Cost of Insurance Lost in Health Debate

By leaving buses idled and supermarkets struggling to stay open, striking transit and grocery workers have sent a message across Southern California: The growing cost of private health insurance has become a serious problem.

But angry as it is, the message has been nearly drowned out in Washington by a chorus of other health-care coverage concerns. As a result, lawmakers have given little attention in recent years to the cost of private insurance plans.

Instead, they have worried about shoring up the finances of the giant Medicare system. They have been negotiating over a new prescription drug benefit for seniors. And they have been trying to help the 43 million Americans who have no health insurance.

The rising cost of private health plans “has been like a stepchild to all the other problems,” said Len Nichols, a health economist with the nonpartisan Center for Studying Health System Change. “Everyone knows it’s there, but no one wants to talk about it.”

Democratic presidential candidates have made health insurance affordability a central issue, but their plans are being debated on the campaign trail, not in Congress.

“I wish I could say to you they are doing something, but to date there have been no specific proposals out of the administration or from Congress that really deal with the problems of cost containment,” said Patricia Q. Schoeni, executive director of the National Coalition on Health Care, which includes businesses, unions, religious groups and others.

Some health-care experts are not even sure the complaints of the California strikers should be high on the Washington agenda.

“The bigger problem is people at the low end of the scale who don’t have enough dough for insurance at all,” said Stuart Butler, a health policy specialist at the Heritage Foundation, a conservative think tank. “I’m less concerned about [striking workers] in California who are ticked off that their employer can’t keep adding 20% to their total compensation.

“I’m sorry for them, but that has nothing to do with the federal government,” he said. “That’s a negotiating issue for them.”

Mechanics for the Los Angeles County Metropolitan Transportation Authority walked off the job early Tuesday in a dispute over who should pay for rising health insurance costs. Union workers at major Southern California supermarket chains went on strike or were locked out over the weekend: Among key issues in that dispute is an employer proposal to trim health benefits.

Rising health insurance costs are also at issue in a contract dispute that has prompted hundreds of Los Angeles County sheriff’s deputies to call in sick in recent weeks.

Nationwide, health-care costs will increase 12% next year for large employers, marking the fifth straight year of double-digit hikes, according to projections from Towers Perrin, a benefits consulting firm.

Cost hikes have often surpassed wage increases, prompting many workers to drop their employer-sponsored health plans, Nichols said. “That’s what’s driving the biggest piece of the rise in the uninsured -- even more than job losses per se,” he said.

The federal government already gives what amounts to a large subsidy to employees who obtain health insurance at work: It collects no income or payroll taxes on the money that employers spend to cover worker health insurance premiums.

If that money were taxed as salary, workers would have to pay as much as $120 billion more annually in income and payroll taxes. The U.S. Treasury gives up far more revenue through this tax break than it does on the deduction for interest on home mortgages, which is valued at about $66 billion a year.

In Congress, sweeping health-care proposals have been out of favor since lawmakers rejected President Clinton’s massive health-care plan in the early 1990s. Instead, lawmakers and President Bush have focused on more modest proposals.

Bush this year proposed spending almost $90 billion over 10 years on health-care tax credits. But his proposal aims to help people who do not have employer-subsidized coverage or access to public programs. The proposal would help 2 million to 4 million of the 43 million uninsured Americans, Nichols said.

Many Democrats want to do more. Some of the party’s presidential candidates are calling for new subsidies to help workers afford employer-sponsored plans.

Sen. John F. Kerry (D-Mass.) would create a tax-funded “rebate pool” to repay insurance plans 75% of the cost of their most expensive cases, those exceeding $50,000. Insurance plans would have to pass the savings on to workers and meet other conditions.

An analysis done for the campaign said the proposal would cut premiums by 10%, at a cost to taxpayers of $30 billion annually when fully phased in by 2008.

Rep. Richard A. Gephardt (D-Mo.) would double the tax benefit the government gives for employer-sponsored plans. The proposed 60% tax credit on the cost of health insurance would come with a requirement that every employer offer a health plan. Premiums would fall by 5% or more, the Gephardt campaign said, at an annual cost to the Treasury of $247 billion by 2007.

Some of the Democratic candidates consider reining in pharmaceutical prices as a principal way to restrain increases in health care.

North Carolina Sen. John Edwards would cut costs by limiting drug advertising. Connecticut Sen. Joe Lieberman and former Vermont Gov. Howard Dean would change patent rules to make it harder for pharmaceutical companies to keep low-cost generic drugs off the market. All three would allow re-importation of cheaper drugs from abroad.

Congress is considering one major proposal to help people with insurance, but the plan’s prospects are uncertain because of its high cost.

Republican lawmakers have proposed a system of tax-advantaged “health savings accounts” to allow people to save money for health costs not covered by insurance. The cost would be about $174 billion over 10 years.

But lawmakers are also trying this year to create a new Medicare benefit to help seniors cover the costs of prescription drugs. That would cost about $400 billion over 10 years.

The savings account idea has “almost zero chance” of passing as part of the Medicare overhaul because of its high cost, said Gary Claxton, a vice president with the Kaiser Family Foundation, a philanthropic group that focuses on health issues.

Help for people in employer-sponsored plans “is about 100 miles behind the Medicare drug benefit .... There’s just not a lot of money left to do what we’re talking about,” Nichols said.