Ronald Brownstein
Washington Outlook
June 25, 2006

When organized labor's most inventive union president and the Republican lawmaker in line to chair the powerful House Ways and Means Committee are both touting the same revolutionary idea, it may be time to bend an ear.

Andrew Stern, the liberal president of the Service Employees International Union, and conservative Rep. Jim McCrery (R-La.), favored to succeed Rep. Bill Thomas (R-Bakersfield) as head of Ways and Means if Republicans keep control of the House, don't agree on much.

But both believe it's time to replace the central arch of the American healthcare system: the link between health insurance and work. Their arguments may represent the opening notes of the first significant domestic debate of the 2008 presidential campaign.

The connection between health insurance and employment dates to World War II.

After President Franklin D. Roosevelt imposed wage and price controls, companies could not compete for workers by offering bigger paychecks. Instead, they provided richer benefits, including health insurance. After the war, the big unions reinforced the trend by bargaining for health coverage in their contracts with major employers.

Congress cemented the connection between work and health coverage in 1954 by creating a generous tax subsidy for employer-provided coverage. Employers that provide health insurance for their workers can deduct the cost of the premiums as a business expense, the same way companies write off the wages they pay to workers. But although workers pay taxes on the wages they receive, Congress decided they would not be taxed on the value of the insurance their employers purchased for them. That subsidy encouraged employers to shift more of a worker's total compensation from wages to health benefits.

Linking health coverage to work had other benefits. It created insurance pools that shared risk between workers who were young and old, healthy and sick. And it allowed employers to handle the headache of administering insurance plans, rather than requiring workers to bargain directly with insurance companies.

With all these advantages, the employer-based system grew enormously over the last half a century. Today, more than 174 million workers and their families receive health insurance on the job.

But the system is cracking. As the cost of insurance rises, fewer small employers are offering it. Almost all large employers still provide coverage. But more of them argue that the rising cost is hurting their ability to compete against companies from other countries that spread the cost more broadly through government-provided healthcare.

As these pressures have converged, the share of Americans who receive coverage at work has fallen in each of the last five years — from nearly 64% in 2000 to just under 60% in 2004. Most experts project continued declines. Stern sees in these trends the writing on the wall.

"We have to recognize that employer-based healthcare is ending; it is dying before our very eyes," he said at a recent forum sponsored by the Brookings Institution think tank.

Stern didn't endorse a specific plan to replace employer-provided coverage. But he flagged the obvious two options: a government-run, single-payer healthcare regime versus a system that would require individuals to purchase insurance with subsidies from government and, perhaps, mandated contributions from employers.

McCrery, not surprisingly, prefers the latter option, minus the employer mandate.

In an essay published this month in the new journal Democracy, Jason Furman, a visiting scholar at New York University and former economic policy aide to President Clinton, said that tax policy would be the key to any shift away from the employer-based healthcare system.

The existing tax subsidy for insurance, Furman said, perversely benefits upper-income workers more than lower-income ones. The reason is that under the progressive income tax, the affluent pay higher tax rates on their income. So it would cost them more than low-income workers if government taxed the value of employer-provided insurance.

Furman wants to reverse that equation. He says that if government eliminated the current tax subsidy for employer-provided coverage (which costs Washington about $200 billion a year), the savings could fund a tax credit that would help all Americans purchase basic health insurance. That structure, he said, would provide the biggest subsidy to the least affluent.

"We should spend less subsidizing more expensive insurance … for higher-income people and spend more to help moderate-income families obtain the health insurance they lack," Furman wrote.

A first step, he said, might be to limit the amount of insurance employers could provide tax-free, and to use the savings to fund coverage for some of the nearly 46 million uninsured.

Any system that affects as many people as employer-based health coverage won't be changed quickly, nor should it be.

"We have to work incrementally toward getting to a point where we can slowly shift insurance from the workplace," McCrery said.

Likewise, most big-business executives aren't clamoring to jettison their role.

"We're not giving up on this system and saying it needs to be thrown out," said John J. Castellani, president of the Business Roundtable, which represents the nation's largest companies. "We think it can be improved from both a cost and quality standpoint, and that's what we are focusing on."

The critics haven't assembled an irrefutable case against the employer-based system; refurbishing it might well make more sense than dismantling it. Any replacement system would need to guarantee affordability and preserve the sharing of risk.

But the tough, thoughtful questions from such voices as Stern, McCrery and Furman are an encouraging sign that the nation finally may be ready to reexamine a healthcare system that costs too much and covers too few.

Bullet Points for Legislators

  • Single Payer saves money.  For the past 20 years, states have commissioned studies on different types of health care systems.   In EVERY case, single payer was shown to be the only way to cover everyone and the only system that saved money and controlled costs.

  • Publicly financed does not mean government run health care.  YOU have publicly finance health coverage, but the government does not make decisions regarding your health care.

  • Cost conscious patients often don't get the care they need.   Most decisions are made by the doctor in concert with the patient, but the patient relies on the doctor's knowledge to make a decision.  Expensive tests and treatments cannot be ordered by the patient, only the doctor.

  • Lifestyle choices are not what is fueling high costs in health care.   The United States ranks low in general health indicators, but high in good health habits.  We smoke less, drink less and consume less animal fat that many other countries with better health indicators and much lower health care costs.

  • Businesses can accurately determine their health care costs and are not subject to unanticipated large premium increases.

  • It will reduce labor costs due to a more efficient way of financing health care, eliminating much wasteful administration.

  • Workers' Compensation costs will be reduced, likely by half, due to the fact that everyone has health coverage and there is no need for the medical portion.

  • It reduces the need for part time employees and provides easier recruiting.  There are no pre-existing conditions or Cobra issues.

  • Eliminates the oversight of health benefits and bargaining health coverage with employees.

  • It creates healthier personnel and more stable employees, reduces absenteeism and eliminates employer health coverage complaints.

  • It reduces employee health related debt and personal bankruptcies.

  • It frees up family income that can be spent on other goods and services, thus stimulating the economy.

Tips for Writing Letters to Editor

Follow guidelines for your local paper (word count, submission instructions, etc.)

Frame your letter in relation to a recent news item Use state specific data whenever possible (let us know if you need help finding some!)

Address counter arguments

Be aware of your audience and emphasize how Medicare for All is good for ALL residents of the state

Criticize other positions, not people Include your credentials (especially if you work in the healthcare field)

Avoid jargon and abbreviations

Don’t overload on statistics and minor details

Cover only one or two points in a single letter

Avoid rambling and vagueness

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