier and a lot cheaper to pass a "universal and unitary" system when health care was consuming four percent of the gross national product than today when it consumes 11 to 12%. In addition, I believe we should use these taxes to buy health care but exert better control over costs. We need to incorporate in our thinking much stronger cost-containment provisions than these mandated approaches contain. In fact, they incorporate very little. But suppose you push me further, tell me that we cannot raise taxes, tell me that this mandating approach is all we can get politically. Would I rather have mandating or nothing? It is a tough call. I am reminded of a friend who used to remind me that God told Joshua not to blow an "uncertain trumpet," or the walls would not come tumbling down. I suggest on balance that if I had to choose right now I would not want this bill. I think that the mandating bill that will come out of this political process will be a bad bill. It will hurt people. It will divert our attention and our energies from the bigger problem that needs to be solved. It will allow our legislative representatives to claim they are doing something when in fact they are doing very little. Better to do nothing today and wait for a better opportunity tomorrow.
Bull. N.Y. Acad. Med.
