Major effects of revising health care

MINNEAPOLIS - President Bush wants to rejigger tax deductions for health insurance, Sen. Edward Kennedy wants to expand Medicare to everyone, and Sen. Hillary Rodham Clinton wants another crack at revamping health care.

Their ideas could fizzle, like the health plans of the 1990s, or turn the massive business of health care upside down.

Their different approaches would have very different consequences for the health industry and for employers.

Some worry that the idea Bush introduced last week in his State of the Union address, to shift the health-insurance tax deduction from employers to workers, would remove one of the main incentives companies have for paying for worker health care. (Company-paid health insurance took off in the 1940s as a tax-deductible end run around World War II wage controls.)

Meanwhile, Democrats have been more open to major overhauls of the health-care system, and even Kennedy's Medicare-for-all idea would amount to a major change. Health insurers could find themselves shut out entirely - or discover a huge new market among the nation's 47 million uninsured. If the Medicare prescription-drug benefit is a model, the government would put up some of the money for the new benefit, while consumers paid the rest, and health insurers would handle the paperwork and take a cut.

A.G. Edwards & Sons Inc. analyst Paul Newsome said there was a decent chance nothing would happen, just as in the early 1990s.

"But what you worry about is a perception issue - that the valuations for these stocks go to rock-bottom, historic lows just over the sentiment," he said. Ideas to alter health insurance have hurt insurance shares before they were defeated, he said.

"Nothing really happened from an insurance-business perspective," he said. "But, boy, the stock suffered."

Bush is proposing to give everyone a $15,000 deduction for family health-insurance costs ($7,500 for singles). That may sound like plenty, considering that last year the average family group plan cost $11,480, according to the Kaiser Family Foundation. (Many people never see a bill this large because their employer pays most of it.)

But there are two important things to remember: Many health-insurance plans for union members and salaried workers cost more than $15,000. And Bush's proposal calls for the $15,000 cap to rise with inflation, which has run about 3 percent annually in recent years. However, health-care costs have been rising much faster - 8 percent to 14 percent, according to Kaiser.

The issue of tax deductibility is huge. Employer-provided coverage is deductible. But the self-employed, early retirees who aren't yet eligible for Medicare, and part-time workers who buy their own insurance, generally can't deduct the cost. Bush's $15,000 deduction is aimed at leveling that playing field.

If the government ends up pushing for more of the uninsured to buy individual insurance, that could help the state Blue Cross Blue Shield insurers, who already have a strong presence on that type of insurance, said Elizabeth Senko at the Williams Capital Group L.P. WellPoint Inc., the nation's largest health insurer, is a conglomerate of the Blues and would stand to gain if more people bought individual policies, she said.

One key question for health insurers will be whether health-care changes leave the government with the risk of paying expenses, which is what most self-insured large employers do today, or whether it pays insurers to take that risk, as many smaller employers do. Insurers make more money if they're paid to take that risk.

Insurers such as UnitedHealth Group Inc. and Humana Inc. have not shied away from doing business with the government and have become the top two insurers for the Medicare prescription-drug benefit. WellPoint has shied away from that area in the past, said Gary Claxton, director of the Kaiser Family Foundation's Healthcare Marketplace Project.

Insurers, he said, have few places left to go for new business - one reason there was such a land-rush for the prescription-drug business.

"Taking it away from other carriers is difficult because you have to lower your price to do it," he said, "or become much more efficient than your competitors."

Joe Gumino said change can't come fast enough. Gumino, a marketing consultant from Marshall, Va., and his wife had to buy individual policies after she lost her coverage in a job switch two years ago. A Dec. 22 letter from Aetna Inc. saying his insurance renewal would jump 35 percent promoted his third search for insurance in two years. He switched to Aetna after a double-digit increase from UnitedHealth, only to find that his healthy 113-pound wife would be in a high-risk pool - for not weighing enough.

Some have said Bush's health plan could make it easier for employers to drop coverage. But employers added health insurance in the first place because it helped attract workers. So they are unlikely to drop it unless employees have a better option than the current market for individual health insurance, said Frank McArdle, a health-care expert at human-resources consultant Hewitt Associates Inc.

"As long as that piece is missing, no matter what the tax incentives are, we don't see large companies walking away from their health insurance," he said, "because they're not going to turn their employees loose on the individual market."