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REFORM: Is Business For Real?

September 17th, 2007

Massachusetts took our breath away with the elegant political balance of its reform solution — whether the state’s universal coverage plan turns out to be implementable or not. California, on the other hand, leaves us scratching our heads: What is going on out there? 

Ultimately, it is a state that governs by referendum, and the fate of the California plan probably won’t be known until the voters have spoken sometime next year. In the meantime, the state’s policymakers face the same fundamental challenge as their counterparts in Massachusetts in finding adequate sources of funds to subsidize coverage for those who can’t otherwise afford it. 

As negotiations progress between the Republican executive and Democratic legislature, party affiliation matters perhaps less than policymakers’ ability to steer a course between the twin constraints of the Employee Retirement Income Security Act (ERISA) on one side and the Jarvis amendment on the other. The former precludes funding subsidies with levies on self-insured employers. The latter requires a two-thirds legislative supermajority to enact new taxes — or a referendum.

The 1978 tax revolt spearheaded by Howard Jarvis proved to be the harbinger of a powerful national movement. This year, most policy pundits tend to regard state reform efforts as the best available predictor of the prospects for national reform after the 2008 election. One piece of the action in California that seems to bear watching is the participation of business. 

At a September 14 Century Foundation forum in Washington on the role of business in reform, California Blue Shield’s Bruce Bodaken claimed emphatically that “business can play a key, positive, central role” and that the California proposals wouldn’t have happened without it. Cost shifting from business that don’t offer coverage to those that do — as well as underpayments to providers by California Medicaid — have been a major factor in driving up employer premiums. Bodaken said that Safeway executive Steve Burd was motivated to lead a state reform coalition by a desire to level the playing field between his company and competitors like Wal-Mart with lower benefit costs. Bodaken’s company is part of the same coalition, along with the Service Employees International Union (SEIU), AARP, and the California Medical Association. Wal-Mart belongs to another strange-bedfellows coalition, along with Intel, SEIU, the Center for American Progress, and the Communications Workers of America. Go figure. 

The last time around, during the short-lived drive for the Clinton reform plan 14 years ago, corporate heavyweights were among the first to jump on the reform bandwagon and were then among the first to jump off again. Some employers may still turn against the Massachusetts plan if implementation details don’t turn out to their liking, forum speaker Dallas Salisbury of Employee Benefits Research Institute (EBRI) cautioned. 

But another speaker at the event raised the genuinely novel possibility that small business could play a different role than they did in fighting the Clinton plan. Small businesses need health insurance reform as much as or more than large ones do and could play a constructive role if given a seat at the table, said John Arensmeyer, founder and CEO of Small Business Majority, a national coalition. “Small business is huge,” Arensmeyer said, citing familiar statistics on the share of new jobs and overall employment that companies with fewer than 100 workers represent. Arensmeyer’s organization has surveyed its constituency and found attitudes that suggest that their adamant opposition to reform in the early 1990s could be turned around. “We can’t let that happen again. It doesn’t have to be that way,” he said. “There’s no reason why small business can’t be part of the solution.” 

Are you listening, Hillary? 

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1 Trackback for “REFORM: Is Business For Real?”

  1. Farmanux News
    September 18th, 2007 at 6:07 am

4 Responses to “REFORM: Is Business For Real?”

  1. Ken Terry Says:

    It’s illusory to think that we can reach universal coverage through subsidies while costs continue to rise at the current rate. Victor Fuchs and Ezekiel Emanuel recently pointed out, “By focusing on covering the uninsured, [current reform proposals] fail to address either administrative inefficiency or long-term cost-control. Consequently, in the short run, they require ever more money to cover the uninsured, and the long run the unabated rise in health costs will quickly revive the problem of the uninsured.”
    What’s really needed is an overhaul of both health care financing and delivery. But none of our political leaders—even single payer proponents—are talking about changing the delivery system, beyond bromides about the need for more preventive care and health IT. The “Medicare for all” crowd wants to change the financing mechanism without altering how health care providers are organized and paid. Most other Presidential candidates and Congressional leaders want to reform financing through insurance mandates, tax changes, FEHBP-like insurance pools, and/or wage increases to replace employer-paid premiums. These approaches would all require government subsidies that would come from a variety of questionable sources.
    In fact, we could find nearly all of the money we need to provide universal, comprehensive insurance without adding to the $2 trillion a year we already spend on health care. But to do that while limiting cost growth, it’s essential that we reorganize our health care system. It must be primary care driven; incentives must be realigned to favor preventive and chronic care over acute care; and above all, we need to reduce the fragmentation of providers. In particular, we can no longer afford the cottage industry of small physician practices, which is one of the chief obstacles to quality improvement and computerization of the industry.
    In my new book Rx For Health Care Reform (, I make two proposals that would fundamentally improve health care and pave the way for a truly competitive health care market. First, I’d have all primary-care physicians join groups large enough to take financial responsibility for all professional services, including primary and specialty care, lab and imaging tests, and prescription drugs. Second, competition among these groups for patients, based on published quality and cost data, would replace competition among insurance companies. There would be only one government-regulated insurer per market or region, and it would not negotiate prices or manage care.
    By eliminating the marketing costs and administrative redundancy of multiple private health plans, these changes would save enough money to cover the uninsured. And over time, the competition among physician groups could, I believe, cut health costs by as much as 30 percent.

  2. Rob Cunningham Says:

    Thanks to both for reading and speaking up. Will we ever see a day when this conversation, instead of being about how high can we go with subsidies, will be about how transformation of the delivery system and innovation in insurance benefit design have finally made coverage affordable for all?

  3. Ken Terry Says:

    The support of business is essential to health care reform in California. After all, the California Chamber of Commerce led the successful effort to repeal the state’s employer mandate law in 2006 through a referendum. But business opposition to that law was not monolithic—in fact, a UCLA study showed that 64 percent of the state’s employers favored some kind of “pay or play” measure. So it isn’t surprising that the chambers of commerce in Los Angeles, San Diego, San Francisco, and San Jose have all endorsed Gov. Schwarzenegger’s proposal, which includes not only an employer mandate but also a requirement that individuals buy insurance.
    A big part of this support, as you suggest, comes from employers who already offer insurance and are tired of paying the freight for firms that don’t cover their employees. But there may be other reasons why business is more favorably disposed to the Governor’s “pay or play” approach than they were to the earlier plan. For one thing, while the previous employer mandate required businesses to pay 80 percent of the premium, the new plan would have them pay only 4 percent of payroll, which is much less than insurance costs most of them now. As health costs continue to rise, however, this could have the unintended consequence of setting a floor for employer contributions.
    Both the old and the new employer mandates exempt small businesses (with under 20 and 11 workers, respectively). Of course, that increases the political viability of Gov. Schwarzenegger’s plan. But it could also have an unintended consequence: if the state subsidized insurance for lower-wage workers, small firms that now offer insurance might drop it.
    ERISA poses a problem for any state reform effort. But if self-insured California companies favor the Governor’s plan (or whatever survives a compromise with the legislature), Congress could provide a waiver, as it did for Hawaii in 1983. A bigger challenge will be getting the public to approve a sales tax increase, which seems necessary to fund the plan. Yet recent polls have shown strong public support for health care reform, and that may overcome resistance to higher taxes.

  4. Pat Knowd Says:

    The democratic plan seems to alientate small business and for this reason it is fiercely opposed. Wouldn’t it be refereshing to see Hilary actively engage small business rather than playing a reactive role.

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