You need to understand this fact to make sense of the upcoming health-care debate. Americans want universal coverage as long as it won’t cost too much. In the popular mind, cheap coverage means a company plan–hence the Clintons’ proposal that companies pick up most of the cost of the working uninsured. They’re using the employers as bagmen to collar the payments that people don’t want to make themselves.
Most economists despise this approach. Honesty may not always be the best policy, but it’s worth trying once in a while. Ideally, employers would pay workers more cash, then deduct the cost of their health insurance from their paychecks. Such openness might go a long way toward controlling medical inflation. “When employees think that the healthcare money comes out of the employer’s pocket, they want rich policies that cover everything,” says Gall Wilensky of The Project Hope in Bethesda, Md., and an expert on health-care finance. “When it’s clear it’s their own money, they may reconsider.”
But if it’s their own money, they may also reconsider universal coverage, with all of its built-in subsidies for the working poor and the poor in health. So honesty might not be the best thing after all. “This is overridingly a moral issue,” says Princeton economics professor Uwe Reinhardt. “If the only way to get everyone insured is to continue the pretense that employers pay, I’m for it,” he says.
Of some half dozen health bills now in Congress, only four require some degree of universal coverage. Of those, just two–from Sen. John Chafee and Sen. Don Nickles–test your mettle by deducting the price directly from your paycheck. The others–from President Clinton and Rep. Jim McDermott–fuzz the issue of who pays. That’s not a cowardly decision. Uwe Reinhardt, again: “There has to be sharing from wealthy to poor. We don’t want to discuss it because we don’t want to do it.” But since do it we must, employer-paid plans provide the cover to close the deal.
One more thing to remember as you follow the debate. How money should be raised for universal health care is a separate issue from how the funds should be disbursed. Any contribution–plan individual-paid or employer-paid–could be paired with any delivery system: managed care, a government-run program or the president’s health-care alliances. So the question is, how do you really want to pay for the benefits you’re going to get? You might:
It’s a simple system, administratively cheap and easily enforced. The tax rate would tell you annually how well health costs were being controlled. The financing for McDermott’s Plan (which embraces the Canadian system) will probably include a cigarette tax, a 1.5 or 2 percent tax on employees and a 7.9 percent tax on employers–thus preserving the fib that company contributions are free. McDermott’s chance of swaying Congress appears to be zilch, even though he’s probably offering the cheapest deal. A 1991 report from the General Accounting Office says that if a Canadian-style plan were chosen (thereby junking private insurance companies), its savings in administrative costs alone “would be more than enough to finance insurance coverage for the millions of Americans who are currently uninsured.” Harvard’s David Himmelstein calls Clinton’s plan “doomed” and this one a survivor.
These plans would require everyone to buy health insurance backed by some enforcement mechanism, Chafee seeks comprehensive coverage; Nickles would require only catastrophic protection (for expensive illnesses. not for routine or preventive care). Americans eligible for aid would get subsidies or tax credits. Employers could still pay your premiums. Alternatively, they’d deduct the money from your paycheck and send it to the plan you chose.
Approaches like these appeal to those who seek more personal responsibility. They’re also beloved by small businesses, especially those who don’t cover their workers. (In employer plans, a company newly forced to contribute will pay out of revenues in the short run, it’s only in the long run that wages adjust.) The political killer, however, may be that these payments feel like a T-A-X. Nickles (but not Chafee, yet) wants employers who drop health plans to compensate you by paying out the money they save. But even though your wages would rise (or you’d get a subsidy), you can’t be sure you’d have enough to buy comparable coverage on your own. Walter Zelman, a senior health-policy adviser to the administration, calls this “a very big promise and a very small guarantee.”
This is the system the Clintons propose. Your company pays at least 80 percent of the premium (with some exceptions); you pay up to 20 percent. The money is sent to a health alliance, which enrolls you in the plan you chose. Some small businesses that now don’t offer coverage protest that the price will force them to fire some of their workers–and indeed that might happen in some cases, despite all the subsidies provided. On the other hand, about half of the very smallest firms do manage to insure their workers, so their costs will fall. Economist Stuart Altman of Brandeis University thinks that, balancing positives with negatives, the impact of the Clinton plan on total employment will be about zero.
A plus for the president’s proposal is that it builds on habits and structures already in place. If Congress pares back the health benefits he wants to offer (as seems likely) but keeps other reforms, many workers now insured should see their real costs decline. If a company’s costs drop, too, that could mean higher wages or more people hired. Still, employer-paid plans are one more course in the Great American Free Lunch–cynosure of the no-tax myth. Backers of universal care may have no other choice but to obscure that it’s really you who pays the price.
