Employer System a Shaky Base for Health Reform

When the health care overhaul passed in March, employers generally hailed the law as a needed reform that offered the potential for cost reduction. While employees’ reaction was mixed, many workers approved of the legislation’s intention to preserve their existing coverage through the employer-based system.

Six months later, a slate of reports indicates that employers increasingly are passing higher insurance costs along to their workers and further premium hikes appear likely. Coupled with the still-weak economy, the reports have prompted new questions about the law’s effect on employees. Namely, the health care overhaul pushes off its most significant reforms until 2014 — and how will the nation’s workers fare until then?

Reform Law Bulwarks Accidental System

By “accident of history,” employer-sponsored health insurance became the cornerstone of coverage in the nation following World War II. More than 115 million people, representing about 85% of U.S. workers, received health insurance via their employers before the passage of health reform.

During the health reform debate, concerns were raised that the so-called public option and new taxes on high-cost insurance plans would erode the employer-based system, but, according to Helen Darling, president of the National Business Group on Health, the law ultimately bolstered the private sector’s role in administering and shaping health care delivery — and also protected potential tax deductions. As a result, large employers have hailed the final reform legislation as “significantly better than competing options,” Darling says.

The law also was frontloaded with provisions intended to win public support and bolster the employer-based model. For example, about 2,000 employers and unions are eligible for a program that would reimburse younger retirees’ medical bills through a $5 billion federal fund created. Millions of small businesses — including more than 450,000 small businesses in California — also are eligible to earn a tax credit that partially offsets the cost of providing insurance to their employees in 2010.

A team at the RAND Corporation recently modeled the effects of the overhaul on workers’ health coverage, predicting that about 10% more workers — a total of 129 million U.S. residents — will receive insurance through their employers after all reform provisions take effect. According to the RAND researchers, this coverage increase will be driven by two factors: new insurance options made available for small businesses via insurance exchanges that come online in 2014 and workers’ increasing demand for employers to provide them coverage in the face of penalties for violating the individual mandate.

Challenges Emerge Despite — or Because of? — Law’s Passage

Despite the promises of reform, the twin challenges of a weak economy and rising health costs are combining to create new difficulties for workers. Employees now pay an average of nearly $4,000 — roughly double their contribution in 2001 — for annual family health insurance premiums, according to a new survey by the Kaiser Family Foundation and the Health Research & Educational Trust. That survey also found that 30% of employers that offer health coverage reduced benefits and increased workers’ copayments and deductibles this year because of the recession. Further, the National Business Group on Health recently found that 63% of large employers planned to do the same next year. In addition, the KFF/HRET study found more businesses have begun offering high-deductible health plans that further shift insurance costs to employees.

Meanwhile, health reform may actually accelerate the passage of these costs onto workers in the short term. Insurers say that the overhaul has forced them to hike rates this fall in order to fund new benefits, like coverage for children with pre-existing conditions, which is required under the law. RAND’s projections of an expansion of employer-based coverage for some workers also may be optimistic. A recent report by the Commonwealth Fund states that the reform law’s new tax credits are likely insufficient to entice small businesses to begin offering coverage.

As a result, some experts project that health cost pressures on workers will not soon abate, despite a growing number of provisions intended as protections. “It seems increasingly clear that insurance exchanges and mandates won’t do much to lower medical costs or guarantee adequate coverage to all,” writes columnist David Lazarus in the Los Angeles Times. “Most likely, we’ll see insurers vying to offer the most bare-bones policies at the highest prices they can get away with,” he adds.

While experts continue to weigh the effects of the employer-based system on the health system, here’s a look at other happenings in reform.

Promoting the Reform Law

  • On Wednesday, the Health Information Center — a not-for-profit group developed earlier this summer by a team of top Democratic strategists — is expected to launch a $2 million advertising campaign to tout the first major phase of consumer benefits under the federal health reform law slated to take effect later this month. HIC officials said the national campaign also aims to address false claims and misinformation about the health reform law (Kliff, Politico, 9/7).
  • Several Democratic strategists have said that President Obama and the White House need to provide stronger support for congressional Democrats by promoting the health reform law as part of a broader package of domestic improvements by the administration. Democratic consultants note that while the overall health reform law might not be popular with voters, some provisions are popular and could be at risk under Republicans (Barnes, National Journal, 9/4).

Democrats Gearing Up for Elections

  • Several advocacy groups already have started touting the benefits of the health reform law through ad campaigns and other initiatives. For example, the Service Employees International Union has pledged $54 million to assist Democratic campaigns in swing districts, while Health Care for America Now has opened field offices in 14 states to help Democratic lawmakers (Levey/Hamburger, Los Angeles Times, 8/25).
  • Meanwhile, at least five of the 34 House Democrats who voted against the health reform law are running re-election ads for November’s midterm elections highlighting their votes. The Democrats — who represent districts in Alabama, Pennsylvania, South Dakota, Virginia and other conservative states — are among members whose chances at re-election are considered the most at-risk. Other Democrats who opposed the overhaul are expected to run similar ads as the midterm election approaches, according to some observers (Haberkorn, Politico, 9/5).

Challenges to Reform Law Provisions

  • Sen. Ron Wyden (D-Ore.) has proposed allowing states to receive waivers exempting them from certain parts of the overhaul earlier than planned, provided they implement a comparable alternative. In a recent Huffington Post column, Wyden explained that the provision — which is not scheduled to take effect until 2017 — would allow states to ignore certain requirements such as the health insurance mandate, if they establish alternative plans that have been approved by the White House (Lillis, “Healthwatch,” The Hill, 9/3).
  • Last week, the Florida Supreme Court ruled against a state ballot initiative challenging the individual mandate in the federal health reform law, voting 5-2 to exclude the referendum from the November ballot. In their ruling, the justices said that the proposed initiative contained “misleading and ambiguous language,” adding, “Currently our only recourse is to strike the proposed constitutional amendment from the ballot.” (Richey, Christian Science Monitor, 8/31).
  • The not-for-profit advocacy group Crossroads Grassroots Policy Strategies has launched a nationwide, multimillion dollar television advertising campaign targeting Democrats who supported the federal health reform law. The group has begun to air about $2 million worth of ads that attempt to tie Sen. Barbara Boxer (D-Calif.), Senate candidate Jack Conway (D-Ky.) and Rep. Joe Sestak (D-Pa.) to the overhaul, which CGPS has said includes “intrusive federal mandates” (Schouten, “On Politics,” USA Today, 8/25).

Looking Ahead

  • CMS Administrator Donald Berwick plans to create 100 to 300 sites for testing new patient care models by the end of 2011 under the new Center for Medicare and Medicaid Innovation, which was created under the health reform law. Through the testing sites, Medicare officials hope to find ways to phase out current fee-for-service payments and increase the use of “global payments,” which give health care providers a set fee for coordinating patient care and include incentives for improving care (Rowland, Boston Globe, 9/6).
  • Although 16.6 million U.S. residents are employed by small businesses that are eligible for health insurance tax credits under the federal health reform law, just 3.4 million of those workers are at firms expected to take advantage of the credit, according to a new report by the Commonwealth Fund. According to the report, most of the firms that will take advantage of the credit already offer their employees health insurance (Aizenman, Washington Post, 9/2).

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