“Challenges Associated with Health Care Reform From a
Businessman’s Perspective”
GLEN BARTON, retired CEO of Caterpillar Inc.
I am the retired Chairman and CEO of Caterpillar, Inc., a Fortune 100 company. During my latter two years of leadership of Caterpillar, I was also the Chairman of the Health & Retirement Task Force of the Business Roundtable (BRT). During my tenure, the business community took a leadership position on Medicare Part D. While this program got off to a rough start, it is generally receiving very positive marks today. Since my retirement, I have become a student of health care.
My role here today is to identify some of the key issues in Health Care For All from a businessman’s perspective. I don’t intend to lobby for one position or another, but simply give you some things to think about as you listen to the other speakers today. I am also pleased to see business leaders take a more active role in this debate. The Business Roundtable, AARP, and the Service Employees International Union recently announced plans to work together in getting lawmakers to address the issue of Health care overhaul. This group has the power to reach into corporate boardrooms, into policy maker’s offices, and to the public as well. I’m sure Tom Donohue, one of our speakers today, will also talk about what the US Chamber of Commerce is doing. This business leadership is needed for the country to make progress on this very critical issue.
Health care, I’ve found is a very complex subject. Someone defined it as a bureaucratic hodgepodge with medicare for the old, employee coverage for people who work for big companies, 50 different versions of Medicaid for the poor, emergency rooms for the destitute, and no coverage for people who are unlucky enough to work for an employer that provides no coverage and can’t afford to buy private insurance. You’ve undoubtedly heard the expression: “you can’t see the forest for a tree”. But I saw one the other day that better applies to health care: “you can see deeply into a tangled forest if you peer closely” That’s what I’ve tried to do over the past three years or so.
To begin with, I submit our health care system is badly broken and in need of dire changes. So where do we go from here? Let’s look first at the positives. @ We have very good health care facilities and excellent Health Care providers. No country has the skilled physicians and facilities we have. Nor the diagnostic equipment and newest treatments we have. @ And it shows in the results: for example Breast Cancer Survival rates for women in the US are 75%, vs. 67% in France and 50% in the UK (note: some people believe this is because of earlier detection rather than treatment). If you’re seriously sick and live outside this country, and can afford it, you’ll seek treatment in the United States.
The major things hindering our health care providers performance are: 1) administrative costs associated with receiving compensation for services provided, 2) costs related to care given to the uninsured, 3) malpractice insurance, and 4) the continual need to invest to stay competitive.
From my perspective, there are really three key Health Care issues facing the nation today: who should be covered, how do we pay for this coverage, and what administrative process do we adopt. There are no easy answers to these questions, but we can make some intelligent choices. And most certainly, willingness to compromise will be essential, because no one is going to get everything they want.
Currently, it is estimated that 47 million Americans are uninsured, at least part of the year(More than 1 in 3 underage 65). These are generally thought to be the young, the unemployed and lower income families—ones that cannot afford to buy health insurance and/or ones working at small companies that do not provide health care coverage to their employees. (also a sizeable number(6 million) of veterans & their dependants are included)
A recent study by the Robert Wood Johnson Foundation added a little more clarity to this. The study indicated that 80% of the uninsured either work or are in working families. Among the uninsured working population, 56% work full time year round, while the remainder work part-time---sometimes juggling 2-3 jobs.
@ The uninsured health care comes largely from community health care clinics, and emergency room facilities at hospitals. So called “free clinics” serve only 3.5 million, just a fraction of the number of uninsured---but this number is growing rapidly. Look at our own Heartland Health Clinic that has seen a ten-fold increase in patients over the past 3 years—40% that have no insurance.
@ Most of the burden for the uninsured has fallen on the hospital emergency rooms—creating yet another crisis. Emergency room visits nationwide are up more than 31%(114 M visits in 2005) in last decade. And only about 15% arrive by ambulance Despite this, half a million times a year ambulances are diverted from emergency rooms that are full and sent to other hospitals farther away. ER patients who need admission are sometimes delayed up to 8 hours—on gurneys in hallways, waiting for a room to open up. Why? Because of the huge influx of people (many poor), seeking routine care and ones with chronic diseases not under control who can’t get timely doctor appointments. Many are either uninsured or on Medicaid but unable to find doctors willing to treat them. By law, hospital emergency rooms are required to accept all patients, whether they have insurance or not.(some hospitals are eliminating Emergency Rooms--because of low profitability)
@Coverage of the uninsured is a hot political issue with proposals ranging from mandated coverage for each individual, to universal coverage. In mandated coverage, each individual would be required to “get” health insurance, with those in the lower income brackets getting assistance from the state or federal government to pay the premiums. Under all proposals, insurance companies would be required to cover anyone who applies. And in some proposals, a federal insurance program would be created as an alternative to private insurance. In Universal Coverage, those not already covered by either private or company provided insurance, would be covered by a plan similar to Medicare.
Coverage of the uninsured is a moral question. Is society obligated to provide coverage to the less fortunate? Is health care like basic education: something we mandate every child should receive? @ Are we obligated to underwrite health care costs for the uninsured regardless of life-style choices, i.e. smoking, obesity, lack of exercise, hypertension, HIV?
The country apparently feels we have an obligation to provide health care coverage to children, veterans and the aged. SCHIP with strong bi-partisan support was passed in 1993 and went into effect in 1997. Its expansion to include 4 million more children is currently being debated. This is a very popular, federally funded program, with proposed expansion under-written by taxes on tobacco. It is administered by the states, generally through private health insurance plans, to needy children. The only sticky issue is who qualifies. A debate that’s going on between the President and Congress at this time.
Likewise the Veterans Administration (VA) provides full coverage, including dedicated doctors and hospitals for our military veterans, supported by our tax dollars. This is viewed by most as an outstanding program despite the recent problems associated with Walter Reed hospital.
Unfortunately not all veterans are able to avail themselves of the VA clinics due to lack of funding. The priority is on recent combat veterans, those with disabilities and the poorest.
And then there’s Medicare for the Aged—funded mostly by a tax on wages of the working population—but these funds are soon expected not to meet projected “baby-boomer” pay outs. Hence the impending medicare funding crisis. I can personally attest to the fact that Medicare works much better than I ever anticipated.
And finally, there is Medicaid, the largest source of funding for medical and health-related services for America's poorest people. This is a jointly funded program by the Federal and State governments to assist States in furnishing medical assistance to eligible needy persons — generally those with income below the poverty level. Although the Federal government establishes general guidelines for the program, the Medicaid program requirements are actually established by each State. This program suffers badly from bureaucracy and the lack of funding. Reimbursement rates are extremely low—payments to providers are often delayed for months, resulting in many primary care providers refusing to accept Medicaid patients.
So the nation does feel an obligation to provide insurance coverage to certain groups of individuals. The question is: Do we have a moral obligation to provide coverage for the remaining uninsured as well?
Let’s now transition to how do we pay for Health care for All. In a recent Gallup poll, results showed that about 80% of Americans have health insurance. The good news was that most people with coverage are highly satisfied with the quality of care they receive, with the access they have to health care system, and their own doctors. But the study also found that most were concerned about the complexity of the system and worries about rising costs making this issue one of Americans’ chief concerns. A recent Commonwealth Fund Survey of 12,000 Americans reflected the impact rising cost are having on health care. 37% responded that in the past year they had chosen not to visit a doctor when sick, skipped a recommended test or treatment, or failed to fill a prescription because of cost.
Today, businesses provide health care coverage to 60% of the total population, or more than 175 million people, with this number dropping annually. This represents nearly 90% of those covered by private insurance.
This practice began during WWII when wages were frozen and Companies were desperately seeking new workers. Companies competed for workers by offering the un-taxed benefit of health care. Over the years, companies, particularly those with employees represented by Unions, have steadily increased the amount of benefits provided to employees. Other companies have been forced to follow suit to secure and retain employees. As health care costs have escalated by more than 10% per annum, many of these smaller companies have reduced or eliminated health care coverage, as insurance premiums have soared.
Businesses are struggling to retain their competitiveness against competitors, domestic and foreign, that do not provide health care coverage. Most recent example of this is the automotive industry where GM, and other car manufacturers soon to follow, has shifted its legacy health care costs to trusts administered by the UAW. GM claims its health care costs put it at a $5 Billion disadvantage versus Toyota. And it’s not just in “smokestack America”, Starbucks now spends more money on health care than on coffee. The GM/UAW contract is an example of a trend sweeping the nation: employers are abandoning their role as chief health care buyers for their employees, particularly their retirees.
Americans who have company provided coverage are very satisfied with it, despite increased premiums, co-pays, and deductibles. This shouldn't be surprising given that company premiums are only 20-30% of what employees might pay for comparable coverage through private insurance. Yet, companies really don’t want to be in the health care business, but find the other options unattractive. Currently their expenses are tax deductible, and in any new plan this could change, and/or their burden increased by taxes to support the cost of covering others. The devil they know is better than the one you don’t Bottom-line: Business is not going to be anxious to accept additional taxation to pay for the uninsured.
So what are some of the alternatives for paying for Health care for All? First a “ballpark” estimate of what this might cost: Estimates range from $50 Billion to $200 Billion per year. And those on the lower end of this scale, include Ken Thorpe who will be speaking here next, actually see a reduction in Health care costs as a result of everyone being covered, and chronic health issues being managed.
Under current law, employer-provided health benefits are excluded from income for both income-tax and payroll-tax purposes. President Bush in his Budget speech this year proposed breaking the link between employment and health care, a step suggested several years ago by Milton Friedman. Freidman suggested health insurance should be a deduction for the person just like taxes paid on a home. By not taxing employer paid insurance, the government now provides a huge invisible subsidy to workers. This subsidy is estimated to be $250 Billion per year. Furthermore, it is believed that the employer-based private health care system has contributed significantly to health care cost inflation, because individuals are not sensitive to the price of their treatment decisions.
The Bush health care plan changes the tax treatment of health care by counting the value of employer provided health care as income to the worker, but then would provide a standard deduction of $15,000 for families for health care purchases. If a worker’s health care plan costs more than $15,000, the family pays a tax on the difference. Individuals who buy health insurance on their own, rather than through an employer, would also get the same deduction—a level playing field for all people covered by private or company insurance plans. The Bush economists believe their plan will shave $60 Billion off of total health care spending, providing funds to support new tax incentives for the uninsured low-income workers to purchase private insurance.
The various presidential candidates have their own plans on how to finance their Health Care Plans. You have heard details already of Governor Romney’s and Senator Obama’s.
Presidential candidate Giuliani would give income tax exclusions to families without employer coverage. He also recommends letting insurance companies compete nationally By his count there are at least 1,900 state regulations or mandates that increase costs and restrict access, severely limiting competition in health care insurance.
Presidential candidate Hillary Clinton estimates the cost of covering the uninsured at $120 Billion—and in her Universal Coverage Plan, at least half of that would need to be supported by increased tax revenues. She envisions raising these revenues by repealing President Bush‘s tax cuts for high-income individuals. The balance would come from tighter administration and improved efficiencies, including disease management.
Former Senator Edwards has similar plans for financing his Plan which would offer sliding scale subsidies to low and middle income people in the form of a refundable tax credit.
Although not a presidential candidate, Governor Schwartzeneger in California has proposed coverage of the uninsured in his state could be covered by a fee of 4% on companies(Senate version calls for 2 to 6%) not providing health insurance to its employees, a fee on doctors of 2%, hospitals 4%, and off-loading $5 B onto the Federal Government via Medicaid expansion.
Another option advanced by a leading union official was a flat 1.5% tax on imports—an interesting option given that many of the foreign companies we’re competing against are not directly burdened by health care costs. This concept was also suggested by Wilbur Ross, the former Chairman of the International Steel Group.
Advocates of a single payer system, which will take us on to our next main subject of Administrative choices, believe a substantial reduction in administration costs of health care could be achieved and use other countries as a basis for their position(US is 5-6 times other industrialized countries). For example in Canada, administrative costs run 8-10% for their single payer system compared to 20-30% in the US. As a reference point, Medicare which is a single payer system, has administrative costs in the range of 4-5%. By reducing administration costs by 10%, they estimate a savings of $200B would be realized—far more than what it would cost to cover the uninsured.
By the way, the National Coordinator for Health Information Technology estimates we could save more than 7.5% of total health care costs annually by using existing technology to do such things as making appointments, to centralizing medical records, to tying in diagnostic devices, to determining what medications are being, and are not being taken, etc. I’m not sure if this eliminates filling out all those long forms you have to complete each time you visit your doctor or not.
So there are alternatives to how coverage for the uninsured could be covered. Some are the result of efficiencies, others are tied to “fees”—politicians don’t like to use the word taxes---- direct, or indirect. Certainly the change in employer coverage increases taxes on business, while the Clinton/Edwards proposal would increase taxes on the upper income brackets of individuals.
I want to now talk about the various Administrative options being discussed,. These range from continuation of our “hodgepodge” system to a single payer system. Obviously it’s easier to focus on what’s being proposed, than it is on what we currently have. Basically, the single payer system is just what it sounds like: all health care provider bills would be paid by one organization, most likely a governmental one. It would function not unlike Medicare does presently. From there the details get murky as to where funding comes from. Some would propose a national tax. Most likely, the concept would be for all current “health insurance premiums” being paid into this agency. This would include employer payments, private insurance payments, and governmental funds for SCHIP, Medicare and Medicaid, and matching Medicaid funds from States. The result would be, one huge insurance “pool”. From this pool would come the “funds” to pay all claims from various health care providers. Proponents for this claim it would eliminate the staggering overlap, bureaucracy and waste created by thousands of individual plans.
Opponents refer to this as “socialized health care”. Kevin Drum who currently writes daily on the prominent blog Political Animal, published by the Washington Monthly, states: “Socialism is a scare word used by conservatives when they have run out of serious arguments. But national health care isn’t socialism any more than Medicare is. Its just a practical and efficient way of providing medical treatment for everyone in the country, the same way the interstate highways are a practical and efficient way of providing roads for everyone in the country.”
But from surveys, this is not a popular approach. More than two thirds of those interviewed in a survey conducted by SMC Business Councils indicated desire to not have a “government run insurance plan”. Many, undoubtedly, were concerned about another bureaucratic organization being involved in their health care. However, over half believed a national, single payer system is inevitable. Another CBS/New York Times survey reported 64% of Americans said that the government should guarantee health insurance for all.
Universal coverage is another alternative—but it essentially is the same concept. It basically says that health care should be available to all people, and not impacted by the availability of insurance, or the ability to pay. Its more a philosophy or concept—and would generally rely on something like the single payer system for the uninsured.
Something critics point out that affects universal coverage, is the lack of primary care doctors to provide this coverage. In the previously mentioned Commonwealth Survey, only half of American adults were able to see a doctor the same day they became sick, or the following day, Many doctors are not accepting new patients now and with coverage for all, this could become the breaking point. Only about 20% of graduates in internal medicine are going into primary care. This is down from 50% in 1998.
While on Administrative Concepts, I want to bring one other into perspective. That is the proliferation of individual state plans. Numerous states have implemented Plans: Wisconsin, Massachusetts, Oregon and others. Additionally, California and Illinois are debating Plans as we speak. Can you think about the problems associated with having multiple business locations and dealing with the various plans? Or the competition that impact demographics, as people look at one state vs another’s Plan? Or where you plan your retirement home? Whatever we end up with, should be transportable and that can only come from a National Plan.
And finally, no discussion of health care would be complete without discussing the role of insurance companies. Approximately 10% of people covered today are covered by private insurance—insurance they buy with their own after tax dollars. Insurance is a highly regulated business with every state having different regulations and mandates. A policy you have in New York may not be available in New Mexico. Most insurance companies are for-profit companies---meaning that they not only have to pay for health care provided to their clients and the related overhead costs—but also generate a profit. As a result, private insurance premiums have risen more rapidly than the cost of health care. Since 2001, the Kaiser Family Foundation reports policy prices have increased 78%—to $12,106. Obviously, unaffordable for lower and middle income families.
Many health insurance companies are now involved in administering plans that employers finance themselves, and in Medicare Advantage Plans, or Medicare prescription drug plans. If insurance companies are to play a role in Health care for All, they must be free to compete on a national basis and the policy holders must be able to deduct their premiums—i.e. a level playing field with people covered by company plans.
Just in case you did not know, we are not the first generation to work on a National Health Care Plan. The first was on November 19--pretty close to this date—in 1945 when President Truman in a special address to congress publicly endorsed a national health-care plan.. But the concept of government responsibility for health care for its citizens goes back much farther—to 1854 when President Pierce vetoed a national mental health bill on the basis that it would be unconstitutional to regard health as anything but a private matter in which government should not become involved.
The last time we tried this was in 1993. President Clinton’s plan met with the Perfect Storm“: Business vigorously opposed employer mandates, Health Ins. Association fought against insurance regulation, Republicans denounced the entire plan, Democrats were divided, and the well insured middle class was alienated!
Hopefully this summary will help you digest some of the issues our other noted guests will be discussing today, and also help you formulate your own questions for the excellent panels we have assembled. As I said at the start; “There are no easy answers—just intelligent choices”. This is going to take bi-partisan congressional leadership and a bi-partisan spirit at the White House to get meaningful health care reform. Leaders must put aside their bias and work to solve a problem that is approaching the crisis stage in our country. And obviously, business leaders must be at the table as well, since they currently provide so much of the healthcare Americans currently receive.
I have one closing quote—the source I could not find. “A future of hope and opportunity requires that all our citizens have affordable health care. When it comes to health care, government has an obligation to care for the elderly, the disabled and poor children, and we will meet those responsibilities.”
“And in all we do, we must remember that the best health care decisions are made not by government and insurance companies, but by patients and their doctors.”