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Published on October 17, 2007

Author: Arley33

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Revising Employers’ Role in Sponsoring and Financing Health Insurance:  Revising Employers’ Role in Sponsoring and Financing Health Insurance Katherine Swartz, PhD Harvard School of Public Health A Future of Good Jobs? America’s Challenge in the Global Economy W.E. Upjohn Institute June 12, 2007 Roadmap:  Roadmap Decline in ESI coverage – crisis looming Who pays for ESI? Prior employer efforts to slow ESI spending Other issues with ESI Reorganizing the financing of health insurance – principles from by 3 EU countries Ballpark estimates of funds that could come from different taxes Implications for reorganization of insurance Katherine Swartz, Harvard School of Public Health June 22, 2007 Decline in ESI Coverage:  Decline in ESI Coverage Since 2000, % of nonelderly pop with ESI has dropped from 67% to 62% % of firms offering health benefits fell from 69% to 61% Health insurance premiums increased on average 73% between 2000 and 2005; more for small firms Increased use of contract workers; small firms as “virtual” firms Katherine Swartz, Harvard School of Public Health June 22, 2007 Health Insurance as Part of Compensation: Who Pays?:  Health Insurance as Part of Compensation: Who Pays? Economic theory: workers Tax code treatment of employer-paid premiums Roots of belief that employers pay – Treaty of Detroit Reality: workers, companies, consumers, stockholders Katherine Swartz, Harvard School of Public Health June 22, 2007 Growth in Healthcare Spending and Health Insurance Costs:  Growth in Healthcare Spending and Health Insurance Costs Katherine Swartz, Harvard School of Public Health June 22, 2007 Prior Employer Efforts to Restrain Spending Growth:  Prior Employer Efforts to Restrain Spending Growth Recession of 1981-83 – firms began to look at HMOs and to self-insure 1984: 5% in managed care; 1993: 50%; 1998: 86%  1st dollar coverage expectations In last decade, shift to increasing cost-sharing, HSAs and HDPs Katherine Swartz, Harvard School of Public Health June 22, 2007 Other Issues with Employer-Sponsored Health Coverage:  Other Issues with Employer-Sponsored Health Coverage Great variation in premiums—firm size, industry, age of workforce Most large firms self-insure—they bear risk Majority of business for large insurers is as administrators of self-insured plans – less ability to cross subsidize small group and individual markets Katherine Swartz, Harvard School of Public Health June 22, 2007 Demographic Changes’ Effects on Employers’ Health Benefits Costs:  Demographic Changes’ Effects on Employers’ Health Benefits Costs • Decline in ESI coverage – esp among younger adults – at same time baby boomers are in older half of workforce  less cross subsidization within firm • Effects on small firms – pool of people with small group policies is aging, further increasing premiums Katherine Swartz, Harvard School of Public Health June 22, 2007 Implications:  Implications Large and small companies moving to limit their exposure to rising costs of health benefits Increasingly likely that large % of workforce will not have ESI as we have known it for past 50 yrs Opportunity to reconfigure how we pay for health insurance Katherine Swartz, Harvard School of Public Health June 22, 2007 How 3 EU Countries Finance Health Insurance:  How 3 EU Countries Finance Health Insurance Switzerland, Germany, Netherlands Public-private financing of private insurance with public oversight Focused also on efforts to slow growth in spending Katherine Swartz, Harvard School of Public Health June 22, 2007 Switzerland:  Switzerland • 2003: health 11.5% of GDP • Requires everyone to enroll (1996) in basic coverage; supplemental optional • 93 insurance plans in 2004; compete on premium  hope for lower prices • Premiums community rated by canton – wide variation in premiums • Premiums subsidized by fed and canton gov’ts – firms do not directly pay taxes for health ins • Appears people are paying 8-10% of income Katherine Swartz, Harvard School of Public Health June 22, 2007 Germany:  Germany 2003: health 11.1% of GDP People with incomes < $56,400 must participate; ~10% of pop are exempt Workers pay 7.5% of salary; employers pay 6.6% of workers’ salary Children and non-working spouses are free; no distinctions between individual and family policies Supplemental insurance – premiums set to expected risk; people can be denied Katherine Swartz, Harvard School of Public Health June 22, 2007 The Netherlands - 1:  The Netherlands - 1 • 2003: health 9.8% of GDP • Everyone covered for basic services; supplemental policies available • 26 health plans compete; can deny coverage for supplemental policies • Premiums are community rated; vary by health plan Katherine Swartz, Harvard School of Public Health June 22, 2007 The Netherlands - 2:  The Netherlands - 2 Premiums are risk adjusted from central fund Everyone pays nominal premium (average $1,365) + 6.5% tax on income up to ~$40,000 Employers pay tax on income Country pays for children People with 0 expenses are rewarded Katherine Swartz, Harvard School of Public Health June 22, 2007 Principles for Financing Health Insurance:  Principles for Financing Health Insurance Everyone should enroll and pay a nominal amount per year Additional premiums should be collected from individuals in proportion to their family income Companies should contribute to financing, in proportion to income Katherine Swartz, Harvard School of Public Health June 22, 2007 Implications of Principles:  Implications of Principles Health insurance disconnected from where one works Increase efficiency of labor market and overall productivity Increase equity Katherine Swartz, Harvard School of Public Health June 22, 2007 Ballpark Estimate of Funds Needed for Health Insurance:  Ballpark Estimate of Funds Needed for Health Insurance 2005: US spent $2 trillion – 55% purchased by private funds $625 B in private insurance; ~$50 B in OOP that would have been paid by private ins; $140 B in other private funds ~$815 and $900 B for non-elderly not covered by Medicaid or Medicare (in 2005) Katherine Swartz, Harvard School of Public Health June 22, 2007 How Would We Distribute the Financing? - Individuals:  How Would We Distribute the Financing? - Individuals Nominal annual premium of $1,000  $200 B CBO estimates of small changes: all tax rates raised by 1%: $30.3 B in 2010 limit itemized deductions to 15% of income: $90.3 B in 2011 repeal of 2001 tax cuts: revenues will not decline by $98B in 2011 Katherine Swartz, Harvard School of Public Health June 22, 2007 How Would We Distribute the Financing? - Companies:  How Would We Distribute the Financing? - Companies • 8% of businesses pay corporate income taxes; account for < 10% of federal tax receipts • Payroll taxes now account for 40% • Medicare HI: 2.9%; $212 B in 2006 • Payroll tax of 6%: ~$430 B Katherine Swartz, Harvard School of Public Health June 22, 2007 Payroll Tax Pluses and Minuses:  Payroll Tax Pluses and Minuses Payroll as proxy for income For firms providing ESI, tax of 3-6% likely to be less than costs of ESI Would need to collect from companies that hire people as contingent workers Redistributes costs of HI – more equity and progressivity across firms Katherine Swartz, Harvard School of Public Health June 22, 2007 Other Taxes to Consider:  Other Taxes to Consider VAT Expand corporate income tax General tax code revisions Higher marginal tax rates for very high-income individuals Katherine Swartz, Harvard School of Public Health June 22, 2007 Implications for Reorganization of Health Insurance:  Implications for Reorganization of Health Insurance • Medicare • Medicaid • Standardized, basic benefits package – way to slow spending? • Role of private insurers • Role of employers – sponsors? Katherine Swartz, Harvard School of Public Health June 22, 2007 Summary:  Summary Sea-change – companies are rapidly reducing their exposure to costs of health insurance Opportunity to restructure how we pay for health insurance – more equity and efficiency Need to act quickly before market forces create a fait accompli Katherine Swartz, Harvard School of Public Health June 22, 2007

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