I can see the community rating argument (same rate for all vs. lower rate for young people) both ways.  The important thing to understand, I believe, is how much the premium would have to be in order to charge a uniform rate for the under 65 adult population.  Data that I’ve seen suggest that the premium for adults would have to be about $4,000-$4,500 per year while children (under 18) would have to pay $1,000-$1,500 based on what Medicaid current spends on the children covered by its program.  The current average premium for a family of four is about $12,000.  As an aside, we think community rating is a fair way to price health insurance, but we don’t have any problem charging young people more for car insurance because they have more accidents than older drivers.  Go figure.

I prefer payroll tax financing for two reasons.  First, it’s a flat rate (not regressive) scaled to income, so low income people pay less and higher income people pay more, but I think there should be a cap on the wages to which the payroll tax applies so you don’t have very high income people paying 10 or 20 times what the insurance benefit is worth.  The more important reason, however, is transparency.  I think it is extremely important for people to fully understand just how much their health insurance costs whether the payroll tax is paid by the employee or by the employer.  If we are ever going to get to the point politically where we can start to make some of the tough tradeoffs needed to better control medical cost growth, transparency of health insurance costs at the individual level and the taxes required to finance them will be extremely helpful, in my opinion.

The Social Security payroll tax is also a flat rate tax with a wage cap. Since the infrastructure is already in place to withhold FICA taxes from wages, it would be easy to use the same infrastructure to withhold a healthcare payroll tax.  If we also had a flat rate income tax of 28% that applied to all income (including capital gains and dividends) above the federal poverty level but gave a dollar for dollar credit for all FICA and health insurance taxes paid by the employee but not the employer), we would have a more progressive income tax structure than we have now. 

Example: Assume one person earns $100,000, all of it from wages.  He or she pays about $7,500 in FICA taxes and a similar amount under my approach in health insurance taxes (assuming the same 50-50 employee / employer split that we have for FICA).  The standard deduction is $10,000 and taxable income is $90,000.  The gross income tax liability is $25,200 ($90,000 taxable income x 28%) less a credit for employee’s share of FICA and health insurance taxes paid of $15,000.  Net income tax liability:  $10,200.  A second person earns the same $100,000, all from capital gains and dividends.  That person pays nothing in either FICA or health insurance taxes but pays $25,200 in income tax. 

So, two people earning the same income but from different sources pay bear the same federal tax burden.  State and local taxes probably add another 10% or so to the tax burden for both people.  For very high income
people ($500,000 and above), my approach would, in effect, subject virtually all of their income to the Alternative Minimum Tax which, under current rules, does not apply (for the most part) to capital gains and dividends. To the extent that employers’ health insurance costs go down from what they were previously paying, they could be required to raise salaries by a comparable amount per Senator Wyden’s cash out concept.

I have no problem with high tobacco taxes because they drive demand for cigarettes down, not because it raises a lot of money.  I suspect we are already reaching the point of diminishing returns from that revenue source, at least in states like NY, NJ and CT with very high tobacco taxes already.
With respect to one set of national rules for Medicaid, I agree with paying the higher Medicare rates even though it will raise costs in the short run. It would simplify life for providers, make them more willing to see Medicaid patients, and it’s the right thing to do.
Much longer term, serious cost control is likely to require either global budgets (especially for hospitals), explicit rationing or both.  If the public has clear transparency with respect to the actual cost of their health insurance and the associated taxes, it should advance the day when they will not only accept global budgets and/or rationing to better control medical cost growth, they might even demand it. 

-Barry Carol

The Business Case for National Health Care Reform

In her opening remarks, moderator Cheryl Matheis, director
of health strategies, Office of Social Impact, AARP, declared “It seems to us
the business community is ready to engage in health care reform.” She also
suggested that states can serve as laboratories, noting that two panelists in
this session are from California and can tell us something about what is
happening there.

 She then introduced Bruce Bodaken, CEO of Blue Shield of
California, and John Arensmeyer, founder and CEO of the Small Business
Majority.

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Carl Camden, CEO of Kelly Services, began his address by  observing that, ten years ago, too many in the business community were happy to  stay on the sidelines—and many were, in fact, in active opposition to health  care reform.

“It’s different now,” he said. “Health care reform will be  influenced by the 2008 election,” he added, “and I expect little will happen  until 2009. But we need to do the work now so that come 2009 we can put forward  legislation for aggressive reform.”

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The conference began with opening remarks by Greg Anrig, vice
president, policy, at The Century Foundation, who welcomed the audience and
speakers and Karen Davis, president of The Commonwealth Fund.

Karen Davis began by stressing the advantages of
employer-based healthcare including:

•  a large company provides a natural risk pool, with a mix of older and  younger,healthier and less healthy people; and

• lack of underwriting—no one is excluded on the basis of age or health status.

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“If we stopped paying for everything that had no evidence of benefit, we would be a very unpopular organization," Dr. Steve Phurrough, director of Medicare’s coverage and analysis group told the Boston Globe last week.

First, thank you for you comments. This is a fledgling blog, but your comments are far from fledgling.

I plan to  respond to all of them in the next couple of days–translating, where it might be needed, for people who are not health care industry professionals.

I want to spread a wide net with this blog; at the same time  I greatly appreciate the well-informed opinions that come form industry insiders. I take it as my responsbility to mediate (and translate) between most of us (potential patients) and the professionals.

Before I comment, I woud be delighted if more readers respond to your comments. Ulimately, I would like to see this blog become a dialogue among readers while I moderate . . .

Commenting on "Should 21-year-olds pay more "  Barry Carol writes:

Several points on this.

First, in theory, the Massachusetts approach of charging older people up to twice as much as younger people for health insurance is more reasonable, in my opinion, than pure community rating because younger people, as a group, incur far lower healthcare costs.  Even the modified community rating approach used in MA probably charges younger people considerably more than their actuarial risk would justify.  As for employer coverage, Bob also pointed out that if the employees do not sign up when insurance is first offered, they must show evidence of insurability if they want it later.

Affordability is an increasingly challenging issue for both employers
(especially small businesses) and those seeking coverage in the individual market.  I suspect that the eventual solution will likely be taxpayer financing.

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Why are so many drugs withdrawn from the marketplace after physicians realize that their patients are suffering serious, sometimes life-threatening side effects? Why aren’t these products  thoroughly tested before being sold to the public? The current issue of The New England Journal of Medicine (Sept. 6) places the blame right where it belongs—with the FDA. In “Sidelining Safety—The FDA’s Inadequate Response to the IOM”  Sheila Weiss Smith describes the Food & Drug Agency’s weak response to the  Institute of Medicine’s sharply critical report on the agency’s failure to “embrace a culture of safety.”

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     To comment on these posts, please scroll down and click on "contact" right below SEARCH on the left-hand side of the page. I’ll be reading and posting the comments here. (If you want to reply to someone’s comment, feel free to contact me again. Dialogue among readers is always good.)