By Glenn Bishop

2007 Chair of the Board

"First and foremost, AB 8 does not cover everyone. Any reform that leaves millions without health insurance and fails to address our dangerously overcrowded emergency rooms simply maintains a broken system. I have said from the beginning of this debate that coverage for all Californians is critical to reducing health care costs for everyone...

I also believe that AB 8 is financially unsustainable. I have always said that I would not sign a health care bill that puts the vast majority of the financial burden for reform on any one segment of our economy. AB 8 unfortunately does that by requiring businesses to pay at least 7.5 percent of their payroll into a state fund or on health care services for employees.

...I intend to call a special session of the Legislature so that we can finish the job of truly reforming our health care system. I know that legislative leaders are willing to get the job done."
 

By Marna Smeltzer

President/CEO

The Redondo Beach Chamber, employers, business owners and individuals throughout our city have voiced their opposition to any new tax on employers who can't afford to provide health care coverage. AB 8 is the current legislative proposal which will fund health care coverage for those who don't currently purchase it.

AB 8 grants an unelected government bureaucracy - the Managed Risk Medical Insurance Board (MRMIB), unpaid appointees of the Governor and Legislature - the authority to increase the employer tax to whatever level it deems appropriate to pay for the comprehensive benefit package in the proposal. It seems virtually certain the payroll tax will have to be increased substantially, well beyond what most employers pay in health care costs today.

If the employer tax is enacted by just a simple majority vote - which Democrats claim they can do, having labeled the tax as a "fee" — it will violate the state Constitution. When voters approved Proposition 13 in 1978, they placed in the state Constitution not only a cap on property tax increases, but also the requirement that all tax increases be approved by a two-thirds vote of the Legislature.

AB 8 is the wrong answer to the healthcare crisis.
 

The Chamber Is Active In Healthcare Reform Debate
 

Healthcare reform in California is the top issue in Sacramento and the Redondo Beach Chamber is making its position clear on the potential impacts to our businesses. The major problem with AB 8, according to the Chamber, is the requirement of employers to spend 7.5 percent of Social Security wages on healthcare expenditures. This requirement on business is for full-time and part-time workers and their dependents or for businesses to pay an equivalent fee to a newly created California Health Trust Fund (Fund).

“Everyone has the responsibility to fix our broken healthcare system,” stated Charles Gale, Jr., Chair of the Chamber’s Government Relations Council. “Picking the pocketbooks of our businesses is not the solution. Instead, employees and employers must each share in the responsibility,” continued Gale.

Later this month, the Redondo Beach Chamber will consider its final position on AB 8. Since January 2007, the Chamber’s position on any type of healthcare reform has been communicated to a levels of government. For a complete list of the Redondo Beach Chamber’s position on healthcare reform, log on to www.redondoadvocacy.biz/health.htm

Here are some highlights of the legislatures current healthcare reform proposal:

The availability of insurance. Everyone would be able to get coverage, either public or private, regardless of any pre-existing medical conditions.  An employee working for a firm that pays a fee (instead of paying for employee health expenditures) must enroll in the newly created state purchasing cooperative called California Cooperative Health Insurance Purchasing Program (Cal-CHIPP).

The affordability of insurance. Limits the cost of premiums for some low-income families.  Premiums for employees under 300% the Federal Poverty Level (FPL) in Cal-CHIPP would not exceed 5% of family income.  However, it does not address the issues of out-of-pocket costs, high deductibles, or premium costs for other families.

The requirements imposed on Employer. All employers would either pay for health care for their employees or pay 7.5% of payroll to help cover the costs of healthcare.  This is a pay or play approach - employers required to pay the 7.5% of Social Security wages for employee health care expenditures or pay equivalent amount into a trust fund to allow employees to access coverage through Cal-CHIPP.  All employers are required to establish Section 125 plans to tax-shelter employer and employee health insurance contributions.

Requirement of Small Employers. No exemption from minimum spending requirement (“pay-or-play”) based on employer size (except for the self-employed).

Study Finds Healthcare Cost Shifting is Substantial

Government underpayments to hospitals in the Medicare and Medi-Cal programs are a substantial factor in driving up private health care costs, according to a study released in early June 2007 by the California Foundation for Commerce and Education (CFCE).

Interestingly, the study also found that the impact on private payers of uncompensated care for the uninsured was minimal.

The extent to which health care providers shift costs – increase the markup charged to private patients in response to other (public or uninsured) patient’s underpayments – is a key issue in health reform debates. Evidence of cost shifting from Medicare or Medi-Cal is used to support increases in the programs’ reimbursement rates. Evidence of cost shifting from the uninsured is used to support policies such as an employer or individual mandate.

In the first study to focus on the extent to which California uncompensated care costs are actually shifted to private payers, Professor Daniel P. Kessler of the Stanford University Graduate School of Business, and Senior Fellow at the Hoover Institution, found that cost shifting from Medicare and Medi-Cal is substantial: increasing reimbursements to cover these patients' costs would lead to a decline in hospitals’ private payer markup of 10.8 percentage points.

On the other hand, according to Prof. Kessler, cost shifting from the uninsured is minimal: increasing reimbursements to cover indigent patients’ costs would lead to a decline in California hospitals’ private payer markup of 1.4 percentage points.

These findings have several implications for current policy debates. According to Prof. Kessler, “state health policy reforms that seek to cover the currently uninsured are unlikely to lead to significant reductions in private insurance premiums, at least due to decreases in cost shifting. In contrast, increases in public-program reimbursement rates could have an economically important impact on premiums.”

The message to state and federal policy makers is clear: the most efficient way to reduce private health care premiums is to increase public insurance program reimbursements. There are many benefits from increased health care coverage for the uninsured, but a significant reduction in private payer premiums is not one of them.

The study also reviewed the current literature on the magnitude and effect of the cost shift, and found that it has significant limitations. Only two studies investigate the extent of cost shifting from the uninsured, and these have fundamental weaknesses. Until now, no study has yet analyzed the most recent data from California hospitals, to investigate whether cost shifting in the State has intensified or moderated in the 2000s.
 

Chamber Stands Strong on Healthcare Reform

The Governor and other state government leaders have unveiled their separate proposal to reform California’s broken health care system. All of the plans call for massive changes that would require all Californians to obtain medical insurance. Most of the plans outline a significant fiscal impact on our business community. Specifically, the Chamber is concerned about the expectation for businesses to pay for mandatory health care resulting in negative impacts on Redondo Beach’s economic competitiveness.

Currently, the Chamber supports, but is not limited to:

- Policies that encourage continued medical discoveries and innovations that improve quality of care;

- Actions that preserve the current voluntary employer-provided health coverage system;

- Efforts to contain the costs of premiums;

- Conformity to federal law on health savings accounts;

- Legislation to allow employers to offer more affordable benefit plans that allow choices in coverage;

- Opportunities to gain efficiencies and optimal outcomes by coordinating the fragmented health care delivery systems;

- Work to curb the expansion of litigation in the health care system;

- Reforms to the worker compensation system that deliver significant cost savings;

- Policies that encourage continued medical discoveries and innovations that improve quality of care; and,

- Efforts to make health prevention the foundation for reform through greater government responsibility for primary prevention efforts.

Furthermore, the Chamber opposes, but is not limited to:

- Policies that allow cost shifting from government-provided programs to the private sector;

- Proposals that stifle research and development, enact price controls, encourage counterfeit drugs and interfere in the ability of employers and health providers to negotiate for lower drug costs;

- Proposals to establish a government-run health care delivery system in California; and,

- Employer mandates.

The Chamber is committed to holding the Governor accountable to his promise during his re-election campaign to not raise taxes. At this point in time, the Chamber reserves its right to establish a position on the any health care reform plan.
 

Seeking the Answers to Health Care Reform

The Governor unveiled his proposal to fix California’s “broken health care system” in early January.  The plan calls for massive changes that would require all Californians to obtain medical insurance. “Everyone in California must have health insurance, if you can’t afford it, the state will help you buy it, but you must be insured,” Governor Schwarzenegger said. I agree all Californians should have health care. But at what cost?

The key to the Governor’s proposal and will be a major issue for the Redondo Beach Chamber is his attempt to keep his promise during is re-election campaign by not raising taxes. However, his initial health care plan seeks the revenues needed from businesses, hospitals, and doctors.

The Redondo Beach Chamber plans to review the Governor’s reform proposal and examine its effects on the goals of increased affordability and access and on the state’s economic competitiveness. I am concerned that the new costs mandated by this plan might far outstrip anticipated resources and place Redondo Beach businesses at a competitive disadvantage. One funding mechanism for the increased coverage - the employer tax and mandated employee contribution -- is tied to payroll, and payroll growth in California has risen at just half the rate of health care costs in California in recent years. How will the inevitable shortfall in funding be addressed? Will the tax have to be doubled in ten years?

We all have questions. The Redondo Beach Chamber intends to represent the interests of our business community in seeking the answers. We will keep you posted.

The details of the Governor’s plan are outlined below:

Individuals: Requires all Californians to have health insurance or face unspecified tax penalties. The minimum health insurance benefit is a $5,000 deductible plan with maximum out-of-pocket limits of $7,500 per person or $10,000 per family.

Businesses: Requires businesses with 10 or more employees that don't provide health insurance to pay a 4 percent payroll tax to a fund that will help provide low-cost policies.

Doctors, hospitals: Requires doctors to pay a 2 percent fee and hospitals a 4 percent fee on revenues. Increases the reimbursement rates the state pays to hospitals and physicians for serving Medi-Cal patients by about $4 billion.

Insurers: Requires health insurance plans to cover all individuals, with limits on how much they can charge based on their age and where they live. Currently, health plans can refuse individual coverage to those with illnesses.

Patient care: Requires insurers and hospitals to spend 85 percent of their premium dollars on patient care.

Children, families: Covers all children by expanding Healthy Families and Medi-Cal programs and requiring parents to buy coverage. This would include illegal immigrants.

Adults: Expands Medi-Cal to cover low-income adults who don't have children.

Health accounts: Requires employers to establish plans so their workers can contribute pre-tax dollars to health insurance. Changes state tax laws to allow pre-state tax contributions to Health Savings Accounts.

December 8, 2006

Healthcare Reform Must Be the Top Priority in 2007
 

I call upon our elected officials in Sacramento, including the Governor, to deliver solutions to our health care crisis. A recent study found that growth in health insurance costs is outpacing the rate of inflation and the growth of workers’ wages. The Employer Health Benefits Survey released by the Kaiser Family Foundation and the Health Research and Educational Trust (HRET), found that premiums for employer-sponsored health coverage rose a average 7.7 percent in 2006, less than the 9.2 percent increase in 2005 and the recent peak of 13.9 percent in 2003.

We must find solutions that balance employer and employee investments in health care. The rise in premiums on employer-sponsored health care coverage, according to the study, remains the main reason why some businesses do not offer health benefits in the first place.Before adopting new costly mandates, policy makers should, among other actions, consider ways to streamline regulations to increase efficiency and reduce overall administrative costs.

Although this year’s survey recorded the slowest rate of premium growth since 2000, premiums still increased more than twice as fast as workers’ wages (3.8 percent) and overall inflation (3.5 percent). Premiums have increased 87 percent over the last six years. Family health coverage now costs an average $11,480 annually, with workers paying an average of $2,973 towards these premiums, about $1,354 more than in 2000.

Since 2000, the percentage of businesses offering health benefits had dropped by eight percentage points. Although the year-to-year changes have not been significant, the study said, the cumulative effect has been a large and statistically significant change. The change is driven by a decrease in the percentage of small businesses offering health coverage.

According to the survey, 61 percent of businesses offer health benefits to at least some of their employees, a similar percentage to last year. Businesses with 3 to 199 workers reported a higher rate of increase of 8.8 percent versus 7 percent for businesses with 200 or more workers.

Virtually all covered workers receive a premium contribution of 50 percent or more from their employer, the study found. Eighty percent of covered workers work for an employer that contributes at least 75 percent toward the premium for single coverage. Just over one-half of covered workers work for a company where the employer contributes at least 75 percent toward the premium for family coverage. The percentage of covered workers whose employers pay the full cost is 23 percent for single coverage and 9 percent for family coverage.

On average, workers are paying $259 more this year than they did last year toward the cost of family health coverage. Workers at small businesses, on average contribute significantly more to their premiums ($3,550 for family coverage) than workers at large companies ($2,658 for family coverage). On the average, workers this year are paying about 16 percent of premiums for single coverage and 27 percent for premiums for family coverage, with their employers paying the rest. That share is unchanged in recent years.

Addressing affordability in any attempt to increase the availability of health care must be the focus of Sacramento when they get back to work in early January 2007.