Hold on to your wallets.
Poor Ted Kennedy. Being a senator just isn't the fun it used to be. Time was not long ago when every problem had a program, and every program had a politician to guide its progress and promote its budget. Kennedy had squired many a program around the Capitol and the country, none more enticing or extravagant than national health insurance. But with the passage of the Reagan tax cuts that severely limited the growth of federal revenues, such programs as national health care were unceremoniously dropped from the nation's dance card. Washington -- and Senator Kennedy -- settled uncomfortably into a period of fiscal celibacy.
The budget crisis has only deepened since then. But Democrats, emboldened by the recapture of the Senate, think they may have discovered a way to sneak some of their favorite programs in through the back door. In the jargon of the day it is called mandated benefits, and it encompasses an impressive range of new obligations that various members of Congress would like to impose on private employers -- among them, restrictions on plant closings, a higher minimum wage, elaborate regulations concerning the use of hazardous chemicals, a guaranteed 18 weeks of unpaid maternity leave for both mothers and fathers. But perhaps the most costly and controversial of them all is Senator Kennedy's proposal to require employers to provide "minimum essential health care" to all employees and their families.
It's no mystery why Kennedy has it in mind to shift the cost of his favorite social program to U.S. business. As Willie Sutton once explained it when asked why he robbed banks, "Because that's where the money is." What government cannot afford, a thriving American business community can -- or so goes the Kennedy logic. How wonderful it would be if only it were true.
Who are the uninsured and where do they work -- that is the obvious first question. Perhaps the most authoritative research on the subject of the uninsured is contained in a recent study by the Employee Benefit Research Institute (EBRI), a nonpartisan group in Washington, D.C. EBRI reported that in 1985 there were about 35 million Americans under age 65 and not living on farms who had no health insurance, public or private. That is more than the populations of New York State and New England combined. And with the economy in the midst of "atomization" and "deconcentration," the figure has been growing fast, rising 4.5 million between 1982 and 1985 alone.
Of those 35 million, 19 million were employed, most of them in small companies. According to a study commissioned by the Small Business Administration, coverage in companies with more than 100 employees is almost universal. But in those with fewer than 100 employees, only about half of the businesses were found to offer coverage. These companies tend to cluster in the retail trade and in that amorphous statistical catchall known as services. Not coincidentally, it is the segment of the economy that experiences the highest rates of business failure.
As individuals, the uninsured are a varied lot. Some 1.6 million are employees who are also employers -- sole proprietors who have opted to go "bare." There are many among the uninsured millions who would qualify as working poor -- making too little to afford their own insurance but unable to qualify for government-financed Medicaid -- but that is not always the case. EBRI found that about a third of the uninsured workers have family incomes of $20,000 or more, including 4.3 million with incomes of $40,000 or more.
For all of them -- and for many millions more with only bare-bones insurance -- Senator Kennedy would provide a fairly generous new level of coverage. As now written, his bill would cover all employees working more than 17.5 hours a week. It would limit deductibles to $250 per person and $500 per family, with 100% "catastrophic" coverage once out-of-pocket expenses reached $3,000 in any given year. Copayments -- the amount of the premium paid directly by employees -- could not exceed 20%. The cost per employee in a typical small company: roughly $1,500 for a single employee or $2,700 to cover a family.
As you can imagine, a proposal like this really gets the juices flowing among the small-business lobby at the capital. "It's bad enough that the government is already in my hip pocket," snaps Powell Jenkins, a hardware store owner in Rocky Mount, N.C., who testified before the Senate Small Business Committee. "Now they want to get behind the desk with me."
To such salty protests have been added the ominous warnings of economists such as Uwe E. Reinhardt of Princeton University, who labeled the Kennedy plan nothing less than "a tax on employment and entrepreneurship." Other critics estimate the bill will add more than $20 billion to the $105 billion already spent by business on behalf of employee health benefits. They predict dire consequences in unemployment, business failures, and business startups should the Kennedy bill become law.
Alan Burkhard, president of The Placers Inc., a Delaware employment and search firm, even sees a danger to employees. Burkhard fears that as health insurance becomes a larger expense, employers will begin to make hiring decisions on the basis of whether applicants need individual medical coverage or the more expensive family coverage.
And from the SBA, Frank Swain, chief counsel for advocacy, vocalizes the common suspicion that the bill is nothing less than a windfall to the insurance and hospital industries, which would both be handed "a captive new market on a silver platter."
Indeed, so loud and so convincing have been the arguments against the Kennedy proposal that, despite the support of big labor and the acquiescence of big business, its prospects for passage are slim. Even Democratic Senator Dale Bumpers, Arkansas's self-styled populist who has called the number of uninsured workers a "national disgrace," admits that the Kennedy plan is "not doable." Adds John Ball, the Democratic counsel to the Senate Small Business Committee: "I think a lot of Democrats realize that stuff like this cost them the Senate in 1980."
But in a strange way, it would be too bad for small business if it won this one too easily. For by offering his mandated benefits plan, Kennedy has offered small business the chance to highlight a crucial point about health benefits -- namely, that when it comes to buying health insurance, small companies take it in the neck. Small companies effectively pay between 15% and 40% more for the same coverage than a large company, depending on various factors. And only a relatively small portion of that difference can be attributed to the administrative efficiency of a large organization.
Take, for instance, federal tax law, which allows corporations to deduct 100% of the premiums they pay for employee policies. Fair enough. But unincorporated entities -- sole proprietorships and partnerships -- can deduct only 25% of the cost of coverage for partners and owners. Right off the bat, that's effectively a 4u% surcharge on those policies for partners and proprietors who find themselves in the top tax bracket.
Then there are the mandates that state legislatures have imposed on group medical plans -- 640 of them nationwide. The trend began back in the 1960s, to assure that nonunion employees had coverage similar to that of their dues-paying brethren for things like newborn baby care. But in recent years, these mandates have turned into a bonanza for every special-interest medical group with lobbyists and a computerized mailing list. Now, the various states require coverage for everything from drug rehabilitation to chiropractic, from podiatry to speech therapy, to say nothing of such big-ticket items as psychotherapy and nursing-home care. Maryland mandates coverage of in vitro fertilization, while California has brought even acupuncturists into the fold.
It is unfortunate enough that these state mandates require coverage that employees might neither need nor want, adding an average of 14% to the cost of group health plans. Worse still is that under a loophole in federal pension law, these mandates don't even apply to those large companies that are self-insured -- a category that accounts for about 40% of all companies with 500 or more employees and is growing fast.
That is not the only advantage enjoyed by the self-insured. By the same loophole, these big companies also avoid the subsidy side of the health-insurance industry -- the "high-risk pools" that finance health care for those who are uninsurable. Right now, the cost of these pools adds $250 to $500 to the average premium in the 13 states where they are in effect. The number of states and the cost of the pools are expected to increase dramatically as the AIDS epidemic spreads.
In his efforts to extend health-care coverage to the uninsured, Senator Kennedy might consider these inequities and their effect on business behavior. Small businesses, by and large, don't refuse to offer health benefits out of some deeply felt commitment to corporate greed. More likely it is that they simply can't afford it. By making a few technical changes in federal tax and pension laws, Congress could lower the cost of health insurance for all small businesses -- those companies that already offer insurance and those that would if they had the money. The result would be greater coverage for a greater number of American workers -- without the troubling precedent of federally mandated benefits.
Or as Willie Sutton's grandmother might have put it: "You can attract more bees with honey than vinegar."