The cost-shift paradigm

By John Abraham

A U.S. Census Bureau report that recently made its way into national headlines shows that about 44 million people, or 15.2 percent of the population, were without insurance coverage in 2002—an increase of about 2.4 million people from 2001, when the proportion of uninsured stood at 14.6 percent. Equally alarming is that the number of workers covered by employer-sponsored health insurance dropped from 153 million (62.6 percent) in 2001 to 150 million (61.3 percent) in 2002.

Contrary to popular belief, most of this country’s uninsured are employed. More than 80 percent of the uninsured live in families with a full-time or part-time worker. However, these workers earn too much to be covered by Medicaid ($16,000 for a family of three) and too little to afford the cost of private insurance (two-thirds of the uninsured families earn under $30,000 per year).

The rise in the number of uninsured and the drop in employment-based coverage go hand in hand. As healthcare costs rise, fewer employers are able to bear the cost and therefore drop coverage. The impact of rising costs is especially felt by small employers, who are least able to afford higher premiums. According to the Census Bureau, only 31 percent of employers with fewer than 25 employees offered insurance coverage in 2002, compared to 69 percent of employers with 1,000 or more employees.

The federal and state governments compound the cost problem by paying doctors and hospitals less than the cost of care for Medicare and Medicaid patients. The practical effect of these arbitrary pricing caps, which are typically used to help governments balance their budgets, is that providers are encouraged to shift more costs to privately insured employers and employees. This hidden tax on the health insurance premiums of employers and employees alike helps explain why a couple of aspirin can cost as much as $10 in an emergency room.

While employers abandon increasingly expensive insurance coverage, people without insurance continue to receive healthcare. Some of the drop-off in private coverage was picked up by Medicaid and the State Children’s Health Insurance Program (SCHIP), but coverage is limited. The uninsured will receive healthcare, however, because laws require hospital emergency rooms to accept and care for all patients who present themselves for treatment, regardless of their ability to pay. Analysts put the amount of cost shifting from uncompensated care at $35 billion to $40 billion per year. As this cost adds to the burden of both employers and employees, more employers will drop healthcare coverage.

Solving the problem

Democratic presidential candidate John Kerry proposes to reach out to the uninsured by expanding access to group coverage. He would support employer-sponsored healthcare through a premium rebate of up to 75 percent of the cost of catastrophic care. Another idea is to relieve states of a large part of the Medicaid financing by having the federal government pay the cost for all children enrolled in Medicaid.

President Bush offers a different approach. He proposes to subsidize the purchase of individual private health coverage through a variety of tax credits or deductions to offset part of the cost. He believes that individuals can “out-negotiate” corporations over premium costs and plan design through direct bargaining with doctors and hospitals over the cost of care. He therefore wants to eliminate employer-sponsored healthcare and shift the risk and responsibility for healthcare costs and coverage to individuals.

As president, Kerry would keep employer-sponsored plans alive; Bush would speed their demise. Bush’s goal is to make healthcare benefits the responsibility of employees, just as he did with pensions. Everyone stands on his or her own—so rich people do better than everyone else.

This column is intended to inform members abut national healthcare policies as they affect bargaining and state legislative action. Questions and comments may be sent to jabraham@aft.org.