Employer Burden

HEALTH CARE: The Business Case for Reform

Paul Testa — Mon, 01 Jun 2009 17:10:00 -0400

CEO of Kelly Services, Carl Camden, has an excellent piece up on The Huffington Post making the business case for health reform. Camden made a similar argument at an event earlier this year co-sponsored by New America, the Committee for Economic Development, and Better Health Care Together. Check out video from that event below and read excerpt from Camden’s latest piece after the break:

From The Huffington Post:

Every year companies make strategic decisions about where to invest and grow jobs. The cost of health care plays a large role in these choices. Increasingly, it makes less sense to grow jobs in America because of the cost of U.S. health care. Hundreds of my colleagues are reaching the same conclusion. How can we get our economy moving again if our nation's corporations are forced to invest in job growth elsewhere? […]

The percentage of Americans voluntarily engaging in entrepreneurial start ups is falling. At the same time, many other countries are catching up or exceeding the U.S. Our economy cannot thrive if thousands of people are electing not to start a new business because of health care.

Health care is the issue that jeopardizes worker productivity and creativity, key sources of the U.S. economy's global competitiveness. Today, too many employment decisions are motivated by health care access rather than where our citizens can make innovative and productive contributions to society. […]

Our nation's economy faces many immediate threats. It also faces many long-term challenges that must also be addressed before we can truly rebound from these economic crises. If you are worried about job growth and competitiveness, you should be working to fix our health care system. Health care reform is a challenge that must be met.

For more on the burden of employer health costs in a global economy check out this policy paper from New America’s Len Nichols and Sarah Axeen.

COST: Government Report Describes Health Care’s Drain on Small Business

Kyle Noonan — Fri, 24 Apr 2009 21:40:00 -0400

Skyrocketing health care costs are a burden on small businesses and harm their workers, says a new U.S. Department of Health and Human Services report. No surprise there. But the sheer speed with which the problem is worsening makes comprehensive reform of the American health care system all the more urgent.

Escalating health care costs are damaging small businesses and the people they employ by consuming more payroll dollars and limiting business growth, the report states. Perhaps the grimmest news is how rapidly and sharply health insurance offered by small businesses has declined. From the executive summary:

In the past two years, more than half of small businesses that offered coverage reported switching to plans with higher out-of-pocket costs in response to rising premiums. Another third switched to a plan that covered fewer services, and 12 percent dropped coverage entirely.

The decline in quality and coverage of health insurance by small businesses is well-documented, but that's still a startlingly rapid decline in coverage for the millions of Americans working in small businesses.

All of this bad news is prodding the business community to offer its own visions for comprehensive health reform and to work with Congress and the Administration to shape reform.

For those interested in the effects of high health care costs on the competitiveness of American business, read New America's report on the topic from last year.

COST: CEOs Concerned about Health Care Costs

Meredith Hughes — Tue, 17 Mar 2009 15:48:00 -0400

Recently, the Business Roundtable, an alliance of CEOs who companies provide more than 35 million Americans with health insurance coverage, released a report adding to the evidence that the U.S. health system is in trouble. And it's causing trouble for business. Paying for health care, the group said, was seriously hurting the ability of U.S. firms to stay competitive in the global marketplace.

Weighted against leading economic competitors, the United States spends more and receives less value than both G-5 countries (Canada, Japan, Germany, the United Kingdom and France) and emerging industrial BIC countries (Brazil, India, and China). On average, U.S. workers and employers receive 23 percent less value from our health care system than G-5 workers and employers, and 46 percent less value than Brazil, India and China. For every dollar spent on health care by U.S. firms, G-5 firms spend only 63 cents, and BIC countries spend just 15 cents. Per capita, the United States spends $828 more per person than G-5 countries and $1,654 more per person than BIC countries. Despite paying much more, the Business Roundtable reports that the U.S. does not have a healthier workforce.

The Business Roundtable is not the only group concerned over the strain that health care costs place on both employers and employees. Previously, we at the New America Health Policy Program have explored the comparative effects of health care costs on U.S. firms and their foreign competitors through our policy paper, Employer Health Care Costs in a Global Economy. Ultimately, health care costs cause a competitive disadvantage to U.S. firms, force employers in the U.S. to cut health benefits to their employees, and sends "good jobs" overseas. The business leaders and stakeholders who make up the Health CEOs for Health Reform also see an urgent need for health care reform.

Business Roundtable CEOs are now advocating for health care reform. Though they are all strong believers in the benefits of the market, Ivan Seidenberg, the Chairman and CEO of Verizon, has stated that the very nature of problems within the U.S. health care system mean that the health care market doesn't function as a market at all. Seidenberg also argues that "true reform of the health care system must emerge from the uniquely American principles that drive our economy: competition, innovation, choice and a market that serves everyone."

Reducing the health care burden to both employers and employees is an essential part of health care reform. Having business leaders make that case may help keep reform within our reach.

COST: Small Businesses, Big Health Care Problems

Meredith Hughes — Tue, 03 Feb 2009 18:33:00 -0500

For small businesses the economic hits just keep coming, and as the New York Times reminds us, the hardest hits are often from health care.

The Times' Kevin Sack profiles several small business owners faced with a difficult choice: cut health care benefits or close their doors. Amberly Allen, who runs her own direct-mail firm, spends 17 percent of her firm's payroll on employee health benefits. Thomas L. Fritts, who owns a sporting goods store in Illinois, saw his company's health care costs rise 30 percent last year while his business's sales plummeted 60 percent.

Small business owners are shifting a greater share of health care costs onto their employees. In the past two years, for businesses with fewer than 200 workers, the percentage of employees enrolled in a plan with an annual deductible of $1,000 or more jumped from 16 percent in 2006 to 35 percent in 2008. See the chart below from the 2008 Kaiser HRET survey:

Previously, we've looked at the Business Case for Health Reform in conjunction with the Committee for Economic Development and Better Health Care Together. According to Lois Quam of the consulting firm Piper Jaffray, problems with health care cost in the U.S. hurt small businesses the most, to the point that "health care has become an barrier to entrepreneurship and job creation." Removing that barrier through comprehensive health reform makes sense for small businesses and our economy as whole. Tomorrow the House Small Business Committee will hear testimony on "Health Care Reform in a Struggling Economy: What is on the Horizon for Small Business."

COST: The Business Case for Health Reform

Paul Testa — Wed, 21 Jan 2009 20:51:00 -0500

There were no bald eagles or the Boss, and our hopes for a surprise appearance from the Jonas Brothers didn't pan out (sigh), but the lunch forum we attended last week on business and labor perspectives on health care costs had more than its fair share of star power (at least in the health care world).

The event, organized by the Committee for Economic Development with the help of New America and Better Health Care Together, brought together a variety of voices to make the business case for health reform.

After introductions, representatives from Better Health Care Together set the stage with perspectives from business and labor on health reform. SEIU's Mary Kay Henry talked about the union's commitment to health reform and its efforts to create an army of health care voters. Wal-Mart's Linda Dillman spoke about efforts to apply the company's "Save Money, Live Better" motto to health care. She talked about Wal-Mart's work to provide insurance coverage to its associates, the company's $4 drug program, and its forays into providing electronic personal medical records to its employees and customers.

With Dillman and Henry providing the framework for discussion, McKinsey Global Institute chairman, Lenny Mendonca presented the findings from a new MGI report: "Accounting for the cost of U.S. health care: A new look at why Americans spend more."

According to McKinsey's analysis, the U.S. spends $650 billion a year more on health care than other developed countries, even after adjusting for differences in wealth. Mendonca called that $650 billion a "de-stimulus" that's built in to our economy. As the chart below shows, a great share of it is borne by businesses.

Outpatient spending in the U.S. (i.e. payments to physician offices and for same-day hospital care) accounted for $436 billion, or more than two-thirds, of that $650 billion. In theory, moving more care from inpatient to outpatient settings—as has been the trend in the U.S.—could produce savings. However the McKinsey analysis found that delivering more care in outpatient setting yielded savings of $100-$120 billion—only a fraction of the $436 billion above-expected outpatient costs. Drug costs and administrative spending accounted for the bulk of the remaining above-expected expenditures. See Chart below

The report offered five supply- and demand related factors driving the highhealth spending:

Provider capacity growth in response to high outpatient margins
The judgment—based nature of physician care
Technological innovation that drives prices higher rather than lower
Demand growth that appears to be due to greater availability of supply
Relatively price-insensitive patients with limited out-of-pocket costs

One factor that did not seem to have an effect on the higher U.S. spending was the underlying health of our population. In fact, the McKinsey analysis suggests the U.S. is slightly less sick than other OECD countries, with our relatively younger population offsetting slightly higher rates of chronic disease.

Tomorrow, in part two of our wrap-up from the event, we will provide some of the responses to the McKinsey analysis from a panel moderated by the Center for American Progress's Matt Miller and featuring several of the Health CEOs for Health Reform.

COST: Jazzing Up Employer Health Benefits

Julie Barnes — Tue, 29 Jul 2008 13:52:00 -0400

Reveille may be the bugle call that gets our military up in the morning; but all it takes is a few good state legislators to get us humming a tune about employer-provided health benefits in the wee hours of the morning. That was our song last Friday at 8:00 am Central Time, when we welcomed an impressive crowd at the National Conference of State Legislatures 2008 Legislative Summit in New Orleans. It is amazing how regular people will nod along to a health economics lecture even in New Orleans if you just set it to the right tune.

We explained how American firms' share of health care costs are contributing to their competitive disadvantage in the global marketplace. Like our paper on the same subject outlines, U.S. employers contribute more than twice as much as our top trading partners and are unable, in the short run, to shift costs onto workers or into prices. Accordingly, more employers are being forced to drop health coverage altogether and business support for comprehensive health reform is growing.

Our audience, mostly state legislators and their staff, were acutely aware of the innovative but frustrating reform efforts to reduce states' uninsured rolls and improve the quality care in their states. For instance, in addition to Massachusetts' comprehensive coverage effort, New Jersey is trying to cover all its kids and some adults, Indiana is experimenting with new kinds of policies for Medicaid, Alabama is helping small businesses offer coverage, Iowa is determined to cover all its kids, and Ohio is pondering its new task force proposals. Still, these states and many more are waiting for a signal from the federal government about a more comprehensive reform package. States may be able to tackle issues on the periphery, but the real rub is how to pay for it—and they do not have the federal tax code at their disposal. States also do not have the leverage to make widespread payment reform changes (i.e., in the Medicare program) that could slow down health care costs in the private sector. (Minnesota's governor recently vetoed a health reform bill precisely because he thought it gave short shrift to cost control.)

Joe Minarik of the Committee for Economic Development agreed with us on Friday, sharing some of the facts that gave rise to CED's report: Quality Affordable Health Care For All: Moving Beyond the Employer-Based Health-Insurance System. In its proposal to reduce the reliance on employers to provide health benefits, the CED offers some troubling statistics:

From 2000 to 2006, the absolute number of people covered by employer-based insurance fell from 179.4 million to 177.2 million
From 2000 to 2007, the percentage of firms offering health benefits fell from 69 percent to 60 percent, reflecting mainly small employers dropping coverage for workers.
Health insurance premiums are rising faster than the affordable increases in total compensation, and therefore, faster than incomes
Premiums in 2007 are estimated to be almost double those of 2000

David Sloane of AARP also shared the dais last Friday, but was more reluctant to reduce the employers' role in the health insurance system. Still, David aptly described the health care system as a "Rubik's Cube" where one twist always affects another part of the system. That is why health care reform cannot be incremental, but must be comprehensive and designed to be sustainable—without hurting our businesses in the short or long-term. Now that's something we should all get jazzed about.

IN THE STATES: What's the Matter With Kansas (City)?

Paul Testa — Tue, 15 Jul 2008 19:37:00 -0400

Kansas City, Missouri—hometown to winners of not one, but two seasons of Survivor, as well as the most recent season of American Idol—lost its bid on Sunday to land a $375 million Bombardier aircraft plant, which will instead be located closer to the Canadian company's headquarters in Montreal.

Why did the Paris of the Plains lose out to its Quebecois competitor? Globalization brings many variables into play, but Senator Claire McCaskill (D-MO) says it was health care that tipped the scale, according to the Kansas City Star's Jason Noble.

She's got a point. According to a recent policy paper by our New America colleagues Len Nichols and Sarah Axeen, U.S. manufacturing firms pay nearly three times as much per hour in health benefits as their Canadian competitors.

We've talked about the Kevin Bacon Theory of Health Care and the Economy, but when it comes to the competitiveness of American businesses in the global economy, Democratic Senator Debbie Stabenow from Michigan has made the case for health reform far more eloquently. She spoke at a recent New America event on Employer Health Costs in a Global Economy, and we particularly remember the scene she described in her home state of Michigan:

[W]e look across the river at the great country of Canada... [and] we see plants, auto plants, being built across the river. The wages are the same. There is Canadian UAW. The environmental standards are the same or stronger. The only difference—the only difference is healthcare. We are losing jobs whether it is a race to the bottom, coupling healthcare and wages, or whether it is just simply looking at healthcare differences. We are losing jobs and we have a competitive disadvantage.

Stabenow's insights drive home the fact that our health care crisis in the U.S. creates an economic as well as a moral imperative for reform. We must find a more sustainable way to finance health care in this country—one that will leave our businesses more competitive and our workers more secure.

QUALITY: Unhealthy Trends in Employee Benefits

Julie Barnes — Tue, 08 Jul 2008 21:01:00 -0400

I am guilty of going to work when I'm sick. I admit to workaholic tendencies, but the real reason that I choose to cough my way through a day is because, as a working mother, most of my lost work days are due to my kids' illnesses and doctor appointments. Many of us hard-working, competitive Americans have our reasons for this practice of showing up to work sick. We load up on OTC medicine and suffer our way through a contagious illness, while sharing our germs with our not-so-grateful co-workers. When we get really sick, though, some of us don't have the luxury of staying home. It would mean unpaid leave or cutting into scant, precious vacation days.

This is troublesome for our already problematic health care system. When illness goes untreated, it can lead to more serious conditions that require higher-priced services and drug treatments. Increased health care costs ripple through the system:

Premiums go up for the insured (employers and individuals)
Uncompensated care costs for providers increase
The uninsured have more financial strain

That's why we noticed yesterday's LA Times story on how employers are cutting back on paid sick days. We understand how these benefits can seem expendable in a world of tight budgets and fierce global competition, but we also realize that these policies are counterproductive for business. It is no surprise that poor health reduces an individual's capacity to work which negatively affects workplace productivity. But as we also reported in our issue brief, "Why Insurance Matters," employee productivity takes a huge hit when employees show up at work sick. So much so, that one study found that worker impairment due to chronic health conditions costs an employer more than absent workers and actual medical expenses combined.

The trend to cut back on sick days also seems to fly in the face of all the efforts companies and health plans are making to offer wellness and other preventive programs at work (the subject of a BCBS Association briefing next Monday, we'll probably write about it). Employers all over the country are encouraging their employees to become more active in their own health by offering personal health care records and wellness programs.

The National Partnership for Women & Families has organized a huge coalition (called The Healthy Families Act Coalition) around supporting federal legislation that would mandate paid sick days.

So, how should employers encourage a healthy workplace without providing benefits that are cost prohibitive? A couple of ideas:

Telecommuting. For those jobs that can be performed at home, telecommuting is the perfect answer for someone who isn't so sick that they can't get some work done but risks infecting the rest of the office. Employers should be flexible about allowing it in these situations.
For jobs that are not telecommutable, allow workers to make-up their hours during other shifts rather than forego pay that they really need.
Calculate sick leave in hours, not days. A doctor's appointment need not require a day off, so workers should not be penalized for more time than they are actually gone. Really, there's no sense promoting wellness and prevention and then penalizing workers if they get preventive screening and care.
Consider contracting with a nearby clinic to administer flu shots, check-ups to employees and their families.
Institute low-cost wellness programs. Disseminate health tips via e-mail and organize walks at lunchtime.

These types of low-cost investments will create healthier, happier, and more productive (and less absent) employees. And that's nothing to sneeze at.

COST: Krugman and the Links Between Health Care and the Economy

Paul Testa — Mon, 07 Jul 2008 21:41:00 -0400

Health care is the Kevin Bacon of economic maladies. Name a problem facing the U.S. economy and, without too much effort, you can find a way link to the wealth of nations back to the health of nations. New York Times columnist Paul Krugman zeroes in on this connection in his column today, discussing the close link between health care, jobs, and the economy. He argues:

Most public discussion of health care focuses on the problems of the uninsured and underinsured. But insurance premiums are also a major business expense: auto makers famously spend more on health care than they do on steel. One of the underemphasized keys to the Clinton boom, I’d argue, was the way the cost disease of health care went into remission between 1993 and 2000. ... But premiums surged again after 2000, imposing huge new burdens on business. It's a good bet that this played an important role in weak job creation.

Krugman's point on the "huge new burdens" facing businesses echoes our recent policy paper regarding employer health costs in a global economy. We show how manufacturing firms in the U.S. pay more than twice as much in hourly health costs as their major trading partners—$2.38 per worker per hour versus $0.96. With similar trends in many U.S. industries, it's not surprising that, since 2000, the percentage of employers offering health benefits declined from 69 percent to 60 percent according to the 2007 Employer Health Benefits Surve y.

At $2.2 trillion a year, health care plays a major and complex role in the U.S. economy. Krugman simplifies the situation to make a political point about who's to blame for our current economic woes. But the long term relation between health care cost growth and job creation is hard to parse out with 15-variable econometric models let alone 25 inches of prime column space. And when it comes to the economy, the question should not be who is to blame but what is to blame. Here, Krugman is right to highlight the importance of health care to the overall economic welfare of the U.S. Our current economic problems are not an excuse to beat around the bush on health reform. America will recover from its current economic woes, and when it does, it will still be faced with a crumbling health care system in need of sustainable reform.

VOICES OF REFORM: CED's Charles Kolb Explains Why Business Has Had Enough

Joanne Kenen — Tue, 10 Jun 2008 18:52:00 -0400

Charles Kolb, president of the Committee for Economic Development, a business-led think tank here in D.C., took part in a New America Foundation panel discussion this spring about the economic burden that health care puts on our nation's businesses. We were particularly struck at the time by Kolb's perspective on just how seriously the health care system has declined, and how bold the solutions must now be. The CED understands bold; created in 1942, it helped draw up what eventually became the post-war Marshall plan. With Kolb's permission, we're sharing an edited version of his remarks that day. For more detail on the CED's health care proposals, see the long version here or the summary here ).

Six years ago, the CED looked at health care and concluded that the employer-sponsored system was sustainable, it was fixable. We recommended a number of things that the government could do, that the private sector could do, that individuals could do. We thought through all the little tweaks, how to take better advantage of the market power that employers had, how we could save the system.

Nothing happened.

Actually some things did happen: The system got worse. The costs continued to escalate faster than GDP and the number of uninsured rose. And, the impact on business is even worse. We now see situations where families are actually facing bankruptcy with catastrophic or near-catastrophic health care expenses. We are outspending the rest of the world in the aggregate and on a per capita basis, yet we're not living as long as people in countries that spend less. The health care system we have now is simply not working. It is not sustainable.

The employer-sponsored system, as we know it, is not sustainable for a number of reasons. Employer-based health insurance is costly to market and to administer—roughly 20 percent of the total plus employer costs. (That's far more than it would cost if there were competitive regional exchanges that equalized risks.) And the employer-benefits system leaves out too many people. It leaves many others insecure. It depresses real wages and interferes with the efficiency of the job market. "Job lock" blocks people from going out and starting their own businesses. The employer-sponsored system even interferes with the continuity of medical care and medical records. As people change jobs, they are forced to change doctors and delivery systems. This gives health plans short-term incentives in a world where median job tenure is short. The whole system, the way it has been structured and how it's evolved since World War II, when we stumbled into it, is frankly, now, an anachronism.

If employers could fix it themselves, they would, but we've talked to them and they can't. So the question is, when you have a basically dysfunctional system, how do you move beyond it? The debate on healthcare in this country starts generally from an ideological premise. On the right, people say we must let the markets drive everything. And, on the left, we have to have universal coverage, typically by folding everything into a Medicare-for-All system. Both starting points, in my view, are wrong. It is not a question of ideology: We need pragmatism.

CED proposes establishing an independent body or a "Health Fed" that would oversee regional health insurance exchanges or markets. The "Health Fed" would modernize and simplify insurance regulation and ensure standards. This would build on and improve the current Federal Employees Health Benefits Plan. Only quality plans with broad coverage would be allowed to compete.

Second, we would grant fixed dollar credits to every American to purchase health insurance. Needless to say, we would get rid of the current tax treatment.

Finally we would create a National Institute for Medical Outcomes and technology assessment to help provide authoritative, scientific information about the value and costs of clinical interventions.

We also need to use the IT revolution—the whole movement towards openness can help drive down health care costs and increase efficiencies. The health care system simply does not take full advantage of the technology that has evolved over the last 20 or 25 years. You have been to a doctor's office recently, you have to fill out the same form five times and tell them your Social Security number and your birth date, that paper goes somewhere. There are people who file it. You can follow on the costs that are associated with just that one failure to take advantage of the technology. Not to mention the wonderful handwriting that most physicians have when it comes to writing prescriptions.

So, each healthcare consumer would receive fixed dollar amounts to purchase health insurance from the regional health exchanges. They'd be able to make cost-conscious decisions. What we proposed is very similar coincidentally—this was not intentional, it was a wonderful coincidence—to what was emerging in the Senate as the Wyden-Bennett Healthy Americans Act. We are very grateful for the bipartisan interest that seems to be emerging. [Click here to see what the CBO has said about the bill.]

I am confident that the American people are getting sufficiently fed up with the lack of cooperation between the parties. Whoever is elected president, we have an opportunity to get a breakthrough, if we can help people understand the facts and how the system is not working. But we have to go beyond the "bipolar"—in every sense of the term—starting point and realize it is failing our workers and our economy. Whatever your ideological views are, the system is not meeting the needs of the 21st century workforce.

Having said that, at CED we have absolutely no illusions that this will be easy. We are talking about reforming 16 percent of the gross domestic product. So, when you look at all the interests and parties and dollars that are involved, change is going to be extremely difficult. But, we simply cannot afford to waste another decade, either for the people who are affected by the system or for our economy. The world of work has changed dramatically in the last 10 or 15 years. Our healthcare system has not.