• Malek: Reallocating health care costs
    July 14,2014
     

    The state’s point person on health care is doing his part to plow the ground for single-payer by reminding Vermonters that they already pay a small fortune for health care. Presumably, this will make it easier to accept single-payer’s $2 billion in new taxes when the administration delivers on its mandate to present a financing plan.

    Lawrence Miller, Vermont’s chief of health care reform, says health care is already the highest “tax” paid in the state. With private health insurance costing $1.9 billion and total Vermont payroll at $12.3 billion, Miller makes the case that health insurance premiums already represent 15 percent of payroll, the figure Dr. William Hsaio of Harvard suggested as a new payroll tax in his 2011 single-payer report.

    The implication is clear: Don’t fret over a 15 percent payroll tax, the money is simply moving from premiums to a tax, and from private insurers to the state. The state will pay the bills the insurance companies used to pay, and the change will hardly be noticeable.

    This conveniently overlooks the fact that it was the state that paid over $100 million rolling out a website that doesn’t yet work, and won’t work in time for its own annual renewal.

    There are, however, far larger problems.

    The most immediate problem with Miller’s premise is that not all employers are equal.

    Some employers offer platinum health care plans, others no plan at all. Some operate very profitably; others aren’t even breaking even. Most are in between, spanning the spectrum from comfortable to marginal.

    Some businesses rely heavily on machinery and equipment; others are labor — i.e., payroll — intensive.

    Perhaps most importantly, some companies have price “elasticity” while others do not. That is, some businesses can raise prices without losing many customers, while others have little room to raise prices without losing lots of customers. Customers can be lost to online competitors or simply to alternative products or services.

    Some businesses will go under; three out of five business startups don’t survive in today’s business environment.

    Prime candidates to slip over the brink under single-payer are those on the lower end of profitability, with limited pricing elasticity, and payroll that represents a high percentage of total expenses.

    How many businesses will close and how many residents will lose their jobs, no one knows.

    However, since these unemployed will still have equal health care, their medical costs will be shifted to the remaining employers and employees, increasing their tax rates.

    A key component of the broken system currently in place is the shifting of costs from government insurance under-payments to private insurance premiums. Under single-payer, any financial void will be split between the rationing of care and additional taxes.

    Longer term, more subtle factors will come into play. Keeping payroll costs down will become an even more important goal of many businesses. Trimming payroll already saves an employer workers compensation costs, unemployment taxes, and employer Social Security and Medicare matches. Under single-payer another double-digit percentage will be saved on health care taxes. The impetus for machines to replace payroll can only intensify.

    There will also be more incentive than ever to minimize cash income. Both employers and employees will be motivated to seek value that isn’t subject to taxation. The gray market in tips, barter, and other “fudgeables” can be expected to grow.

    Most importantly for the long haul, as the cost to the consumer goes down, utilization goes up. If it’s free, take two.

    Individuals on platinum plans consume far more services than those on high-deductible bronze plans. If cost has little bearing on medical decisions, consumers will seek treatment more often and more aggressively. When everyone has a near-platinum plan, only rationing by denial, long wait times, or shabby treatment can replace cost as a deterrent.

    Miller is busy plowing the ground. It will be interesting to see if he stays on for the harvest.



    George Malek is executive director of the Central Vermont Chamber of Commerce.

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