Healthcare Debate Primer: Part II —Funding Mechanisms

Lately we’ve been looking at various frameworks being proposed of how healthcare reform could look, from cooperatives (co-ops) and public-option plans to socialized medicine. All of these are governmental options and government needs money to operate. With current health reform estimates around $1 trillion, the question naturally becomes “how do we pay for this?” This column we’ll look at two of the most contentious funding mechanisms making the rounds in Washington.

The first is called an employer-mandate. A mandate is a requirement that a higher authority, usually government, requires a class of people or organizations to comply with. An employer-mandate then becomes a set of rules that employers must comply with. What this mandate generally says is that every employer must offer health coverage for their employees, with penalties for those that don’t comply. While many different suggestions (as of the time of this writing) are being considered, one has floated to the top. This mandate would require companies with at least 25 employees to offer benefits to all of their employees, including part-time employees. The employers who don’t comply would pay a $750 fine per fulltime employee, with the part-timers being prorated. It’s important to realize that the mandate doesn’t require that the employer pay the total cost of the benefits. The employer contribution towards the benefits, currently 50% in most states, would be increased up to 60% however.

The problem with this approach is that anytime you increase a business’ overhead costs, those costs usually wind up somewhere else. With small businesses that usually means the lay off of workers, something we definitely don’t need now. Making the situation worse, most employers would simply choose the fine as it would usually be much less than what the cost of benefits would be. Consider this: $750 divided by twelve months is less than $63 a month. With employers paying 60% of the health insurance premiums, that equates to about a $100 total monthly insurance premium. Show me a $100 a month insurance program worth more than the paper it’s printed on and I’ll show you a line of customers lining up around the block. 

The second funding mechanism is a mandate as well, but aimed at individuals. It’s euphemistically called a personal-responsibility mandate and actually makes more sense. Those of you that are faithful readers of this column know that insurance at it’s core is nothing more than everyone in a particular area chipping in a nickel to gain a dollar if they suffer a loss. The more people that contribute, the less per person the cost is, all other things being equal. A personal responsibility mandate requires that everyone have health insurance with penalties for non-compliance. Some opponents to this mandate state that this is the same thing as a hidden tax. My reply is that since everyone who needs care can get it at a hospital emergency room and not be turned away, we already are paying a much higher ‘hidden tax’- the costs that are passed on to us for uncompensated emergency care. However, the problem becomes the lesser of two evils; the current penalty being discussed is $1000 for non-compliance. It may not be possible to obtain coverage for less than that yearly, so the fine is more attractive. Of course, subsidies would be provided for people who can’t afford coverages.

Tune in next week for more on this ever-changing debate.

Until next time, stay healthy!