Health Care Reform

HHS Secretary Sebelius Statement on Benefits of Health Insurance Reform for Businesses

Washington, D.C.–(ENEWSPF)–December 4, 2009.  HHS Secretary Kathleen Sebelius today highlighted the benefits of health insurance reform for businesses and released a new fact sheet regarding a recent analysis from the Congressional Budget Office.

“Businesses across the country are struggling under the weight of high health care costs,” Secretary Sebelius said. “Health insurance reform will help lift this burden, help businesses prosper, and ensure workers have the affordable, quality health care they need.”

A fact sheet regarding the analysis is included below.

Fact Sheet: New CBO Analysis Confirms Benefits of Health Insurance Reform for Businesses

American businesses know the health care status quo is unacceptable. Since 2000, premiums have more than doubled, a rate three times faster than the growth in wages.[i] Between 2000 and 2009, the percentage of firms offering coverage fell from 69 to 60, with much of that drop occurring in the past year alone.[ii] Small businesses in particular struggle under the current health care system. For firms employing less than 10 workers, the erosion in coverage is striking — from 57 percent offering coverage in 2000 to 46 percent offering coverage in 2009.[iii] If we do nothing, over the next ten years, health care costs for large businesses are projected to reach $28,530 per employee, a 116 percent increase from 2009.[iv]

A new analysis by the Congressional Budget Office (CBO) affirms that businesses’ health insurance costs will be lower under health insurance reform — even though the analysis does not take into account the full range of policies that will benefit businesses.

Health Insurance Premiums for Businesses According to CBO. In a November 30 letter to Senator Evan Bayh, CBO assesses the impact of the Patient Protection and Affordability Act on premiums for the individual, small-group, and large group markets. In 2016, CBO estimates that 159 million or 83 percent of privately insured people will be insured through employers.

  • Premiums for small business will go down. Small businesses are likely to see premiums drop by 1 to 4 percent under the proposal due to lower prices. These lower prices come from:
    • Lower administrative overhead. Right now, each small business has to consult with a broker or hire someone to collate plan information, assist employees with decisions, and handle issues as they arise. Under reform, in the exchange, there will be people whose job it is to provide plan information and facilitate enrollment. The exchange centralizes what is otherwise a process that is extremely duplicative, streamlining administrative costs and lowering premiums.
    • Greater competition. CBO attributes savings to “providing a centralized marketplace in which consumers could compare the premiums of relatively standardized insurance products.” This includes competitive pressure from a public health insurance option.
    • Administrative simplification. Physicians spend on average about 140 hours and $68,000 a year just dealing with health insurance bureaucracy.[v] By simplifying and standardizing paperwork and computerizing medical records, doctors will be able to focus on caring for their patients instead of dealing with bureaucracy. CBO estimates nearly $20 billion in Federal savings over 10 years, with additional savings accruing to businesses and families.[vi]
  • Up to 3 percent premium savings as the risk pool for employer-based coverage improves. Today, businesses have seen their premiums skyrocket every year, with many facing double digit percentage increases in their premiums. Health insurance reform will stop this trend.
    • With nearly 30 million additional Americans gaining health insurance, the purchasing pool for businesses will expand and, largely, improve. Big businesses will save from 0 to 3 percent on premiums due to the changing risk pool while small businesses could save 1 percent on premiums.
  • Better options for small businesses. Small businesses would gain access to the health insurance exchanges and new benefit options and tax credits under reform.
    • 3.6 million small businesses could qualify for a tax credit to help pay their premiums.[vii] An estimated 12 percent of people insured through small businesses will qualify for tax credits that lower premiums by 8 to 11 percent. This translates into $620 to $860 for individuals and $1,540 to $2,120 for families assuming that the coverage is comparable to what they get today.
    • Today, small businesses often have coverage that has high deductibles and gap-ridden benefits. The legislation offers such businesses better options that CBO assumes businesses will take. Such better coverage has premiums that are 0 to 3 percent higher than the average plans today, but will save money for employees by ensuring they are not forced to pay high out-of-pocket costs for services not covered by their current insurance.
    • In the current health insurance system, small businesses may see premiums skyrocket if just one or two workers fall ill and accumulate high medical costs. Health insurance reform will prevent insurance discrimination based on health status, meaning that small businesses will no longer be unfairly penalized if a worker falls ill.
  • 9 to 12 percent premium savings for high-premium plans under current law. By assessing high-cost plans, the excise tax encourages businesses and individuals to streamline coverage, leading to lower premiums over time.
    • CBO estimates that the 19 percent of people in employer-coverage in high-cost plans today will pay 9 to 12 percent less under reform. This translates to premium savings of at least $835 for single and $2,070 family policies.
    • This could yield increases in workers wages, by around $70 billion in 2019.[viii]
  • Nearly $10 billion in savings for small businesses.
    • Under current law, CBO estimates premiums to be $7,800 for single policies and $19,300 for families in the small group market.
    • Small businesses that opt for comparable coverage under reform could save up to $390 for single policies and $965 for family policies. Assuming all 25 million people insured through small business save at least $390 (more for families), this will yield nearly $10 billion in savings in 2016 alone.
    • Additional savings will accrue to low-wage, small businesses that newly offer coverage in the exchange. CBO estimates that roughly 12 percent of people in the small group market would get the credit which would reduce premiums by about 10 percent in 2016. Multiplying this by the population and average premiums in the report, this suggests that about one and a half million people would save roughly $780 per person on premiums in 2016.
    • Even those that CBO estimates will “buy-up” will save, paying $100 less per family for coverage that is more protective.
  • At least $13.4 billion in savings for large businesses.
    • Under current law, CBO estimates premiums to be $7,400 for single policies and $20,300 for families in the large group market.
    • CBO estimates that, under reform, large business premiums will drop by $100 per single policy and $200 per family policy. With 134 million people enrolled in such coverage, this translates into at least $13.4 billion in savings in 2016 alone.
  • Businesses can keep what they have.
    • CBO affirms that any proposed benefit mandates would not affect the small or large group markets: “The requirement would have relatively little effect on premiums in the small group market, however, because most policies sold in that market already cover those services and would continue to cover them under current law.”
    • CBO also affirms the effectiveness of the grandfather policy: “Further, small group policies that are maintained continuously would be grandfathered under the proposal.”
    • In the large group market, CBO affirms that “[Benefit] requirements would have no significant effect on premiums in the large group market.”
  • No cost-shifting to the employer-based insurance market.
    • CBO states: “… CBO’s assessment is that the legislation would have minimal effects on private-sector premiums via cost shifting.”

Additional Policies To Benefit Businesses. CBO does not include in its analysis several additional policies in the Patient Protection and Affordable Care Act that would benefit businesses.

  • Reinsurance for businesses that cover early retiree plans.
    • The proportion of employers that offer retiree coverage has been declining precipitously over time, from 66 percent in 1988 to 29 percent in 2009.[ix]
    • The proposal would provide a time-limited, Federal reinsurance program to cover some of the cost of covering early retirees. This translates to savings of up to $1,200 off the premium of every family plan offered by that company.[x]
  • Policies to slow health care cost growth.
    • Insurance oversight: In recent years, several states’ insurance commissioners have rejected unjustifiably high premium increases in the small group and individual insurance markets.[xi] Health insurance reform will allow insurance commissioners to continue to play this important role and require transparency and oversight of premium increases.
    • Delivery system reform. Health insurance reform will invest in care innovations such as accountable care organizations, make healthcare providers more accountable and efficient through value-based purchasing, and improve quality and patient safety, including reducing preventable readmissions. A recent report by the Business Roundtable found that if many of the delivery system reforms were adopted by the private sector, large businesses could save $3,000 per employee by 2019.[xii]
    • Lowers expensive drug costs. Biologic drugs are some of the most expensive drugs on the market, and yet there is no streamlined avenue to get generics on the market to provide lower-cost alternatives. Reform will create an expedited process to make generic biologic drugs available, significantly lowering drug costs.
  • Immediate benefits. While the CBO report provides savings estimates for 2016, several of the policies discussed above would take effect immediately, including early retiree reinsurance, administrative simplification, small business tax credits, and increased oversight of the insurance industry.

Benefits to Businesses Beyond Lower Costs. CBO focused exclusively on health insurance premiums which are critical to businesses. There would be other benefits of health reform for businesses as well.

  • Improved workplace productivity.
    • The Institute of Medicine found that lost productivity due to untreated illness among uninsured workers cost businesses between $75 billion and $150 billion per year.[xiii] Expanding coverage to the uninsured will create a more productive workforce.
    • Current job-lock (inability to leave current employment if it will result in loss of health insurance) has been demonstrated to hurt the economy through reduced productivity, and prevents an employee from taking a job with potentially higher wages.[xiv] By ending limitations on coverage based on pre-existing conditions and expanding portable coverage options through the health insurance exchange, reform will increase the flexibility and productivity of the workforce.
  • New jobs.
    • Bringing down the cost of healthcare will enable investments in business and job creation. The President’s Council of Economic Advisers (CEA) estimated that if the annual growth rate of health spending slows by 1.5 percentage point, new jobs could rise by 500,000.[xv]
    • The health insurance exchange will expand options for coverage, making small businesses a more attractive place for people to work, and encouraging people to start up businesses of their own.
    • Health insurance reform could save 80,000 jobs in the small business sector by 2019 and increase take-home pay by almost $30 billion.[xvi]

[i] Kaiser Family Foundation, Employer Health Benefit Survey, (Menlo Park, CA: Kaiser Family Foundation, 2009).

[ii] Kaiser Family Foundation, Employer Health Benefit Survey, (Menlo Park, CA: Kaiser Family Foundation, 2009).

[iii] Kaiser Family Foundation, Employer Health Benefit Survey, (Menlo Park, CA: Kaiser Family Foundation, 2009).

[iv] Business Roundtable, Health Care Reform: The Perils of Inaction and the Promise of Effective Action. September 2009.

[v] Casalino LP, Nicholson S, Gans DN, et al. What Does It Cost Physician Practices To Interact With Health Insurance Plans? Health Affairs, July/August 2009; 28(4): w533-w543.

[vi] Congressional Budget Office. Letter to the Hon. Harry Reid. November 18, 2009.

[vii] Medical Expenditure Panel Survey – Insurance Component, 2008.

[viii] Gruber J, November 5, 2009.

[ix] Kaiser Family Foundation, Employer Health Benefits Survey 2009.

[x] Internal modeling provided by the Urban Institute.

[xi] National Economic Council. The Burden of Health Insurance Premium Increases on American Families. September 2009.

[xii] Business Roundtable. Health Care Reform: Creating a Sustainable Health Care Marketplace. November 2009.

[xiii] Institute of Medicine. Hidden Costs, Value Lost: Uninsurance in America. June 2003. Estimates brought to 2008 dollars using the Consumer Price Index.

[xiv] Gruber, Jonathan and B. Madrian. “Health Insurance, Labor Supply, and Job Mobility: A Critical Review of the Literature,” Economic Research Initiative on the Uninsured Working Paper 4, University of Michigan, November 2001.

[xv] Council of Economic Advisers. The Economic Case for Health Care Reform. June 2009.

[xvi] Gruber J. Testimony before the Senate HELP Committee on Health Reform and Small Business. November 3, 2009.


Source: hhs.gova