Today's installment of my conversation with the NFIB's Bob Graboyes focuses on two stalwarts in the organization's arsenal of health care initiatives: an individual income tax deduction for health care expenses (currently only employers and self-employed people can deduct their health care expenses) and rule changes that would allow small employers to pool across state lines -- and buy insurance regulated only by the carrier's home state.
These also happen to be the leading health care reform initiatives of the Republican party. John McCain champions both provisions, so does President Bush; Republicans in Congress have tried without success for years to pass bills along these lines into law. On the other hand, Democrats and traditional advocates for universal health care usually oppose both measures; both, they say, make it harder to support group insurance. Moreover, critics contend that interstate pooling constitutes a "race to the bottom": firms would gravitate to insurance governed by states with the least amount of regulation, and workers would find themselves with less coverage, and less protection from unfair practices by insurance carriers.
INC.COM: In its principles, the NFIB opposes rules that would force business to either provide their own coverage or pay into a national pool, yet you've insisted that the organization wouldn't "let anyone off the hook in financing health care." What do you think is small business' fair share, and how should they pay it?
GRABOYES: "Fair share" is easier to declare than to implement. Failing to recognize this yields unpleasant unanticipated results. In the 1980s, Congress imposed a stiff tax on luxury goods such as yachts. The rich should pay their fair share, went the argument. In practice, the tax barely touched the wallets of the rich but deeply slashed the modest incomes of boat-builders and boat-sellers. Yacht-buyers simply passed the tax along to the suppliers, making a hash of the fair share idea.
So if Congress imposes a payroll tax to create some "fair share" burden on small businesses, the question is whose wallet suffers. Will a payroll tax to buy health insurance come out of the profits of the business or out of the wages of the employees? In industries or regions with tight labor markets, the tax probably hits companies' profits a lot and employees' wages only a little. With looser labor markets, wages, not profits, get slammed. The noble idea of a fair share turns into a lottery for both firms and workers.
Even worse, a payroll tax skews markets in some predictable and unfortunate ways. It's based on wages paid in the U.S., not on other business costs, so a payroll tax penalizes firms that hire American workers and rewards firms that replace them with machines or overseas facilities. Many small businesses, and some large ones, have thin profit margins. An attempt to allocate a "fair share" to these businesses may drive them out of the market. Fair share becomes no share, and more workers and their families go on the dole. Besides, small business is not the primary cause of the broken health care system, so we can't ask small business to bear all or most of the cost of the repairs.
INC.COM: Why does NFIB place such importance on a universal tax deduction for health insurance costs? Who would it benefit, since the self-employed can already deduct health insurance as a business expense, and at least 80 percent of the uninsured don't pay any taxes anyway? Does NFIB envision replacing the tax deduction for businesses with the deduction for individuals, or two deductions side by side, one for employers and one for individuals?
GRABOYES: The tax code has a major impact on the health care market, so you can't try to fix the health care system and ignore federal tax laws. The current tax treatment of health insurance benefits creates a bias for providing health care through employers and, in some cases, encourages businesses to purchase lavish plans because the benefits are not taxed as ordinary income would be. At the same time, the owner of a small business may not be able to cover himself under the same plan as the rest of his employees and has to shop for a separate plan in the individual market. While the self-employed are allowed an individual deduction for those costs, the deduction is not as rich as the deduction at the business level because the deduction does not apply to payroll taxes.
To treat entrepreneurs differently than those who receive their health care from a corporation punishes them simply because they are self-employed. Fixing this inequality in the tax code is a critical step in helping entrepreneurs gain access to more affordable health care options. Those who are self-employed should be on equal footing with their larger counterparts by permitting health insurance premiums to be deducted from both their income and payroll taxes.
These are just a few of the issues in the tax code that impact different health care consumers in different ways. Our goal should be to find incentives that can create a level playing field and ensure that affordable, quality health care coverage can be purchased no matter who is purchasing it.
INC.COM: Would a tax deduction make individually purchased insurance cheaper for most consumers than getting it through their employers? If not, what might prod employees to buy their own coverage?
GRABOYES: A more level market ought to lower the price for individual policies and for employer-based policies. The difference between costs of individual and employer-based policies would almost certainly narrow. How they ultimately compare is an unanswerable until we do it. Right now, consumers have little incentive to shop around, because the purchasing decisions are made by employers. Firms have little incentive to shop around, because switching policies tends to generate ill will among employees, and prices aren't much better when switching plans. The result is that insurers and providers are not subject to the competitive pressures that exist in other markets. A more competitive insurance market would almost certainly generate more innovative policies -- rewards for wellness and prevention, longer-term consumer-insurer-provider relationships, special policies tailored for people with specific health conditions.
INC.COM: Let's talk about another measure that the NFIB has always supported as a way to lower costs: interstate health associations. Are most states too small to support internal health associations in NFIB's view? Or is the cross-border provision really about avoiding onerous regulations?
GRABOYES: It is exceedingly difficult to achieve sufficient small business pools within the confines of a single state -- even a large state. And, we do see multi-state arrangements as a way to create more uniformity in the regulatory structure. It is very difficult for a small business to deal with 50 different sets of state regs, and uniformity would go a long way to easing the administrative burden and may well help drive down the administrative costs facing those in the small group market. For decades, ERISA has allowed large firms to pool risks across state lines and to avoid onerous state regulations. Their employees receive excellent care and coverage. NFIB isn't asking anyone to exempt small businesses from prudent regulation and oversight; we only want small businesses to enjoy the same opportunities and to bear the same burdens as large firms. That's not the case today, and the fixes aren't all that difficult.
INC.COM: Help me distinguish between "less government oversight" (my words) and eliminating "misguided or obsolete regulation," as you more or less put it -- what current regulations strike NFIB as particularly misguided or obsolete?
GRABOYES: Again, state regulations play a vital role in guaranteeing the safety and quality of health care. But small businesses are subject to thousands of regulations that do not apply to big companies regulated under ERISA. If these thousands of regulations aren't necessary for the health and safety of big-company employees, then it's difficult to argue that they're necessary for small-business employees. Monitoring and regulating insurers and providers is a good thing, but small business should face the requirements as big business, and that's not the case today.
Back in my original critique, I suggested that these proposals "would push people away from employer coverage and into individual policies that would be lightly regulated." Bob disputed this. "Our goal," he said, is "to offer individuals a level playing field on which to choose employer or individual coverage."
These, however, may amount to the same thing. I'll have more to say about this in my next post. In the next installment of our conversation, Graboyes and I discuss the role of the government in providing health care.