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Local Politicians: Stay Out of Health Insurance Business

By Sally Pipes

The push for mandate driven universal health insurance has taken center stage in the policy arena. Massachusetts Governor Mitt Romney has achieved near celebrity status with his plan to require individuals to purchase insurance or face fines. The American Medical Association voted at its June meeting to endorse a nationwide mandate on individuals to purchase health insurance. And my city may soon make national news if its mayor is successful in implementing a plan promising to provide universal coverage for San Francisco residents.

The enthusiasm for mandates is not unexpected. In the quest to achieve universal third party health coverage, policymakers have limited options. They can increase taxes to create a government plan; require that individuals purchase insurance, the Massachusetts model; or require that employers provide insurance or pay a fine, also part of the Massachusetts plan. San Francisco is adding a slightly new twist. Policymakers want to tax employers to fund a universal health care program that is non-employment based.

The first plan, sponsored by Supervisor Tom Ammiano, would require businesses employing 19 or more people to pay 50 to 75 percent of the average cost of health insurance. Large employers would pay more, roughly $3,300 annually, small would pay less, $2,200 annually, but all would pay.

An analysis of the bill by the city controller is instructive on many levels. It makes clear that the bill "is not an insurance mandate--rather it is a health benefits spending mandate." It's, in other words, a direct tax on employing people, the WalMart fair share bill applied to all but the smallest employers.

The report acknowledges that the bill would throw up to 590 people out of work. People who didn't have health care insurance wouldn't even have a job.

It documents the regressive nature of the tax, increasing compensation costs of lower paid workers by 10 percent while increasing those of higher paid by 3.5 percent. It projects that small and mid size firms will bear up to 84 percent of the burden. It recognizes that after an initial shock, it will be employees who pay.

"We project that employees will ultimately pay, at least part if not all of the cost of these new benefits through otherwise lower wage increases," the report notes. "Employers operating in a competitive marketplace have limited resource capacity to pay toward personnel compensation costs (including wages and fringe benefits)."

In a nutshell, this bill would send San Franciscans to the unemployment office, send jobs to neighboring jurisdictions, and reduce cash compensation for lower wage employees, forcing them to acquire health insurance that they may or may not want.

The mayor's plan, co-authored with Ammiano, is more interesting. The San Francisco Health Access Program is not insurance at all, but rather a local, prepaid, preferred provider network for the near poor. Only San Francisco residents are eligible, and the plan will only be honored by participating San Francisco Hospitals, clinics, and physicians. The plan, administered by the government created San Francisco Health Plan, is a gold-plated benefit package that covers everything from prescription drugs to preventative and primary care.

The plan comes with a projected initial annual price tag of $198 million. San Francisco already provides highly subsidized coverage to the low income uninsured by leveraging both federal and state monies and its own taxpayers. The city itself spends $104 million a year. A report available on the public health website makes clear that highly subsidized, if not free health care, is available to all residents regardless of immigration status. People do, however, have to show up at the clinics, wait in line, and, yes, some people who can afford to pay something do get a bill.

Just as the Massachusetts bill works on paper by redistributing monies already spent on the uninsured, the Mayor's plan also is partially funded by existing sources. Partially, however is the key. There is a $94 million gap, a gap that will be filled by the employer tax in the Ammiano bill and individual premiums of $3 to $201 a month by covered San Franciscans.

There is a huge flaw in the mayor's plan. The individual premiums are voluntary. Unlike the Massachusetts plan, there is no mandate to pony up, even partially, for care. This is a recipe for runaway health spending and huge tax increases, as the sick, likely to get sick, and already heavy users of health care take up the city's offer of prepaid provider network for $35 to $200 a month. The healthy, young, those unlikely to require much care, will opt out, wait until they get sick, if at all, and then commence premiums.

The mayor's plan has received much media attention, yet this problem of voluntary premiums has not been addressed. In its place is implied praise for the mayor for fulfilling his moral obligation and offering the plan as a nationwide model. If is passes, which appears likely, it will prove to be a national model for why local politicians should stay out of the health insurance business.

Pipes is president and CEO of the Pacific Research Institute and author of "Miracle Cure: How to Solve America's Health Care Crisis and Why Canada Isn't the Answer." E-mail:

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