Universal Health Coverage Is No Silver Bullet

The Massachusetts experiment in health care reform is all about expanding access. But it doesn't try to control costs. This, in a nutshell, is why it's running into trouble.

The plan didn't reform health care delivery, just coverage. Granted, in terms of bringing more people in under the tent, it's been a success: Since the plan went into effect in 2006, 439,000 people have signed up for insurance -- a number that represents more than two-thirds of the estimated 600,000 people uninsured in the state two years ago. This surge in coverage has reduced use of emergency rooms for routine care by 37 percent, which has saved the state about $68 million. (Going to the ER for routine care drives up health care costs by creating longer wait times and tying up resources that can be used to help patients who are critically ill).

But even with these savings, Massachusetts is having trouble funding its plan. Earlier this month the Boston Globe reported that the governor's office is planning to shift more responsibility for funding to employers. Currently, the Mass. Health care law requires most employers with more than 10 full-time employees to offer health coverage or to pay an annual 'fair share' penalty of $295 per worker: this is called 'pay or play', an employer either provides coverage or pays a fee toward the system for not doing so.

To "play" rather than "pay," employers must show either that they are paying at least 33 percent of their full-time workers' premiums within the first 90 days of employment, or that they are making sure that at least 25 percent of their full-time workers are covered on the company's plan. (In other words, they must be paying a large enough share of the premiums so that 25 percent of their employees can afford the plan they offer.)

Now, instead of giving employers this Either/Or option, the new proposal requires that employers do both -- or fork over the penalty fee. In a sense, this is an admirable move by the government, since its intention is to push toward truly universal coverage. But there's also a game of scrounging-for-dollars going on here: The state wants employers to pay more -- to, in the words of Mass. Governor Deval Patrick, "step up" and embrace "shared responsibility" -- either by covering a greater share of health care costs or paying more in penalty fees.

As you might expect, businesses are putting up a fight. They say that Patrick's proposal "ignores the obvious," which is the fact that "employers definitely are doing their part." While it's tempting to vilify "Big Employer" as stingy and selfish, the truth is that there's only so much you can ask businesses to do without harming citizens.

As I pointed out in a March blog post, research shows that there's a big trade-off between health care costs and workers wages: when employers have to pay a lot for health care, they take the cost out of employees' paychecks. Or, as a 2004 study from the International Journal of Health Care Finance and Economics put it, "the amount of earnings a worker must give up for gaining health insurance is roughly equal to the amount an employer must pay for such coverage."

In other words, you can't bleed employers dry without also screwing workers. True, big corporations might have deep enough pockets to pay more for health care without adjusting workers' wages. But they're still bottom-line driven enterprises, which means that they're going to try and break even wherever possible. Unless you want to see laws that strictly regulate the correlation between business health care costs and workers' wages, the working Joe's income is going to take a hit as employers shoulder more health care costs.

The other choice employers have is to opt out of coverage and instead pay the penalty. Many have pointed out that, for employers, this is an attractive option -- particularly in Massachusetts, which, as of 2007, had the highest annual health care costs per employee in the country: $9,304. That's a lot more than $295 a year. We can be certain that this fee will rise in the future. And once it gets high enough for employers to choose health coverage over the fee, they're still going to take the cost of that coverage out of workers' wages.