Fixing Missouri’s health care system ‘hideously complicated’
After generally taking a hands-off approach to private health insurance for more than a decade, state and federal governments in January began focusing on ways to overhaul a system that has left 47 million residents uninsured and businesses reeling from cost-shifting.
During one week in January, President George W. Bush visited Missouri to promote tax deductions that could free more funds to help uninsured workers buy coverage, and Gov. Matt Blunt used his “state of the state” message to outline the new program “Missouri Healthnet.”
“We are pleased that we’re having this conversation” about covering the uninsured “compared to what has happened the last couple of years,” said Daniel Landon, the Missouri Hospital Association’s vice president of governmental relations.
But when it comes to improving health care and insurance, pessimism abounds.
Dave Hoy, a longtime health insurance agent with Naught-Naught which has offices in Jefferson City and Columbia, hesitated when asked how government could help his business—by making it easier for individuals and small companies to buy coverage.
Hoy, who serves on the St. Mary’s Hospital board of directors, knows about the challenges the uninsured face. Hoy’s son, who is in his early 20s and has a potentially life-threatening congenital deformity, will lose coverage under Hoy’s policy within a year. The young man’s mother died of cancer shortly after she lost her coverage. At Naught-Naught, Hoy has helped deal with the annual tweaking of benefits and analysis of competing company plans as the agency—and its clients—try to maintain coverage of workers but avoid cost increases that can easily reach double-digit percentage hikes each year.
“It’s a hideously complicated problem,” said Hoy, a self-described conservative with Republican leanings. “Every time you end up with government involved, you have unintended consequences.”
Leaders’ new plans
Bush’s proposal placed the onus on states to devise systems that would reduce the spiraling number of uninsured. Meanwhile, Blunt, still facing political repercussions from his deep 2005 health-care cuts, proposed Missouri Healthnet as a replacement for the entire $6.2 billion federal-state Medicaid program here. Yet he would expand its coverage to only a few thousand, or less than 10 percent, of the 170,000 Missourians who lost Medicaid since he took office and now either go without care or have no way to pay for treatment.
Blunt used language that suggested he was edging toward universal coverage, and the business community had been expecting Blunt to outline a new state program that would help small business buy coverage for its workforce. But Blunt only discussed “principles” for covering the uninsured without giving more than hints about a program to help small business and its employees.
The announcements left a predictable muddle about how the nation and state would resolve what business groups consider a back-breaking problem.
“It’s like a snowball coming down a hill,” said Gary Marble, president of Associated Industries of Missouri, about the coming crush of activity. “It can get pretty big pretty quick.”
Rep. Brian Yates, chair of the House Committee on Insurance Policy, predicted that health insurance will emerge as “one of the top three” issues that the General Assembly will consider.
Affordability—the national problem
The American system of health insurance largely dates from World War II, when businesses began offering the benefit to increase employee recruitment and retention after wage freezes were imposed. Because businesses paid for the policies, they avoided taxes on the expenses.
As more businesses began shifting costs to employees, the tax code was modified to allow similar tax-free status for employee costs, particularly in larger companies. Employees of smaller businesses that don’t offer coverage pay for the entire cost of high-priced family policies with no tax advantages.
The Bush proposal cuts ties between tax treatment and company coverage.
While businesses could still deduct their costs as expenses, workers would claim the cost of their coverage as income—with initial deductions of $7,500 for individual coverage and $15,000 for family plans, regardless of their value.
While most Americans with group insurance would receive tax breaks, 20 percent would face an increase. But Congress could free thousands of dollars for some uninsured families to buy coverage, either through participation in an employer plan or individual policies.
“It’s a huge deal,” said Brad Jones, state director of the National Federation of Independent Business, the 13,000-company small-business lobby whose employees are most likely to benefit. “It would provide a great deal of tax relief for employers and employees.”
Smaller members of the Missouri Chamber of Commerce and Industry also could see a considerable impact, while typically large Associated Industries of Missouri companies already offer full coverage.
Every business group has a stake in health-care overhaul; the current cost of insurance is considerably higher because hospitals and other health-care providers raise their negotiated rates to cover uncompensated care for the uninsured. In 2005, each family’s health plan cost almost $1,000 more just to cover the cost shift from the uninsured.
The Bush plan equated the cost of a health plan with its generosity in benefits – and levied taxes on “gold-plated” plans’ members to support the federal cost of new tax deductions. Because pricing for American group insurance depends as much on the health of persons covered as their benefit package, the approach threatened new taxes on groups with older or sicker members. A young, low-paid secretary could face higher taxes if she worked for older lawyers who were suffering heart attacks or undergoing surgery.
The new deduction would grow through indexing at general consumer price index levels rather than much higher inflation rates for health costs. Since 2000, health costs have increased by 87 percent, compared to wage hikes of about 20 percent and general inflation of 18 percent.
Some interest groups, including the nonpartisan Employee Benefit Research Institute and American Hospital Association, worry that the Bush plan could undercut America’s employment-based health insurance system and lead to growth in the number of uninsured.
The administration conceded the plan would have little impact on the staggering number of uninsured. Bush administration officials projected it would account for coverage of only about 3 million of the 47 million uninsured.
The Bush plan has a second part: direct federal subsidies through states for low-income workers to help bridge the gap between the tax deduction and the actual cost of health plans. Bush dubbed his second step as the Affordable Choices Initiative but immediately drew the ire of American Hospital Association. He plans to dip into $30 billion or more in federal funds that now are paid to health-care institutions that treat the uninsured and redirect those payments to health insurance companies for coverage.
In Missouri, those so-called “disproportionate share” payments exceed $800 million a year through Medicaid. Now a staunch advocate of a state universal coverage system, the Missouri Hospital Association had an unusual stake because it helped design the system to generate federal dollars and increase Medicaid coverage in Missouri over the past 15 years.
Blunt had sharply reduced the number of Missourians benefiting from Medicaid in 2005, increasing the number of uninsured who sought hospital care but couldn’t pay.
The principles of Gov. Matt Blunt’s proposed health care overhaul:
• Rely on a mix of federal, state and private funds to cover the uninsured.
• Use incentives—rather than mandates pending in Massachusetts and California—to encourage businesses to offer coverage for workers. Blunt proposed eliminating the Missouri franchise tax for those businesses that make insurance available. (His budget papers, however, propose eliminating such taxes for the 87 percent of businesses with less than $15 million in assets, compared to $1 million now.)
• Create a new health insurance “marketplace” that would give employees portability so they can take their insurance coverage to their next jobs, allow them to buy insurance with tax-free dollars and increase their choices for health insurance.
• Allow businesses to use purchasing pools or state association health plans to obtain lower-cost coverage, similar to large companies.
Blunt proposes ‘principles’ but no specifics
For Missourians looking to Blunt’s speech for proposals on reducing the uninsured and helping businesses obtain insurance for their employees, it provided few answers.
In November, when the Blunt administration floated its trial balloon on a Medicaid replacement program, officials included up to $20 million a year in state funds to extend insurance to business employees who make less than 200 percent of the federal poverty level. With Medicaid matching dollars and a federal waiver, up to $50 million would have been available.
Department of Social Services officials later said they hoped to cover up to 125,000 Missourians who are now uninsured through the program.
Recently in Jefferson City, proposals had been circulating that would allow small businesses into a Missouri Consolidated Health Care Plan buying pool—a new branch of the state employee health system—at insurance rates closer to those enjoyed by larger firms.
But Blunt’s speech and handouts included only a statement of “principles” for covering the uninsured and an investment of $20 million over two years without any specifics on how the approach would work.
“More than 5 million Missourians have health insurance, but 700,000 are yet to be covered. I believe that we can dramatically increase the number who have health insurance. Innovative ideas are being discussed in this Capitol. We must work together to reduce the uninsured,” Blunt said.
Voicing business interests
Business lobbyists say the earlier Missouri Consolidated Plan approach appears to be dead after talks with the governor and his staff. Such arrangements have difficulty succeeding because private insurers “cherry pick” the best risks and only sicker groups are left in the pool and must pay high premiums.
Blunt said he plans to convene a “health-care summit” this year that would allow the public and business, health advocacy and other consumer groups to help mold Missouri’s approach to the uninsured.
Republicans and Democrats are likely to fight at length over Medicaid eligibility, although Republicans still have insurmountable margins in both chambers. Democratic legislators indicated they will try to restore coverage to most of the 175,000 Missourians dropped from Medicaid since Blunt took office.
Ervin plan outlines new approach for small business
While Blunt kept emphasizing that Missouri Healthnet goes where no state Medicaid plan has gone before, Capitol insiders reserved “ground-breaking” to describe Rep. Doug Ervin, a Kearney Republican, and his developing health-insurance legislation that now appears to underlie Blunt’s ideas for the uninsured.
Essentially all of Blunt’s call for a “new marketplace” for buying health insurance rests in Ervin’s legislation, which has not been filed yet and has no counterparts except in Massachusetts.
Ervin’s legislation would merge the state’s individual and small business health insurance markets and create a new quasi-state insurance “exchange” that employers of fewer than 50 workers could tap. The exchange builds on the part of Massachusetts’s plan that helps businesses without borrowing its use of employer and employee mandates.
Employers would designate the exchange as their insurer and make tax-deductible contributions as their share of a worker’s coverage. Each worker could then choose among all the individual and small business plans available in the state for his or her policy – an exponential increase in current employee choice.
“The problem is that consumers don’t own their health insurance policy. The employer now shops for insurance coverage and may make two or three choices available to employees,” Ervin said.
Under Ervin’s plan, employees who change jobs could take their policies with them. “We need to have health insurance travel with the employee,” said Michael Grote, vice president for governmental affairs and general counsel for the Missouri Chamber.
And the exchange also would allow the employee to make tax-free payments under federal Section 125 plans for his or her share of the premium, regardless of the fate awaiting Bush’s proposal to Congress.
Legislators tend to consider any mandates impossible – and unwise – to pass. Mandates and penalties “are not on the table in Missouri,” said Yates, the insurance policy chair.
“I’m excited” about the potential for Ervin’s legislation, said Rep. Kevin Wilson, a Neosho Republican who is the new chair of the House Special Committee on Health Insurance. “We’re at the cutting edge.”
Wilson, who has been a human resources professional with a large furniture manufacturer, said early work on the Ervin plan “absolutely” must address the insurance industry’s present underwriting of applicants. Under Missouri law, insurers can reject any individual or family that seeks coverage, generally because of health status; special statutes require insurers to accept and make coverage offers to small businesses.
If Ervin’s law merges the individual and small business markets, the current rules will become far more difficult to apply because every employee – applying for coverage under a different plan – becomes a single individual or family.
The Missouri insurance industry has always battled attempts to force it to accept policyholders or curb its ability to set rates.
Senate health-care legislation should go to the Senate Committee on Health and Mental Health, which now includes Democrat Wes Shoemyer of Clarence, who once represented Boone County in the House.
Democrats in both chambers have focused almost solely on how more Missourians, including low-income workers, can become eligible for coverage under Medicaid.
The Missouri Chamber plans to revive the idea of “mandate light” insurance policies designed for small business and its workers, Grote said. Like many states, Missouri law requires that small business insurance packages contain minimum benefit standards that raise costs, although Missouri does not have the lengthy list that others maintain.
Grote said the Chamber wanted to preserve requirements for preventive, emergency and critical care, but remove other mandates.
The Chamber’s priorities still have not been filed. “You’re going to see a lot introduced as soon as people see what the governor is proposing,” Grote said.