Posted on Sun, May. 04, 2008

Jacob: Health benefits a pill for business

Mary Frazior, longtime president of the Hurst-Euless-Bedford Chamber of Commerce, felt compelled to gather a handful of the chamber's leaders to share the bad news.

She budgeted a health insurance increase of 12 percent for 2008. The real increase, it turns out, is going to be 24 percent.

Frazior presides over an organization that serves a mature business community and stable membership base. A rigorous expense manager, she performed her annual ritual with an insurance adviser: got bids from other insurance carriers, considered high-deductible plans that are not that much less expensive and looked at joining forces with the state chamber organization for possible economies of scale.

In the end, she rejected the alternatives and will absorb it because one less staff member than anticipated chose not to opt for insurance benefits. She pruned other expenses to pay for increases of 12 to 20 percent the previous three years. But she is running out of options.

"This is not sustainable," she said.

As Herbert Stein, chairman of the President's Council of Economic Advisers during the Nixon administration, once famously uttered: "All unsustainable trends stop."

The H-E-B chamber saga is played out every year as all organizations - but especially small ones - figure out ways to tighten their belts to cover outsized annual increases in health insurance premiums. They cut expenses elsewhere, give smaller annual wage increases or make the health benefits less generous by abandoning features, or by making employees pay larger deductibles, larger co-payments or a larger percentage of the premiums.

The RAND Corp. released a report last month confirming that that the economic burden of health insurance went up more rapidly for small businesses than larger ones from 2000 to 2005. Small-business health insurance share of payroll grew from 8.4 to 10.8 percent during that period - an increase of almost 30 percent. At the H-E-B chamber, the share of payroll has gone from 7.3 percent to nearly 13 percent since 2005.

The good news: Small businesses said they were no more likely to abandon providing health insurance for their workers than large businesses. This echoes Hillary Clinton's research as she was crafting her current universal healthcare proposal. Employers continue to believe that it is their responsibility to provide health insurance to their employees.

But there is an enormous difference in offering employees health insurance and having them elect to take it. Insurance companies charge small employers more because those electing to take the benefits are more likely to need them. Larger employers can spread the risk among larger groups of enrollees. Smaller firms also tend to pay lower salaries, making the insurance even less affordable for employees.

The 170 million Americans who get health insurance through their employers have seen the cost of their premiums increase 30 percent while their incomes increased only 3 percent from 2001 to 2005, according to the Robert Wood Johnson Foundation.

This continued erosion of "health benefits" eventually will make the term an oxymoron. Barring unforeseen circumstances (or a government takeover of the healthcare system), nearly all employer-provided health insurance will become high-deductible catastrophic insurance within the next decade.

That is not a very savory prospect, but the current system will not be changed easily. The employer-based system has been around for more than 50 years. About 60 percent of Americans receive health insurance through their employers, and most are still satisfied by the arrangement.

The fact that nearly all of the Democratic presidential candidates favored universal healthcare made it seem more inevitable or imminent than it really is.

The situation is not dire enough yet. Those hurting the most - the uninsured and underinsured - lack political power. The problem must reach much more deeply into the pockets of the middle and upper-middle class before it gains traction. Some pollsters believe that the national uninsured rate will need to increase from the current 16 percent to 25 percent - the current uninsured rate in Texas - before serious reform is considered.

Meanwhile, the universal healthcare crowd is split on whether it should be government-run or continue to rely heavily on employer-based private insurance.

And if a universal healthcare plan ever picks up steam, it will face what may well be Washington's most muscular special-interest coalition: Big Health.

The American Medical Association, the American Hospital Association, the pharmaceutical companies (collectively known as Big Pharma), medical device manufacturers and insurance companies have way too much at stake to see a radical change in the status quo.

In the meantime, the Mary Fraziors running U.S. firms big and small will continue their annual budget shuffling to accommodate substantial health insurance increases for eroding benefits.