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Government-run insurance plan draws mixed reviews from employers

June 22, 2009

Hope and fear mix in Paul Nysewander when he considers President Barack Obama's controversial idea to set up a new government-run health insurance plan.

The owner of a three-person accounting firm, Nysewander says there's significant appeal in having a public plan as a new option for health insurance.

"As long as it remains an option," said Nysewander from his office in Plainfield. "My fear would be that this would start out as an option and end up becoming a mandate."

Obama's public plan idea gets different reactions from different kinds of employers, depending on their sizes. All want to see reform of the health care system, but they diverge on how much the U.S. government's entrance into the insurance market would help or hurt them.

They also are closely watching to see if lawmakers turn to higher taxes or fees on employers to pay for their reforms.

Tiny employers like Nysewander feel poorly served by the present insurance system. But larger employers strongly oppose the idea of a public plan, saying it is sure to drive private health insurers, such as Indianapolis-based WellPoint Inc., out of the business.

Lastly, the largest employers—who don't buy insurance but act as their own insurer—see little immediate impact on them from such a plan.

"We're watching the news every day," said Dan Rives, associate vice president of human resources for the Indiana University system, which provides health insurance for 38,000 people. "We're going to wait and see what the actual proposals are."

Details are scant about the public plan option, which Obama advocated in his 2008 campaign. One of the first bills filed to overhaul the nation's health care system, sponsored by Sen. Edward Kennedy (D-Mass.), does not include a public plan. But observers in Washington say that's only because the details are still being ironed out.

The Kennedy bill would create a health insurance program that the government funds and operates, as it does with the Medicare program for seniors. But the new plan would be for working-age Americans.

It's not clear whether the plan would be open to all or only to small business workers, those paying insurance individually or the uninsured. Lawmakers also have yet to specify whether the new public plan would pay doctors and hospitals like Medicare—using a predetermined, take-it-or-leave-it fee schedule—or like private health insurers—negotiating payment contracts with doctors and hospitals.

Currently, private health insurers like WellPoint pay health care providers about 20 percent more than Medicare does.

"Probably initially it would come out at least smelling like a private insurer," said David Wulf, vice president of administration at Templeton Coal Co. Inc. in Terre Haute. However, expressing a common fear among employers, he expects Congress will become "impatient" to make the plan more affordable—leading it to hold premium payments artificially low and cut payments to doctors and hospitals.

Even before introducing a public plan, Sen. Kennedy already is struggling with big costs. An analysis of his 615-page bill by the Congressional Budget Office says the bill would cost more than $1 trillion over 10 years and cut the number of uninsured by less than one-third.

Nearly 46 million Americans, or 15 percent of the population, were uninsured at some point in 2007 and that number is creeping toward 50 million during the recession. In Indiana in 2007, more than 700,000, or 11 percent of Hoosiers, were uninsured.

Small businesses have been adding to those numbers in recent years as more and more of them drop health insurance coverage. A decade ago, two-thirds of small employers offered their workers health insurance. Now 60 percent do.

Without reform, "the health care system is going to get overburdened," said Don Musilli, an independent consultant to small manufacturers, adding, "You'll have fewer and fewer people buying into it."

Musilli said small employers are being crushed by fast-rising health insurance premiums and have far fewer options than large employers to contain the costs of their health plans. That's why he'd like to see a government-run plan compete with existing insurance companies.

"To have some options, I think would be great," said Musilli, 60, who formerly owned a small business and did not provide health benefits to his workers. Besides the government providing a new option, he asked, "Who else is going to do it?"

Defending private insurance

But WellPoint and the rest of the insurance industry ask the question differently: Who would still choose private insurance if Congress creates a competing plan with tax-subsidized prices so it's now affordable to the uninsured?

"A new government-run health insurance plan would result in a significant number of individuals currently in private health insurance plans moving to the government-run program," WellPoint spokeswoman Cheryl Leamon stated.

Several Indiana employers share Ignagni's concern. Not least among them is John Lechleiter, CEO of Eli Lilly and Co.

"We're against a government plan," he said June 10 during an investor conference in New York. "You would have 100-plus million people shuttled into that plan overnight, and how would that plan operate? It would operate like most other single-payer plans. It would limit coverage, delay access, decrease options. So we think that's bad policy."

Lechleiter's figure of more than 100 million people joining the government plan comes from a study by the Lewin Group, a nonpartisan research group owned by a subsidiary of Minnesota-based health insurer UnitedHealth Group.

The study found that if the new public plan operated just like Medicare and was open to all, it would siphon off 120 million people—or six out of every 10 customers—from private health insurers.

If the public plan was available only to individuals and employees of small businesses, Lewin Group estimated that only 32 million—or one in six customers—would leave private insurers.

Having smaller pools of customers would make health insurers' businesses somewhat more risky, which could cause them to raise their rates. That could cause them to lose even more customers and have to raise their rates even further.

Mike Ripley, a health care lobbyist for the Indiana Chamber of Commerce, said the half-dozen business executives he convened on June 12 to discuss health care reform all opposed a public plan.

"The Obama administration and Congress as a whole want to make certain that everybody has a choice," Ripley said. "But with the way they're going about doing it, many people at the table didn't think [the private insurance market] is going to exist."

Employers fret fees

Most employers don't worry so much about shrinking insurance pools. They're concerned that whatever health reform is passed will cost a lot of money employers will have to shoulder the cost.

"Everybody would like to see the uninsured have an option," said Tom Easterday, senior vice president at Subaru Indiana Automotive in Lafayette, which has 7,000 workers. But, he added, "I would be concerned with it if it is paid for by a tax on existing health care benefits."

When employers offer health insurance now, they get to deduct the expense from corporate taxes on profit.

Contributions to health insurance premiums—whether made by the company or the workers-—don't count as taxable income for the workers. That means that, on average, an American worker receives $12,000 in health insurance coverage each year completely tax free.

"It's a golden benefit," said Gail Piltz, owner of The Accounting Services Group in Indianapolis, which provides health insurance for its three full-time employees.

Those tax breaks cost the government more than $200 billion a year.

But they also provide a big incentive for employers to provide coverage, creating a system where nearly 60 percent of Americans receive health insurance from their employers. In Indiana, the numbers are even higher, at 66 percent.

"You tell me, logically, if you were an employer ... who is not going to have any tax advantage at all, would this employer give health insurance coverage," said Diana Kleyman, chief financial officer of the Indianapolis computer consulting firm Fusion Alliance.

Nysewander, the accountant in Plainfield, worries that Congress will require all businesses and individuals to have health insurance plans or pay a fee if they don't.

Any kind of mandate, he said, would raise costs and reduce jobs.

"It's very disingenuous to say we've got to do health care reform to lower the cost of health care, and then we're going to raise the cost of health care on how many millions of people who have health care now," he said. "I find that very, very disingenuous."

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