Healthy San Francisco’s Job-Killing Taxes To Live On

The U.S. Supreme Court has denied the Golden Gate Restaurant Association’s appeal of a 9th Circuit decision that permits San Francisco to levy a punitive tax on businesses to fund its public-health bureaucracy.

I’ve previously challenged research produced at UC Berkeley, which concluded that the ordinance did not cost jobs.  Plus, I’ve noted the job-killing effects of the Healthy San Francisco program in a series of blog-entries.

The GGRA had argued that the city ordinance violated ERISA, the federal law that regulates job-based benefits.  But that is all water under the bridge.  Kathleen Sebelius, U.S. Secretary of Health & Human Services has formed a (small and exclusive) mutual admiration society for government-run health care with Gavin Newsom, Mayor of San Francisco, so this decision will surely be welcomed by her and all ObamaCare-backers.

Does this judicial failure to overturn a mandate in San Francisco allow us to handicap the success of the lawsuits against ObamaCare’s national mandate? Unlikely: The San Francisco lawsuit relied on a federal law, ERISA, whereas the anti-ObamaCare lawsuits rely on the U.S. Constitution.

Plus, ERISA is not really a very effective law, as I’ve written about previously.  Strategically, it’s a weak foundation to rely upon, for those who advocate individual choice in health care.

You’ll Lose Your Insurance Broker, Too.

Not only are you likely to lose your health plan, but you’re also likely to lose it cold and lonely, in the dark, with nobody’s shoulder to cry on.

Ok, that was an exaggeration. Nobody considers an insurance broker his “friend” (despite what the brokers tell you).  Nevertheless, as you and your employer prepare for the long and painful descent into ObamaCare between now and 2014, insurance brokers will lose their motivation to invest time and effort helping you navigate the maze.

A source in Minnesota has told me that a very large insurer has sent a letter to brokers announcing that it is cutting their commissions, because the regulatory burden of ObamaCare (specifically, the mandated Medical Loss Ratio, or MLR) means that the insurer has to cut spending on non-medical services to keep its head above water.  I haven’t got any news from other states, in which the insurers’ responses may differ (because Secretary Sebelius may delegate a lot of regulatory authority to state-based exchanges).

Brokers got too comfortable for too long living off the avails of laundering Americans’  health dollars through employers and insurers chosen by corporate HR departments.  Many of them will think that they can run to the government for a bailout, perhaps by trying to get the exchanges to pay them directly – which I doubt will work.

I’m not very sympathetic to brokers, but if there’s ever a time when employers needed them, the next few years of chaos will be it.

Major Employer Weigh Dropping Coverage, Raising Costs of ObamaCare

Here’s another way that ObamaCare may blow up in the faces of those who promised us all sorts of benefits: Major corporations may drop insurance coverage of their employees, thus driving up the expenses of government-subsidized insurance exchange.

Fortune magazine reports:

“Internal documents recently reviewed by Fortune, originally requested by Congress, show what the bill’s critics predicted, and what its champions dreaded: many large companies are examining a course that was heretofore unthinkable, dumping the health care coverage they provide to their workers in exchange for paying penalty fees to the government.”

Why? It may be cheaper for them to pay the fine for not offering insurance than to pay for a product whose costs keep increasing. Fortune calculates that each dropped employee would cost government–which is to say, taxpayers born and not yet born–$2,100 per year. And that’s just a rough estimate of the total damage. We don’t know how many of the provisions will in fact play out, including, for example, the requirement that insurance companies cover “children” up to age 26. As Fortune concludes, “as we’ve seen throughout the health care reform process, it’s impossible to know for certain what the unintended consequences of these actions will be.”

The Peoria Star focuses on one major company, Caterpillar, citing a company memo,  ”dated Nov. 9, [which] said the penalty Caterpillar would pay would be far less than the amount it spends each year to provide health care coverage. If anything, dropping employee coverage will be even more financially favorable to the company now than it was in the scenarios used to create the memo. In a recent statement, the company said, in effect, we’re still weighing our options.

In a Recession, Employment-based Health Insurance Declines

The link between employment and health insurance has been fraying for a while now. In the abstract, that’s good: With isolated exceptions, most people don’t buy food, housing, transportation, property insurance, telephone service, Internet service or a supply of coffee beans from their employer, so why should something as important as health insurance be held hostage to the whims of the boss?

That’s in the abstract. In the real world, which since World War II has discriminated against individuals who buy insurance on their own, severing the link usually comes through the difficulty of losing one’s job.

Given the recession, it’s no surprise that the number of people with employment-based insurance has gone down. According to a new report from the Robert Woods Johnson Foundation, “the number of middle-income earners who obtained health insurance from their employers dropped by 3 million people from 2000 to 2008. Just 66% of people in families earning roughly $45,000 to $85,000 are now insured through their employer—a drop of seven percentage points [or 2 million people] from 2000 to 2008.” Lost your job? You’ve lost your insurance, too. Yes, COBRA is available, but you may be shocked to find out how much of your income has previously gone to insurance (In 2008, the number for a family policy was, on average, $8,667 in insurance in lieu of wages, or roughly $725 per month).

RWJF repeats the number of uninsured at about 47 million, which simply overstates the case (see, for example, this article from Sally Pipes, which whittles it down to 8 million).

The report ought to be a call for reforms to make it possible for people to own health insurance that doesn’t move from job to job: Allow people to buy insurance that has been approved in another state, if they don’t like what’s available in their own; dismantle mandated benefits that drive up premiums; remove guaranteed-issue and community ratings laws that cause premiums to skyrocket; and above all, give people the same tax treatment that employers get for buying health insurance, so the law doesn’t favor one type of insurance over another, as is now the case.

Unfortunately, RWJF doesn’t call for those measures, preferring instead to plump for an ever increased role for government, making the middle class more dependent on the whims of politicians.

One thing RWJF does well is sell its stories to the established media. So expect a story or two about the report, focusing on your state: Connecticut, Ohio, Oregon, and Utah, for example. I will update the list as I find new stories.

More On Buying Health Insurance Across State Lines

I’ve expressed a real lack of enthusiasm for the Republican proposal that Congress should pass a law allowing groups to go jurisdiction-shopping for health insurance, especially in the absence of eliminating the prejudice against individual ownership of health insurance.

One correspondent chided me for allowing states’ “geographic monopolies” to stand in the way of competition. But isn’t that a fundamental characteristic of a state — that it has a monopoly over state laws within its own boundaries? If you don’t like it, vote in a new legislature or move to another state. I live in California, where personal income taxes are way too high and harmful to our welfare. But I’ve never heard a Republican politician propose that Congress pass a law allowing individuals to choose which state’s rate of income tax they pay, so Californians could opt to pay zero income tax by choosing Florida’s tax rates.

In any case, this is irrelevant: States can just go ahead and allow interstate purchasing of health insurance themselves. Here’s a bill in Washington State to allow just that; and here’s one in Georgia. So, just get on with it. There’s no need to wait for Congress to act.

On the “Interstate Purchase of Health Insurance”: A Dissent?

Many conservative health-policy analysts write in support of “interstate purchase of health insurance.”  What do they mean?

Or, to frame the question a little differently: Does Congressional preemption of states’ powers to regulate health insurance within their boundaries move us in the right direction? I’m afraid not, certainly not as the Republicans are proposing. Unfortunately, the GOP’s Better Solutions platform continues the policy of discriminating against people who are employed, by forcing them to get health benefits of their employers’ choice, and not letting them use their own pre-tax dollars to buy individual, portable, guaranteed renewable, health insurance.

The Republican health-reform bill (H.R. 4038 § 221) also retains this discriminatory tax-treatment, but contains 27 pages of legalese that purports to make it easier for Americans to buy health insurance across state lines. Unfortunately, it makes little sense once you get past the crowd-pleasing title. For example: “The primary State for such coverage has sole jurisdiction to enforce the primary State’s covered laws in the primary State and any secondary State.” (A “primary State” is where the issuer is licensed; and a “secondary State” is where the beneficiary resides.) So, Kentucky will enforce Kentucky’s insurance code in every other state where a business has bought Kentucky-licensed health insurance? Good luck with that.

Establishment Republicans are loathe to remove the discrimination against individual ownership of health insurance for employed people because their backers in Big Business support the status quo. The politician who advocates amending the tax code (like Senator McCain did in his presidential campaign) jumps into a buzzsaw wielded by the U.S. Chamber of Commerce, the ERISA Industry Committee, America’s Health Insurance Plans, etc.

So, the Republicans fall back to work-arounds like the interstate purchase of health insurance, and association health plans. Look, none of these things are wrong, but they are far less important than individual ownership of health insurance (through tax reform). Nor is it evident that Congressional legislation is necessary, or advisable, to achieve them.

Let’s look at another example: Suppose you travelled to a parallel USA, where the tax code was malformed such that workers’ homes were owned by their employers (using non-taxable dollars). If your employer’s HR department changed HMO (Home Maintenance Organization) annually, you’d have to move house every year. If you got a new job, even across the street from your old office, you’d have to switch homes. Obviously, housing costs would be out of control and there would be huge bureaucracy and lack of responsiveness in the “system.”

Consider three reforms:

1. Reform the tax code so that individuals can use pre-tax dollars for their own housing (through, perhaps, a mortgage-interest tax deduction);
2. Allow employers to use HMOs that were regulated in another state where the building code was not so strict; or
3. Allow small employers to band together in “association housing plans” so that they could get the same discounts on commissions, etc., as large employers.
   Surely, everyone in this America, where people choose their own homes, would immediately dismiss the latter two policy options in favor of the first (which is also imperfect).

So, when the Republican party throws up “interstate purchase” of health insurance, I believe that it actually misdirects us from the most important reform.

Even more importantly, reforming the tax code to allow employees to keep health insurance of their own choice will (almost) surely lead to effective interstate purchase of health insurance without Congressional action. There is no Congressional law mandating interstate purchase of auto insurance or life insurance, but nobody worries about what will happen to their auto or life insurance when they move between states. States figured it out through a number of mechanisms, including the Insurance Compact.

If Congress allowed individuals to use pre-tax dollars to buy health insurance of their own choice, not their employers’ choice, states which refused to collaborate with other states in making regulations that ensured a seamless portability of health insurance would see no immigrants from other states.

Ronald Reagan is reputed to have made policy choices according to a simple rule: “Does it increase liberty?” Well, which health reform increases liberty most? One which increases employers’ choices, or one which increases individuals’ choices?

Removing Insurance Anti-trust Exemption is Misguided

The Denver Business Journal reports:

A recent salvo against the insurance industry came in a missive from U.S. Rep. Betsy Markey, D-Colorado. From an email her office sent out Monday:

“For too many years the health insurance industry has been allowed to fix prices, collude with each other and wield monopoly control over us without fear of investigation.

“This week I’m introducing a piece of legislation removing the anti-trust exemption from the insurance industry. I’m proud to stand up for the patients against the kind of profiteering the insurance industry has so long enjoyed.”

The Denver Post reported this last week, and I submitted the following letter to the editor:

Instead of scapegoating a narrow antitrust exemption for paltry insurance competition, Representative Betsy Markey should confess to how she and her political allies have prevented competitive insurance markets in the first place.

The Post reports that Markey’s bill would “remove the antitrust exemption now enjoyed by health-insurance companies” (Feb. 5). This is misleading. The exemption, codified by the McCarran-Ferguson Act, applies only to practices constituting “the business of insurance,” that are “regulated by State law” and lack “an agreement to boycott, coerce, or intimidate.” The federal government can already restrict allegedly anti-competitive insurance company practices such as mergers and group boycotts.

Blame politicians for protecting insurers from competition. Because the tax code chains you to our employer’s plans, changing your insurance provider entails changing jobs or paying a stiff tax penalty. Further, politicians forbid consumers from buying more affordable policies available in other states. Repealing these controls would greatly benefit consumers.

For more, see:

Government Accountability Office, Legal Principles Defining the Scope of the Federal Antitrust Exemption for Insurance, March 4, 2005.

Eliminating Antitrust Exemption Will Kill Health Care Competition, Gregory Conko & Kevin Hilferty, Investors Business Daily, Novemer 4 2009,
and a well-referenced report by the same authors: Congressional Misdiagnosis: Why Repealing McCarran-Ferguson Will Harm Competition in Health Insurance Markets.

Re: COBRA’s bite

John,

Thanks for highlighting John Hood’s column this morning. When people who purchase insurance on their own become unemployed, they are three times as likely to remain insured than those who were insured through their employers, even with COBRA. But COBRA is expensive and entails a big jump in premiums, so just 19 percent of unemployed people had purchased coverage that way. Federal subsidies doubled the percentage of unemployed taking up the continuation of coverage benefit as they cut the cost to individuals by 65 percent. As noted, COBRA is a bad idea, with or without subsidies.

Recent research goes further still, and questions the value of group insurance. The authors find that benefits from individually-based insurance more than offset any cost savings from getting insurance in a group plan.

Individual policies provide more choice, more security, and cost less for the unemployed without raising cost to taxpayers. Why do Republicans and Democrats alike want to build on the current employer-based system?

cross posted at Locker Room

“A Showdown Between Corporate Oligopolies”

Congratulations to New York Times reporter Anemona Hartocollis for a very informative article on a contract dispute between UnitedHealth Group and a consortium of New York hospitals.

The health plan wants to insert a clause in its contract with the hospitals that will reduce fees by 50 percent if a hospital does not inform the plan within 24 hours of one of its enrollees being admitted.  The incentives are obvious: The health plan wants to know ASAP before the hospital staff start running up the bills.

In this case, my sympathies lie (ever so slightly) in favor of UnitedHealth Group, if only because UHG is attempting to insert the condition in a privately negotiated contract, whereas the hospital consortium is running to the state government to stop it (as other hospitals in Tennessee have done, according to the article).

However, one expert quoted in the article described this as a “showdown between corporate oligopolies”.   That may be a little extreme, but it brings us to the gist of the issue.  As long as we rely on a third party to pay for our medical services, piece by piece, it will be subject to micro-management.

I expect that if every American were free to buy a health-insurance policy of his or her own choice, a catastrophic illness or accident that required hospitalization would result in a cash pay-out by the insurer, and the patient would go to whichever hospital he preferred.  There would be little or no need for wasting time and effort negotiating “networks.”

But that’s just one man’s opinion: Government needs to give that money and power to patients, and then we’ll find out.

Like to Freelance? Too Bad

During the heyday of  the most recent economic boom, freelancing and entrepreneurial activity were all the rage in books such as Free Agent Nation. Freelance activity has many benefits, both for freelancers and their clients.

So will the House and Senate health reform bills help freelancers? Fat chance. It will make insurance expensive for many freelancers, impose a tax on those who for whatever reason go without insurance for a while, and it may thwart the attempt of at least one freelancers group to provide affordable coverage for its members.