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In the Nation's Interest

We Need Free Choice in Health Care

The Senate Finance Committee very early Friday morning refused to consider Senator Ron Wyden's "Free Choice" amendment to the Committee's health reform bill. Therein lies the tale of health reform as it stands before its consideration on the floor of the Senate and the House.

Two watchwords of the case for health reform thus far, uttered in close proximity but never quite together, are "Today's health-care system is a disaster!" and "You can keep what you have." Fewer than a majority of our legislators have put these two sound bites together to consider their joint implications.

Yet a third sound bite is "Keep what works, and fix what doesn't." Taken as an article of faith is that employer-based insurance, which provides coverage to not quite 62 percent of all non-elderly Americans, must be a part of the collapsing system that works. Feeding this presumption is the fear of those with health insurance of any change in their own arrangements - an understandable fear, given the visible predicaments of the many Americans without good coverage.

The unfortunate reality is that the 62 percent core of the rotting health-care system is itself unsound. The challenge for policymakers is to find a non-disruptive and non-threatening way to restructure the entire health-care system - including that employer-based core, bringing along those Americans who now have employer coverage and understandably do feel threatened. Instead, the current bills before the five Committees of Congress look embarrassingly like an expansion of the current collapsing system, with large and growing cost estimates to match.

In principle, of course, everyone wants to "keep what works." But employer health insurance isn't working. Some pieces of evidence are well known: employers dropping coverage, increasing employee contributions, increasing deductibles, increasing co-pays; job lock; people forced to change doctors when they change jobs.

However, what most people don't know is that employer coverage is in decline - not just in percentages of employers offering coverage, not just in percentages of employees with coverage, but in absolute numbers.

Look at the accompanying chart. Over the past 10 years, the number of persons under age 65 with employer health insurance declined - by about two million. But over the same period, the number of persons in the United States under age 65 increased by more than 20 million.

All of the growth of U.S. population since 1999 - plus the two million reduction of employer coverage - has gone onto public coverage, fallen to the merciless individual market, or joined the ranks of the uninsured.

Given this ongoing failure, why are both big business and big labor opposed to Senator Wyden's amendment - which would have required only that employers offer their employees at least two choices of health-insurance plans? (If employers do not offer such a choice, they must allow their employees to take their employer contributions to the newly created exchange if they so choose. And the opposition of big employers and big labor was made explicit in a letter, and was highlighted by Chairman Max Baucus in his remarks in the Finance Committee markup.)

No doubt, both employer and union human resource professionals sincerely want the best possible health care for their employees or members. But those leaders' perception that they can provide the best care equally surely is colored by their self-interest. Both large employers and unions recognize that their ability to provide health insurance gives them a recruitment and retention advantage over smaller, non-union employers.

In other words, sadly, both large employers and unions want other workers to have inferior health care.

The current employer-based health-insurance system, perpetuated in all of the Committee bills, is not a fair and productive competition where large and small businesses, both unionized and nonunionized, pursue the best possible insurance at the lowest possible price, and all firms and employers ultimately benefit. In employer-provided insurance, economies of scale - or perhaps more accurately, critical mass - is an insuperable advantage. Small employers, whose work rosters are too small to constitute sound and stable risk pools, cannot possibly out-think larger employers and unions to provide better coverage to their employees in ways that ultimately drive better outcomes for all. Maintaining the current employer-based system condemns those small-business workers to inferior and insecure health care. Given the obvious importance of health care to well being, plus the deleterious effect of rising health costs on prosperity and competitiveness, continuing this unbalanced system is unwise and unfair.

Business has been more involved in the current health-reform debate than in the most recent iteration, 1993 through 1994, when most businesses chose just to say no. Very likely, some businesses have decided that reform might happen, and that they might actually gain something by being in on the deal rather than allowing the deal to be done to them. In contrast, some businesses are hanging back from the negotiations, or are even taking a hostile posture. Those firms likely believe that they would lose from enactment of legislation, and they believe that they have a good chance of stopping it. There is little discernible debate from the perspective of business statesmen - taking the long view, seeking the health-care system that the entire nation needs, rather than pursuing each individual firm's near-term bottom line. Large businesses fail to recognize that they can use their size advantage to compete for talent without organizing health insurance pools - through on-site facilities for easy-access physicians, exercise facilities, dieticians and other counselors, for example.

CED believes that the interest of the nation at large and the interest of business are the same. All Americans need true competition in health insurance to drive quality up and costs down. Without real competition, there will be no cost control, and without cost control, there will be no secure access to care for even those Americans who now have insurance. Micromanagement of care, including regulation of practices in Medicare, is no substitute for real competition.

We at CED have our own proposal to give every consumer a choice of multiple competing private health plans. Senator Wyden proposed an amendment to the Senate Finance bill to give each employee a choice of at least two plans. In the end, the Finance Committee bill maintains the current system in which the majority of American workers and their families have no choice, and hence there is no competition. If the current Finance bill prevails, costs will be higher rather than lower, as the current inefficient system is expanded to cover more people. CED will continue to work for a fundamental restructuring of the U.S. health-care system - with sound insurance exchanges and competition on cost and quality - as the legislative process moves to the next phase on the floors of the House and the Senate.

Commentaries are the views of the authors and do not necessarily represent policies of the Committee for Economic Development.