It is becoming a standard line in news stories on the presidential contest — including this one from Congressional Quarterly — that, if elected president, Senator Barack Obama would “build on” the employer-based system.
But is it true? No, not by a long shot.
The Obama plan has three features that would work in concert to rapidly undermine all private health insurance, including employer-sponsored plans:
- A new public insurance option for the working age population, modeled on Medicare.
- The requirement that all but the smallest employers “pay or play” — meaning they must offer acceptable coverage or pay a tax to finance coverage through the government.
- Price controls for services in the new public option.
The “pay or play” tax — 4 percent of payroll in California’s abandoned plan, and 7 percent in this proposal from Commonwealth Fund researchers — would, by itself, provide a strong incentive for just about every employer to get out of the health insurance business. The tax, tied to wages, would provide certain costs, whereas health premiums have risen above wage growth consistently for three decades. Why would an employer, especially small–to–mid-size firms, continue to take the risks associated with running a plan when they could fulfill their obligation to workers by paying a tax instead (which, incidentally, would come out of wages)?
The new public insurance option would only increase the incentive for employers to drop their company-run plans. How would such a plan determine what to pay doctors and hospitals? It seems obvious that it would use Medicare’s price controls, flawed as they are. These payments systems, as can be seen in the current fight over physician fees, are well below market rates because the government can effectively offer them on a “take-it-or-leave-it” basis. In so doing, the government could set premiums for the new public option at an artificially low rate. Price controls do not provide real cost control; they simply frustrate demand by limiting supply. But, no matter. Especially in the short term, employers would quickly make the decision that investing in real efficiency gains would no longer pay off, given the strong pull of a low-cost option run by the government.
The Lewin Group estimates that some 40 million people would be in the new public insurance option in the first year of the plan proposed by the Commonwealth Fund authors — a plan that closely tracks the Obama outline. That’s not building on the employment-based system. It would be the first step in what would become the very rapid demise of job-based health insurance.