Lack of ‘Health Plan Police’ May Lead to Costly Cheating

Consider Steven, a 30-year-old Los Angeles screenwriter who has spent nearly his whole working life with only minimal health insurance.

Under President Clinton’s proposed national health plan, self-employed people like Steven, who asked that his last name not be used, would be expected to sign up with their regional health alliances and start paying premiums for the standard package of benefits.

But since the plan contains no direct enforcement mechanism, Steven could opt to stay outside the system, paying no premiums until he needed a doctor--a prospect he admits would be tempting.

“I think of paying for health care when I’m sick,” Steven said Monday. “Unless it was explained to me very clearly up front, I’m sure that I would slide on it.”

Sensitive to criticism that health reform would add a burdensome new bureaucracy, the White House has emphasized that there will be no federal “health police” under the Clinton plan. Enforcement of its mandates would largely be left to existing state agencies.

But some observers say that Steven’s situation illustrates how the lack of a central enforcement mechanism is a serious shortcoming that could undermine the program’s financing and perhaps drive certain segments of the nation’s underground economy even deeper underground.

Other potential problems involve people who employ domestic help and the sole proprietors of small businesses. They--like all other employers--would be required to pay premiums for universal health coverage. But many in those categories don’t declare all of their activities to the government now, and it is doubtful whether health reform would make them any more likely to comply.

Some experts also think that the additional burden on employers--they will be required to pay health premiums as a percentage of payroll--may cause some to hire more undocumented workers, who won’t complain about not getting benefits.

“The incentives to hire people outside the law will be pretty great,” said William R. Mattox Jr., director of policy analysis at the Family Research Council in Washington D.C.

The example of Steven is worrisome because there are more than 10 million self-employed Americans, or about 8% of the civilian work force.

To be sure, most Americans would enter the new health system automatically through their employers, but if enough healthy, young, self-employed people like Steven either became refuseniks or didn’t bother to enroll until they got sick, observers say, the financial underpinnings of the program could be threatened.

The White House says there will be an after-the-fact enforcement mechanism.

“When you seek health care services, if it’s discovered that you’re not enrolled, and you should have been, you will be assessed back premiums,” said Kevin Anderson, spokesman for the health reform task force.

How aggressively would such delinquency be pursued? It probably would be up to the states, Anderson said, so the answer would vary.

Some of the confusion about how the Clinton plan will affect the underground economy stems from the lack of details.

While there is specific language governing small businesses and self-employed individuals, for instance, the plan doesn’t spell out the rules for domestic employers--those who hire baby-sitters, housekeepers, gardeners and other household help.

As a result, people who analyze the domestic help market are struggling somewhat blindly to interpret the plan based on what’s been published so far and on their knowledge of how other government rules affect household workers. And domestic employers are arguably the biggest users of cheap, illegal labor.

The Internal Revenue Service says roughly 408,000 taxpayers filed forms--and paid Social Security taxes--for their domestic help. However, as the Zoe Baird scandal underscored, many employers of domestic workers don’t file the forms.

The most common reasons for failing to file--expense and paperwork--would not improve after health reform. Employers would need to file with a new agency--the health alliance--and would pay from 3.5% to 7.9% of the worker’s salary in premiums.

“I would imagine that if you’re already paying under the table, you’d continue to pay under the table,” said Dr. Jack Lewin, health director for the state of Hawaii and a supporter of the Clinton reforms.

(In many respects, the Clinton plan is modeled after Hawaii’s health system of employer mandates, which has been operating successfully for 19 years.)

On the other hand, David Levine, an economist at Sanford C. Bernstein & Co. who has studied the underground economy, thinks that cheating will be a relatively small part of the picture, for two reasons: taxes and fear of getting caught.

For most employers, the penalties for noncompliance will outweigh the potential savings. Moreover, the Clinton plan provides considerable incentives to comply, since health premiums are fully tax deductible.

“You’d rather pay $100 in salary plus $7 in Social Security and another $7 in premiums and deduct the whole thing as an expense than pay $100 off the books and deduct nothing,” Levine said.

Anderson, the health task force spokesman, said one of the goals of the reforms is to have a lean, non-bureaucratic administration that will not “be in the business of policing employers.”

To preserve the privacy of health records, he said, the health alliances will not share information with the Internal Revenue Service, the Immigration and Naturalization Service or other such agencies.

Anderson acknowledged that just as some undocumented aliens have jobs and are paying into the Social Security system, some will probably receive national health cards through their employers and may receive benefits through the system while they are working.

But such people will “fall off the merry-go-round” when they become unemployed. At that point, Anderson said, they would not receive the guarantees of continuing health coverage that citizens get.