National Health Care Reform Ills Could Result in a Local Cure

By Eitelberg, Cathie G.; Markoe, Jeannine C. | Government Finance Review, December 1994 | Go to article overview

National Health Care Reform Ills Could Result in a Local Cure


Eitelberg, Cathie G., Markoe, Jeannine C., Government Finance Review


Many an autopsy will be done on the corpse of national health care reform. While the cadaver is examined by health care policy coroners, its spirit lives on in the hope of reincarnation. And that hope is not in vain. Health care changes, albeit in a less comprehensive form, will continue to be a main issue at the local, state and federal levels of government. And state and local governments may have many lessons to learn from 1994's extended debate and health care reform's death by a thousand cuts.

Issues That Are Not Going Away

Americans will spend nearly $1 trillion for health care services in 1994. If prices continue to rise unchecked, this number will double shortly after the turn of the century, a level of spending that will claim nearly 20 percent of the nation's gross domestic product and redirect investment away from economic growth and development.(1)

Data show that five million Americans have lost insurance coverage in the last five years. Today, an estimated 39 million Americans have no health insurance, or 14.7 percent of the total population.(2)

The national government's interest in controlling health care expenditures will be driven by its desire to contain the cost of federal medical entitlement programs and their impact on the federal purse. Financing pressures also will push states and localities to make health care changes, many of which will be aimed at bringing spending under control, extending coverage to reduce cost shifting and convincing the citizenry that care will be available when needed.

All the federal proposals that were under the Congress' consideration in 1994 would have drastically changed the way health care benefits are provided and financed. Issues of particular concern to state and local governments in the 1994 proposals, and likely to be alive when health care reform is resuscitated in the next Congress, are the following:

* limits on self-insurance,

* restrictions on pooled purchasing arrangements,

* changes in benefits tax policy,

* revisions to insurance laws and

* establishment of a standard benefits package.

Limits on Self-insurance. In most of the reform packages, self-insurance generally was limited to large employers with a requisite number of employees. The threshold number ranged from 100 to 5,000 employees. Employers not meeting the mark would be prohibited from self-funding benefits and would be required to purchase benefits on the open market or through a government certified purchasing alliance.

Restrictions on Pooled Purchasing Arrangements. Pooled purchasing arrangements operated by states or a group of localities (i.e., municipal-league or county-association pools) faced new barriers under 1994 proposals. Small employers, those who most benefit from pooled purchasing, would have been hardest hit. Participation in pooled arrangements would have been limited to employers that had at least 100 employees. Moreover, creation of future pools would have been stifled, and annual growth limitations would have been placed on existing pools.

Financing Alternatives. Consensus on the pivotal issue of how to finance reform was never reached. Suggestions included a payroll tax, mandating employers to pay for a portion of benefits with employees picking up the remainder, an excise tax on "high-premium" plans, a tobacco tax, an ammunition excise tax, limiting employer deductions, capping the amount of health benefits that employees can receive tax-free, and cutting Medicare and Medicaid benefits. One financing provision that was contained in most of the proposals required all state and local government workers to participate in the Medicare system regardless of the employee's date of hire. Also, the payment of health care expenses with pretax dollars through a flexible spending account was eliminated.

Enactment of Insurance Reforms. There was agreement that people who become sick should not lose their coverage and that workers should not be job bound because they are afraid of having their coverage dropped. …

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National Health Care Reform Ills Could Result in a Local Cure
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