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Business Group Seeks an End to Employer-Based Health Coverage

November 13, 2007
A business group whose list of corporate donors includes the Coca-Cola Co., IBM and MetLife is calling for an end to employment-based health care, saying such an overhaul of the U.S. health insurance system is necessary because employers are unable to work together to reduce health care costs.

In a report released last month, the Committee for Economic Development wrote that recommendations it made five years ago, among them a proposal to create health care purchasing coalitions, have not worked. One reason is that employers with healthy workers did not want sick employees from other companies to drive up their costs.

“Employers acting alone or even in voluntary consortium cannot achieve the kind of systematic change to fix this problem,” the authors note before concluding: “We see no signs of employer action.” As a result, the crisis in American health care has only worsened, according to the report.

“The U.S. employer-based health insurance system is failing,” the report says, citing a litany of problems: The number of uninsured Americans continues to grow as small businesses stop providing health insurance, and the cost of health care is threatening the competitiveness of American business and will soon bankrupt public budgets.

The report says the current system is inherently inflationary. By paying for most health care expenses, employers insulate spendthrift employees against the cost of medicine. Employers that save money on health care do so by offering one health plan, which insurance companies price based on the size of the company, not on competition with other insurers. Employees, meanwhile, want to have a wide range of doctors. Since creating such networks is administratively complex, the most efficient way to reimburse doctors in such a large network is to pay a fee for each service provided by doctors. This fee-for-service system drives up cost because it is based on quantity, not quality.

The prevalence of chronic disease has also added to health care costs, and band-aids like consumer-directed health care leave sick and poor workers vulnerable, according to the report.

Joe Minarik, research director at the group, says the belief that the current system could not be salvaged led the group to propose a new health care program in which all Americans would be given a credit to purchase insurance among a variety of insurers in their region.

The plan comes from Alain Enthoven, professor emeritus at Stanford University’s Graduate School of Business and a longtime leader in the health care policy called managed competition.

“You’ve got to get practically everyone into it to get a competitive market to emerge,” Enthoven says.

Any insurance above the basic premium would be purchased at the individual’s or family’s expense. Employers would likely pay a fixed tax to pay for the credit. Smaller versions of this plan are used by employers like Stanford University, Wells Fargo and Hewlett-Packard. Enthoven says his plan would take about 10 years to fully implement and could stabilize the cost of health care at 16 percent of GDP, which is the percentage currently spent on health care. Without changes, health care is estimated to rise to 20 percent of GDP by 2015.

A number of executives from large companies have signed onto the effort as individuals; they do not yet represent the views of their employers. And although the committee has financial support from heavy hitters in the business world, it doesn’t have their names behind the health policy proposal. But it is now asking its corporate donors to endorse it.

Robert Chess, chairman of Nektar Therapeutics, a San Carlos, California biopharmaceutical company, is co-chair of the organization’s subcommittee on health care, which drafted the report. Chess says the group plans to lobby CEOs at large companies to support the plan.

“A lot of CEOs are publicly concerned with coming out with a position on this because it looks like they’re shirking their responsibility to their employees,” he says.

Privately, CEOs are supportive of another solution.

“They look at it and they see the system is not working,” Chess says.

Jeremy Smerd