Reform of nation's health care delivery system needed to save "safety net."

At the close of World War II, wage and price controls were imposed throughout the United States to stimulate economic recovery. As a result, employee unions were deprived of a key bargaining tool. However, a Congress friendly to organized labor responded in 1947 with the passage of the Taft-Hartley Labor Relations Act that empowered unions to negotiate benefits in place of wage increases. This Act and a subsequent court case established employer-sponsored health insurance for employees and their dependents as a cornerstone benefit for the national labor force.

The downturn in the U.S. economy in the late 1980s; the opening of American markets to global competition following the ratification of the North American Free Trade Agreement (NAFTA) in late 1993 and the General Agreement on Tariffs and Trade (GATT) in 1994; a history of double-digit health care cost inflation; and the failure of Congress to pass a comprehensive health care delivery system restructuring plan seriously challenged the financial viability of California businesses that provide health insurance coverage for workers and their families.

The successful business today is leaner than its pre-1990 counterpart. Downsizing and outsourcing have significantly reduced payrolls. Employee benefit packages are likewise more lean than they were before 1990.

Over 11 percent of the workers in California took lower paying jobs or lost their jobs altogether between 1989 and 1993. During that period, the percentage of Californians covered by employer-sponsored health plan coverage declined from 56 percent to slightly more than 51 percent.

Over two-thirds of the businesses in California employ less than 25 workers. Moreover, only slightly more than two-thirds of that number provide health plan coverage for less than half of their workers.

Employers Get Tough - The Market Responds

Employers responded to these global pressures by forming large coalitions and using their new-found purchasing clout as a lever to cut their cost for health insurance premiums.

The Pacific Business Group on Health (PBGH) is one of the most active and successful coalitions in California, if not the country. The PBGH has 28 member companies located throughout California, representing a total labor force of over three million workers for which over $3 billion is spent annually on health care. Initially, the coalition focused on standardizing health data collection and benefits, but rising employer costs led it to negotiate with health plans on behalf of over half its members.

While the PBGH has been successful at cutting costs, the California Public Employees Retirement System (CalPERS) must be recognized as the leader in negotiating premium price discounts for a standardized benefit package. Representing over five million insured Californians, it was the first to negotiate an actual decrease in its HMO premium prices in 1993-94.

As the result of these and other efforts, it is now a matter of routine for insurance companies to negotiate health plan coverages and premium rates with employers. Accordingly, annual premium rate increases plummeted from a high of 18.6 percent in 1988 to a low of 2.1 percent in 1995. In fact, the premium costs for health maintenance organizations (HMOs) serving California markets declined by an average of 3.8 percent last year.

This cost-cutting frenzy reversed California's position as the nation's leader in health care cost inflation. At 3.7 percent, the annual rise in employer costs for health care benefits - represented as a percentage of wages - was less in California than for the nation (6.4 percent) between 1990 and 1994. In fact, the slow rise brought California within .2 percent of parity with the rest of the nation in 1994.

Workers Share Cost Burden

In addition to negotiating better deals with insurers, employers are shifting more of their health plan premium costs to their workers. Employers are offering fewer health plan options beyond the cost-conscious HMO without imposing stiff fees as election disincentives for workers. Workers are being levied larger annual deductibles and copayments, and they are paying anywhere from 15 to 30 percent of the insurance premium costs. Also, upon being hired, workers are not eligible for coverage for an average of four months.

Impact on Los Angeles - No Money, No Mission

Working Californians and their dependents account for 83 percent of the state's 6.3 million medically uninsured residents (1.7 million in Los Angeles County).

A study by the UCLA Center for Health Policy Research finds that the increasing number of uninsured depend on "safety net" providers for most of their medical care, but the safety net is at risk because of severe and ongoing budget shortfalls.

Over one million primary care visits are provided in hospital emergency rooms - a costly and inappropriate setting - throughout the County each year. However, the preponderance of medical care provided to the uninsured is provided by six county-run hospitals and 34 private community hospitals.

These hospitals are able to provide access to the uninsured because of special Medicaid payments appropriated to support this mission. In addition, the County hospitals are partly supported by County General Fund allocations.

The special Medicaid payments are threatened by federal budget cuts and the County General Fund support is threatened by budget shortfalls and attempts by the California Legislature to relieve counties of the mandate to provide medical care to the uninsured. If either comes to fruition, the safety net will collapse.

Solutions

Presidents Richard Nixon, Jimmy Carter, and Bill Clinton tried but failed to reform our nation's health care delivery system. The latter tried unsuccessfully to extend universal coverage to approximately 40 million uninsured Americans. California voters likewise rejected a similar proposal contained in Proposition 186, the Single Payer Initiative, in 1994.

Health industry analysts and political pundits will speculate endlessly as to the reasons for the failure of the Clinton Plan and Proposition 186, but most would agree that the voters were concerned principally about the impact the employer-mandate-to-provide-health-insurance-coverage provisions would have on business enterprises.

Employers Given a Reprieve

To help small businesses gain access to affordable health plan coverage for workers, in 1992 the California Legislature enacted AB 1672, which established a state-sponsored health insurance purchasing pool. This effort became known as the Health Insurance Plan of California (HPIC), and it offers 23 health plans to businesses with 50 or fewer workers at rates lower than what a small business might purchase separately.

Regrettably, small businesses have not taken advantage of this low-cost program. Fewer than 5,000 qualified business with a total labor force of less than 100,000 workers use the HPIC. Moreover, 79 percent of these employers had provided health insurance for their workers before joining the HPIC. They were already motivated to provide their workers With health insurance benefits. Many joined the HPIC to take advantage of the lower premium prices.

The limited success of the HPIC suggests that a voluntary solution will not succeed. Likewise, many analysts assert that the profit margins of small businesses can not survive an additional 10 to 12 percent of payroll add-on cost for health insurance benefits for workers.

The dilemma in which we find ourselves is replete with contradictions, mixed messages, and subterfuge. Most voters believe fundamentally that every resident has a right to access vital medical care when needed. But these voters do not want to be taxed to provide for this right. Neither do they want employers to be burdened with the responsibility of securing health care coverage for the labor force.

In times passed, health care providers would cover the cost of providing medical care to the uninsured by shifting the cost to their insured patients and from government resources. The demand for lower premium prices has reduced the payments made to health care providers, thereby all but eliminating the cost shift. (Over half the hospitals in Los Angeles already have negative operating margins.)

If Congress cuts Medicare and Medicaid as proposed; if the California Legislature relieves county governments of any obligations regarding indigent medical care; or if the pool of uninsured workers continues to rise, a meltdown of the safety net and emergency medical services system will surely follow. Under this circumstance, an employer mandate would be inevitable, unavoidable, and preferable to its alternative.

JIM LOTT IS SR. VICE PRESIDENT FOR POLICY DEVELOPMENT AND ADVOCACY FOR THE HEALTHCARE ASSOCIATION OF SOUTHERN CALIFORNIA