How do you want your children to get health insurance in 20 years?

How do you want your children to get health insurance in 20 years?

This was the first slide, and the last slide that I showed the Wake Forest, North Carolina Chamber of Commerce Health Care Summit yesterday. I was trying to encourage them to take a deep breath and think longer term about the type of health care system they would like to see for their kids (or grand kids).

Of course, employers must deal with the present, and I talked about the impact of the ACA on small business. For example, this August 2013 CRS report says that out of 4.4 Million businesses the IRS believed to be eligible, only 278,000 used the small business tax credit to help employers pay their portion of employee insurance premiums during the transitional year 2010. Barriers identified include: the credit isn’t large enough; the credit is only available to businesses with tax liabilities; determining the size of the credit is complicated, because it varies by the number of employees and their average wage; employers reporting employees not being interested in insurance coverage; and the overall complexity of the process.

Why is the small business tax credit so complicated, particularly the walk down of the subsidy? (max subsidy of up to 50% of employer cost in a firm with less than 10 employees, with average wages of less than $25,000; subsidy ends at firm size of 25 employees with average wages of less than $50,000).

The answer is because the Affordable Care Act is a ‘conservative with a little c’ health reform. By that I mean that the law starts from the maintenance of the Employer Sponsored Health Insurance (ESI) system (first step, keep what we have there), and then seeks to increase coverage by expanding Medicaid, setting up insurance markets in which people can buy insurance with income based subsidies, and trying to incentivize small businesses who are not now doing so to offer ESI.

Viewed through that lens, you see how we got to such a complicated small business tax credit program. From CRS:

  • 83% of firms eligible for the small business tax credit did not provide health insurance, so it is reasonably well targeted to encourage expanded coverage
  • From page 10 of the report is this figure showing why the maximum tax credit focuses on firms with less than 10 employees; they are much less likely to offer health insurance. You can also see the logic of other decisions, such as the 50 employee limit for the (now delayed) employer mandate, another little c conservative aspect of the ACA whose goal is to maintain the nation’s existing ESI systems while expanding coverage around it.

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The CRS report lists all sorts of alterations to the small business tax credit program and other aspects of how the law impacts small businesses that could be changed. In any reasonably functioning political system, we would have revisited issues such as this since passage and enacted changes, but that is not our country now.

The bigger, longer term question is whether the gymnastics required by a credit program like this to get small employers to provide health insurance, are worth it?

How do you want your children to get health insurance in 20 years?

Today at Duke University, there is an entrepreneur with an idea not being acted upon because s/he needs the health insurance benefits provided by the University. If a stable source of health insurance such as the ACA exchanges can be set up, this could be remedied, and it could unleash a great deal of innovation and risk taking in our country. What is at stake it lots bigger than just which political party has the better talking point for the midterm election.

It is not a risk free endeavor to move away from employer sponsored health insurance as the main way those younger than age 65 get insurance; it is how we have done it for 70 years. However, moving over time to decouple insurance from employment, enabling people to take risks without having to worry about health insurance, and ridding the system of stealth financing in favor of all subsidies being explicit, is the 20 year destination under which I want my children to obtain health insurance.

The ACA exchanges can be the first step towards that.

cross posted at freeforall

Comments

  1. James Wimberley says

    Very small businesses (<10 employees) are also (a) likely to be essentially family operations, and it may not make sense to shift the insurance of a spouse or child to a separate employees´ programme; (b) far more likely than bigger businesses to go bust. Does an employee health insurance programme create another priority creditor in case of bankruptcy?

    • says

      James
      not sure about the question on bankruptcy. It is worth noting that a small business that is only family members (say a husband and wife) cannot obtain this credit to provide themselves with ‘employer provided’ insurance….they can of course buy coverage in the individual exchange with subsidy depending upon their income

  2. Mike says

    I’d rather hope they don’t have to waste precious resources dealing with profit-center intermediaries like insurance companies to get healthcare. I hope they have access to the best national healthcare system as a right.

    Of course, we’ll have to quit letting billionaires buy our elections to have such an effective system, one that cuts out their leech-like schemes, like insurance, to make money off the inevitable miseries of life we all encounter in some form or another. Speaking of leeches, that medieval healthcare method was pretty much driven from medicine by science. Leech use has been revived in recent times for very specific medical situations. I’d argue that we ought to treat the profit motive in healthcare with similar circumspection. You only really need a leech attached to you if it’s medically indicated, not every time you step through the door of the doctor’s office or emergency room.

  3. BruceJ says

    “Why is the small business tax credit so complicated, particularly the walk down of the subsidy? ” Because of the same process that made the whole thing so cumbersome. Because despite having a 60 seat majority in the Senate, the leadership inexplicably decided to evenly split the primary committee writing the Senate version of the bill ensuring a 50% vote from people who wanted the entire effort to fail. Because lobbyists from every conceivable industry affected swarmed over Congress like rats, and it worked. Because the complexity and opaqueness of the bill was a decided advantage for the foes of the entire effort, who supported the status quo.

    Because this was “The Jungle”-esque legislative sausage-making at it’s worst.

    What we SHOULD have is what the rest of the civilized world has..a health care system that is a right, not tied to employment, and patient-centered, not profit-centered. Imagine a world where a small business simply didn’t have to worry about providing health insurance? Seems to me it would make it a lot ore likely to succeed.

    • James Wimberley says

      Contrary to popular myth, the US has a rather low rate of creation of new enterprises compared to its OECD counterparts with more developed welfare states. OECD chart here; they make an effort to harmonise the data. The evidence is against the Galtian theory that a bracing laissez-faire encourages risk-taking. No budding Danish or Australian entrpreneur has to think twice about losing access to medical care.

  4. says

    In a perfect world, it would be nice if my children could just have affordable individual plans available either through their employer or available privately. We don’t need any federal run healthcare programs for the masses like Canada, GB etc. We just need to find a way for the insurance companies to stop gouging the majority of Americans simply because they can. I’m all for capitalism, but when the health care providers are making record profits, like the gas companies, and we’re paying more than ever, something just isn’t right. I just don’t want my children to have to pay 1/3 of their paycheck for health care.

    • J. Michael Neal says

      The problem is that once you have guaranteed access and community rating you have eliminated the entire justification for insurance company involvement. The value added by the insurance model is risk modeling. It’s entire purpose is charging more to people who represent a higher risk of an expensive claim.

      Once we have decided that everyone should have access to health care even if they have risky pre-existing conditions (and most of us have, Brett notwithstanding) you have declared that insurance companies should be prevented from providing any value. Why should we cut them in for a slice of the payment under those conditions? Under the conditions that most Americans believe the health care industry should operate a lot of the basic assumptions of market economic principles have been made wrong.

      So it really doesn’t work as a free market product. There are still some ways to try to provide some discipline through competition but government involvement is a given.

      • SamChevre says

        The value added by the insurance model is risk modeling

        This is just completely wrong.

        The value insurance adds is in covering unpredictable variations in costs. Risk modeling is needed so that predicted costs are fairly distributed, but it’s not the value add.

  5. Stephen Platt says

    This may not be the correct BUT i AM HAVING A VERY ROUGH TIME GETTING POSITIVE ACTION FROM THE pa STATE GOVERNMENT. THIS BEGAN WHEN i BROUGHT TO THEIR ATTENTION OF THE INSURANCE DEPARTMENT ABOUT A FRAUD IN THE CLAIMS PROCESS. THEY DECLINED TO CONSIDER IT AND I WAS IGNORED BY THE SUPERVISOR AND THE DEPUTY COMMISSIONER. WHEN THE MATTER WAS BROUGHT TO THE ATTENTION OF THE ATTORNEY GENERAL, WHO HAS THEIR OWN FRAUD SECTION, I WAS TOLD THEY AGREED WITH THE INSURANCE DEPARTMENT. THIS WAS IN FACT AN ADMINISTRATIVE RUN AROUND.
    i DID CALL THE GOVERNORS OFFICE AS THEY HAVE AN OMBUDSMAN PROGRAM. FOR TWO WEEKS I SPOKE TO THE PEOPLE WHO ANSWERED THE PHONE. THEY WERE PLEASANT BUT ALTHOUGH THEY REFERRED TO THE SPECIAL ASSISTANT WHO HANDLE SUCH THINGS HE HAS NEVER CALLED ME BACK. HAVE SPENT MUCH TIME REMINDING THEM AND HOPING FOR THEIR LISTENING.
    WITH THE HELP OF MY STATE Senator my concerns were presented to the the Chairman which was a waste of time. The Lady in the Senators office was very nice and helped as much as possible.
    My effort is to get an audience with the people who run the show. I have tried as I think it has merit after doing much research on this. If these people are not able to run their agencies properly why do we have them and why if this is the case do we have an Insurance Department. More important why are these clusters able to continue without any oversight.

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