Health Care on the Campaign Trail

Health care reform is a hot topic right now. The presidential candidates have made speeches, debated and discussed health care at voter forums. All three major party candidates have issued proposals aimed at increasing access or coverage, reducing costs and improving quality.

Reform is being discussed off the campaign trail as well. Congress has held hearings and sponsored reform legislation. Other interested parties – including groups that represent employers – are releasing their own health reform principles and proposals.

All this activity is setting the stage for the health reform debate that will get underway after the new president and the 111^th Congress are sworn in next year. Employers play an integral role in the current health care system and have much at stake in the debate.

Candidates’ Proposals: Overview
Reform proposals issued by presumptive Republican nominee Senator John McCain (R-Arizona) and Democratic contenders Senators Barack Obama (D-Illinois) and Hillary Clinton (D-New York) share similar goals, but the approaches reflect fundamental philosophical and political differences. While none of the proposals would dismantle the current system, all three would take health care coverage in a significantly different direction. Senator McCain would introduce more market competition and change underlying incentives to achieve his goals. Both the Democrats would take a more interventionist approach, making the system more redistributive and placing greater emphasis on universal coverage. All three candidates claim their proposal will result in higher-quality health care; greater transparency about treatments, costs and outcomes; and improved use of information technology.

Table 1
Candidates’ Positions on Health Care Reform

	McCain	Obama	Clinton
Mandates	No mandates	Mandate coverage for children Establish employer play-or-pay	Mandate coverage for everyone Establish employer play-or-pay
Access	Reform insurance markets Allow associations, civic groups and others to sponsor plans Encourage alternative providers, delivery systems	Expand public programs Create National Insurance Exchange Establish national plan Extend coverage for dependents Impose guaranteed issue; rate controls	Expand public programs Create Health Choices Menu Establish national plan Impose guaranteed issue; rate controls
HSAs	Enhance HSAs	No proposal on HSAs	No proposal on HSAs
Taxation	Eliminate bias toward employer-provided coverage Provide tax credits	No proposal on tax treatment	Limit exclusion for above-average employer-provided coverage if household income exceeds $250,000
Subsidies	No proposal	Establish sliding-scale subsidies	Provide income-related tax credits
State flexibility	Allow more flexibility	Allow more flexibility	No proposal for state flexibility
Retirees & Medicare	Means-test Medicare Part D	Cut Medicare Advantage payments Allow Medicare Part D negotiation	Cut Medicare Advantage payments Allow Medicare Part D negotiation Create Retiree Health Legacy initiative
Other	Improve quality and transparency Promote information technology	Improve quality and transparency Promote information technology	Improve quality and transparency Promote information technology

Source: Watson Wyatt Worldwide.

All the proposals have important implications for employers and health plans. Some reforms would affect employers directly, such as Senator McCain’s proposal to “eliminate the bias toward employer-sponsored coverage” and the play-or-pay employer mandates proposed by Senators Obama and Clinton. The effects of others, such as investing in health information technology, emphasizing prevention and chronic condition management, and improving transparency, would be less direct but still significant.

Senator McCain’s Proposal
Senator McCain’s proposal tries to expand access and reduce costs by increasing competition in the marketplace between all providers and between traditional and alternative providers, treatments and delivery systems. His plan does not call for individual or employer mandates.

To increase access, Senator McCain would allow civic groups, churches and other groups that met certain standards and certification requirements to offer health care coverage. He would encourage the use of retail health clinics and alternative providers, such as physician assistants and nurse practitioners. He would also encourage multiyear insurance products and allow insurers to sell policies across state lines.

To improve quality, Senator McCain would support the development of evidence-based care and treatment protocols for chronic disease and establish national standards for reporting treatments and outcomes. He would make information about treatment options, medical outcomes, quality of care and costs more transparent and available to the public. Medicare would reimburse providers for diagnosis, prevention and care coordination but would not pay for preventable medical errors or mismanagement. His plan would also promote health information technology.

To control costs, the plan would encourage personal responsibility and consumer education about nutrition, disease and lifestyles, and launch public health initiatives to discourage smoking. He would also support the development of generic drugs and biologics and develop protocols to allow prescription drug importation.

Senator McCain would replace the exclusion for employer-provided coverage with tax credits of $2,500 for individual coverage and $5,000 for family coverage — a change that would have profound implications for employer-sponsored plans. If taxpayers purchased multiyear insurance products that cost less than the tax credits, they could deposit the credit into an “expanded” health savings account (HSA).

Senator McCain would also allow states to experiment with their own market-based reforms.

The senator recently announced that he would require wealthy seniors to purchase their own prescription drugs - an indication that he would support income restrictions for Medicare Part D.

Senator Obama’s Plan
Senator Obama’s proposal would mandate health coverage for all children. Employers – except small employers – that did not offer meaningful coverage or make a meaningful contribution to their employees’ coverage would have to contribute a percentage of payroll to a national health plan.

The public health plan would be available to everyone who lacked access to employer-sponsored coverage, including the self-employed, those ineligible for other public programs and small businesses that wanted to offer coverage to employees. Benefits would be modeled on those offered through the federal employees’ program.

Hospitals and providers that participated in the public plan would have to comply with quality, technology and administration standards. In addition, Senator Obama would establish a National Health Insurance Exchange through which individuals could enroll in the new public plan or purchase private insurance that offers benefits at least as generous as those in the public plan.

To further expand coverage, the plan would regulate premiums and guarantee that coverage would be issued to anyone who sought it. Senator Obama would offer income-related premium subsidies to help lower-income individuals and families buy into the public plan or purchase private coverage, and expand public programs such as SCHIP and Medicaid. In addition, health insurers operating in less competitive areas would have to devote a minimum percentage of premium payments to health care (rather than administrative expenses).

Senator Obama would create an independent institute to study best practices. Health plans that do business with the federal government (such as those participating in the Exchange) would have to use care coordination techniques, and providers would be rewarded for achieving performance thresholds. Moreover, providers participating in the new public plan would have to collect and report data to ensure that they met quality, technology and administration standards. Senator Obama proposes to invest more in health information technology and would phase in technology standards.

Several of Senator Obama’s proposals would affect employers directly. For example, he would reinsure catastrophic health expenditures in employer-sponsored plans for employers that passed the savings on to employees in the form of lower premiums. Children could remain on their parents’ health coverage until age 25. Although Senator Obama has not yet offered specifics, the plan would reward and promote worksite health promotion programs, such as nutritious food options in cafeterias or vending machines; on-site preventive services, such as flu shots; and employer-provided exercise facilities.

Senator Obama would remove barriers to generic drug competition and allow prescription drug importation. The secretary of Health and Human Services could negotiate Part D prescription drug prices, and Medicare Advantage payments would be reduced. The plan would encourage the use of generic drugs in Medicare and other federal programs.

States could maintain or enact their own health care reforms as long as they met the minimum standards established by the new public plan.

Senator Clinton’s Proposal
Senator Clinton’s plan is similar to that of Senator Obama, but she would mandate health coverage for everyone. Her proposal would establish a new public health plan as well as a Health Choices Menu, through which individuals and employers could purchase private coverage. Like Senator Obama, she would require that large employers offer coverage to their employees or contribute to the cost of the public system. States could band together to offer the same types of choices as those in the Health Choices Menu.

Health insurers would have to issue coverage to all applicants and automatically renew policies for those who wished to keep them. Premiums would be regulated, and insurers would have to comply with minimum stop-loss ratios. She would expand public programs like SCHIP and Medicaid. Refundable, income-based tax credits would help individuals pay for coverage and ensure that premiums remained within a certain percentage of family income.

Senator Clinton would establish a best-practices institute to fund comparative effectiveness research and provide health data to providers and the public. Multispecialty clinics, provider-sponsored organizations and others could bid to provide care coordination services under federal programs, and physicians that provided care coordination services would receive bonuses. Financial incentives would encourage providers to adopt health information technology. She proposes to align Medicare payments with performance and prohibit federal programs from paying for preventable medical errors.

Like Senators McCain and Obama, several of Senator Clinton’s proposals would affect employer-sponsored plans directly. Her Retiree Health Legacy Initiative would provide a tax credit to offset some retiree health care costs for employers that agreed to incorporate best practices, such as chronic care management or information technology. In addition, employers could purchase retiree health coverage through the Health Choices Menu. Senator Clinton would limit the tax exclusion for employer-sponsored coverage. Taxpayers with household incomes over $250,000 whose coverage exceeded the average plan in the Health Choices Menu would be taxed on their excess coverage.

Senator Clinton also has ideas for prescription drugs, including removing barriers to generic drug competition and creating a pathway for the approval of generic biologics. She would allow the secretary of Health and Human Services to negotiate Part D prices, strengthen oversight of the interaction between drug companies and health care providers, and restrict direct-to-consumer advertising. She would reduce payments to Medicare Advantage programs.

What Does This Mean for Employers?
The upcoming health care reform debate will have important implications for employers.

Mandates could increase health plan costs, complicate administration and compliance, and constrain design flexibility. Under the so-called play-or-pay mandates proposed by Senators Obama and Clinton, employers would have to cover their employees or pay into the system (similar mandates have been imposed in Massachusetts and San Francisco). The ultimate implications for employers will depend on the details. It is not clear how the reforms proposed by Senators Obama and Clinton would affect minimum benefit levels or required premium payments, health benefits for part-time and seasonal workers, enforcement mechanisms and other aspects of the current system.

The tax exclusion for employer-sponsored coverage drives our current system, and eliminating it would have profound implications. Proposals to replace the exclusion are not new: President Bush’s budget proposals for fiscal years 2008 and 2009 would replace the employer exclusion with a standard deduction for health care. Former Senate Majority Leader Bill Frist (R-Tennessee) has also suggested limiting the exclusion. Senator McCain would replace the exclusion for employer-provided coverage with tax credits, and Senator Clinton would limit the exclusion by income and level of coverage.

None of the candidates focuses on ERISA, but state and local health care reform activity has prompted legislative discussion and litigation about ERISA preemption of state and local laws. In general, ERISA preempts state and local laws that would impose mandates or otherwise regulate self-insured employer health plans, allowing uniformity of benefits and administration for employers that operate in multiple jurisdictions. San Francisco’s health reform ordinance, which imposes a play-or-pay employer mandate, is currently in litigation to determine whether it is preempted by ERISA. Last year, a House subcommittee held a hearing to discuss the possibility of granting ERISA waivers to allow states to experiment with reform. Allowing states to experiment with reform in ways that erode ERISA preemption could affect health plan design, cost, administration and compliance.

Long Road Ahead
Health care reform faces a long and difficult journey. The tone and content of the upcoming debate will depend on who wins the 2008 elections – both the congressional and the presidential elections. The new president will have to work with lawmakers and other interested parties. And health care reform will have to move through Congress – a process that will require compromises on this consequential and often-contentious political issue. Although it remains to be seen whether Congress and the new president can enact significant reform, a debate is almost certainly in the works, and employer-sponsored plans will figure in the discussions.