The New Health Dialogue

Healthcare reform was sold, in great part, as a response to the rising cost of medical care.  People generally understand and experience rising costs as increases in the premiums, co-pays, and out-of-pocket expenses associated with their insurance, which is often provided through their employers.

It is a major challenge for health reform, therefore, that these costs went up again this year and are likely to increase significantly for the foreseeable future.  Until major cost-reducing features of the legislation yield fruit and the subsidies for low-income individuals kick in, these increases in the short-term may well be greater than without reform as insurers have to comply with new rules and meet new expectations.  Inflation-adjusted costs for employers have actually gone down due in part to the recession but also because costs are being shifted to their employees.

In part to help forestall this cost-shift becoming a larger trend, the legislation provides some short-term relief for businesses struggling with the rising cost of coverage.  An immediate tax credit will allow businesses with fewer than 25 workers and average wages under $50,000 to immediately deduct up to 35% of the cost of the premiums they provide for their employees.  Over the life of this credit, it is expected to provide $40 billion in tax relief to such businesses.

A recent Commonwealth Fund study estimated that although more than 16 million workers are employees of businesses that will be eligible for the tax credit, only 3.4 million work for business that will take advantage of the credit to stabilize or expand coverage.  This is a significant number of people, but it represents only about 2 percent of the current U.S. civilian labor force.

There are other provisions of reform that should help to lower the cost of insurance.  The reinsurance program to assist employers with retiree health costs may indirectly lower costs to employees, and the high-risk pools may marginally reduce the cost shift from uncompensated care.  Over the long-term, the cost-controlling provisions linked to reform of the medical delivery system should provide enormous benefits to employers and employees and taxpayers. 

Although the absolute costs to employers and employees will rise, so will the value that they get for this spending due to provisions such as eliminating caps on lifetime benefits.  Often overlooked in conversations about the cost of health insurance is the quality of coverage.  Though the average cost of health insurance is predicted to rise in response to new regulations and people’s electing to choose more comprehensive coverage, the cost for comparable health insurance will fall. This is a subtle distinction and, as such, has been the subject of much unsubtle political debate. 

It’s important for both sides of this perpetually acrimonious debate to be honest about the situation related to rising healthcare costs, particularly for small businesses.  Critics of the legislation need to drop their rhetoric about a "government takeover" of healthcare.  Our hybrid system still has a mix of public and private spending; the goal of reform was to strengthen and improve the private delivery system, employer-sponsored healthcare, and public programs in a thoughtful and comprehensive way.  The legislation had its flaws but the status quo was idiotic, inefficient, and inhumane. No one would be well-served by going back to it.

Advocates of the legislation, however, may need to be more modest about what the legislation will achieve in terms of cost-control in the short run and clearer about the fact that provisions such as the tax credit will provide limited assistance for only a limited number of businesses. 

There are no silver bullets for cost control.  Rising healthcare costs are linked directly to the salaries of doctors and nurses and to the revenue of other powerful interests. We probably got the best deal that we could possibly have gotten, in these circumstances, through this legislation. Lest we forget, it was nearly impossible to pass in spite of the support of all of these stakeholder groups.  A bill that made real and immediate progress on costs through cutting specialists’ salaries in half so that they are more comparable to those in countries like Great Britain?  As a Brit might say, “Not bloody likely.”