Tuesday, June 19, 2007

Biggest Employers Propose Their Own Health Care Reform Plan––Moving Toward Individual-Based Benefits

The ERISA Industry Committee (ERIC) has proposed a far-reaching reform of not only the health insurance system but the employer-provided retirement system as well.

They call for the movement of these important benefit plans from the workplace to individual ownership and responsibility.

The group represents many of America's largest employers and covers 30 million people in their benefit plans.

They have called their proposal a "New Benefit Platform For Life Security."

Their plan would require a fundamental reform of the U.S. health and retirement systems.

On health care, the ERIC plan is a hybrid of many of the ideas offered by both Republicans and Democrats.

Generally, the ERISA Industry Committee (ERIC) is proposing a defined contribution benefit funding strategy. That is, instead of funding a certain package of benefits no matter what they cost (defined benefit strategy), this plan would give employers the option to move the administration and costs of benefit plans outside the employer. As a result, the employer could fund the plans at any level they choose--not necessarily at the cost health care or retirement costs increase.

A defined contribution strategy would enable the employer to move these benefits off their books (at least for future costs). Employers would have the option of deciding just how much they would pay the employee to buy those benefits from the Benefit Administrator by defining a contribution. This could well mean that the employer would increase the contribution at something more like the wage rate (now about 3%) in future years then the historically higher health care growth rate (now about 7.5%), for example.

The result would be a disengagement by the American employer from these escalating benefit costs and their having a benefit cost structure more like their global competitors where health care costs are much lower.

The plan details:
  • Life Security” provides a new benefit platform based on an individual, instead of the traditional employer, model.
  • Life Security” would be a simplified benefit (health and retirement) structure provided by a new kind of benefit administrators competing on cost and quality.
  • This is a proposal to reform the health care and retirement system on a nationwide basis--current state regulation would be preempted.
  • The proposal assumes universal health care and an individual mandate requirement to obtain health coverage.
  • Universal coverage would enable the health plans to be community rated and able to guarantee insurability to consumers.
  • Employers could still offer traditional health coverage and the plan would not affect public health plans such as Medicaid and Medicare.
  • The key point is that employers could shed internally run benefit plans, craft a defined contribution program (that sets a limit on what the employer will pay), and set up an independent benefit structure outside the employer for all benefit plans.
  • “The new Benefit Platform provides an alternative means to provide benefits that assures choice and guarantees access.”
  • The Benefit Administrator would be a “trusted intermediary with significant expertise in designing, delivering, and managing retirement and short-term savings benefits, and health plans.”
  • Benefit Administrators would come from the ranks of banks, mutual fund companies, health plans, and new entrants.
  • Uniform service areas would be established with at least two new Benefit Administrators in each and regulated at the federal level.
  • The proposal leans heavily on Republican ideas––individual choice, defined contributions, and disengagement from the employer market.
  • But this plan also embraces Democratic ideas like a national benefit platform and an individual mandate.
It will take a major political willingness to implement almost radical reform to legislate the ERIC plan into place––which is currently not present.

This proposal's importance is that there are elements in this proposal that compare favorably to both Democratic and Republican plans, thereby creating some level of common interest with this powerful group for whomever wins the next election as they go on to craft a health reform program.

In effect, the ERIC plan is a hybrid of both Democratic and Republican health reform proposals.

These ideas will be a part of the post-2008 election health reform discussion because of the importance of these employers in the health care system.

It will be particularly difficult for policymakers to allow employers to transfer their future long-term health and retirement funding obligations onto such a system without the federal government willing to pick up much of the costs the employers are walking away from.

While the ERIC authors would probably argue their market reforms will go a long way toward getting costs under control, that assumption will not be generally shared among most people--including those who would lose their benefit guarantees.

No health reform proposal can be any kind of policy solution without an answer to the big question: How will we end up with a system people can afford to participate in?

The fundamental problem with this proposal is that it only solves the employer cost problem. It won't go anywhere without an answer to what it will do to solve the health care (and retirement) cost problem for the rest of us.
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