Thursday, June 23, 2016

Single Payer Questions

What if there were no disputes about whether work did or did not cause the need for someone's medical care. That is perhaps not practical. But, perhaps Colorado has an idea in which such disputes would be decreased? With its proposal for "single payer," Colorado proposes to have every person in the state covered by health insurance. This would perhaps mean that every injury or illness would be cared for (a "chicken in every pot"), without the need for determining whether work is or is not responsible; determinations that unfortunately sometimes come down to litigation, and determinations of credibility

There is some discussion about how workers' compensation does not operate as smoothly as it might. It has its "friction points." Many hypothesis of "why" are put forth, and much like the fable Elephant and the Blind Men, much may depend upon personal perspective. But, one of the conflicts often seen is the issue of causation. When an employee presents with complaints of back pain, the question may be whether lifting at work caused the injury or whether something unrelated to work is to blame. The controversies of causation then influence much workers' compensation. 

The debate, evaluation and litigation of causation consume resources and time. Courts are sometimes humbled by the complexity of the analysis of compensability. And in the end, whether something is or is not work-related really comes down to how that standard is defined, and the Devil is in the Definitions. Legal definitions which some see as legislative prerogative and others see as constitutionally constrained individual rights. 

What will be the standard for what is "work-related?" There are those who advocate a very low standard; if the work "contributed" to the injury, then they conclude workers' compensation should be responsible for treating that injury. Others conclude that a more stringent standard should be satisfied; only if the work performed is the major cause or the more predominant cause should workers' compensation cover the treatment. 

If the cause of injury is work, under the standard adopted in a particular state, then the cost for treatment is borne by the employer. And if not, then the cost is borne by either another insurance program, such as health insurance, or in some cases Medicare/Medicaid, or perhaps even by the person suffering the injury.  In the end, of course, the Ultimate Payer is you and me. 

Having de-criminalized marijuana with Ballot Initiative 64 in 2012, Colorado has led the country in a different direction. Now, in 2016, Coloradans prepare for the "Godzilla of all Colorado Ballot Initiatives," Ballot Initiative 69 (once called Initiative 20, with more details), which would create "a state governmental universal health-care system." Colorado would be the first state to finance a "single payer" and "revolutionary" "health insurance scheme." According to the Colorado Chamber of Commerce and Industry, this new program would "swallow up all State and Federal health-care programs, including . . . Colorado’s workers’ compensation system."

The first question some will ask is whether the state can make its citizens buy something. That is an interesting question and will depend upon court interpretations of the Colorado constitution. There may already be precedent in Colorado to guide the court's determinations of this question, but we have to recognize that courts seem increasingly less respectful of precedent and more inclined to reach their desired results regardless of the nagging stare decisis. There are even those who believe that courts essentially make up or create law to suite their outcomes, an fault that has been recently hurled in Florida regarding the analysis in Castellanos. That is a subject that deserves more discussion one day, but this is not that day.

Clearly, the United Stated government has the authority to make people purchase goods and services regardless of their desire therefore. Almost a hundred years ago, the United States Supreme Court concluded that the Interstate Commerce Clause ("ICC") justified the government telling you what you may or may not grow on your own land. This decision could easily be interpreted as likewise allowing control of what you manufacture or produce otherwise. It is an expansive and interesting interpretation of the Constitution. That analysis is in Wickard v. Fillburn

Many years later, the same logic would be used the Court in Federation of Independent Business v. Sebelius, 567 U.S. -----, 132 S.Ct 2566 (2012), to conclude that the ICC empowers the federal government not only to tell you what you may or may not grow or manufacture. The Court in Sebelius concluded that your federal government can tell you what you must purchase, upholding the mandate of Obamacare that you must purchase health insurance, or pay a fine for not doing so (unless the government chooses to ignore your particular willful refusal, which I am assured is occurring daily in America).

So, ColoradoCare would mandate that all in Colorado "purchase" health insurance. A universal utopia in which each will pay according to their ability and receive care according to their need. Some Coloradans might still also purchase commercial health insurance; perhaps to cover out-of-state care when travelling, or to obtain care that the "one size fits all" socialized medicine plan does not provide. There are complaints in other social medicine jurisdictions such as Canada of delay and denial that some remedy through private payment of some form. But most would have ColoradoCare as her or his one and only health insurance. 

I have written about the cost-shifting that occurs as providers and facilities face the situation of a patient in need of care, yet unwilling or unable to pay. I have also written of the allegation that medical decisions could be made based on payment parameters rather than science. It is conceivable that a "single payer" system could ameliorate each of these somewhat. With everyone insured, then everyone would receive care. The insured would no longer subsidize the uninsured? True perhaps to a point, but Obamacare has taught us the hard lesson that "mandatory" does not always mean everyone. 

This ColoradoCare system is intended to collect premium taxes from payroll. Thus anyone employed would pay for health coverage. There is also an intent to "collect 'premium taxes' from workers, employers and taxpayers who have non-payroll income and then pay health-care providers for services rendered to the 'members' and beneficiaries of Colorado Care." So those who are employed would be taxed and those who have income from sources other than employment would be taxed. And those who do not have income, or who are successful at hiding their income, would not be taxed (and yet might still present for medical care). 

This public entity, ColoradoCare, would be created by the state, but would not be subject to the control of the state. In fact, it would be free of any legislative oversight and free of any “'administrative direction or control'” by any state government entity."  It would be controlled only by a board of trustees. Established by constitutional amendment, and empowered as a constitutional "political subdivision" of the state, it would be independent, and omnipotent. Essentially, the legalities would create a fourth branch of Colorado government. A branch with an independent authority to tax and spend for the health of all. Some wonder whether such a government branch would be omniscient, benevolent, efficient, and effective? And even some who believe it would be, wonder how long it would be (some skeptics see bureaucracy as an ever-growing cancer, immune to treatment or control). 

What would it cost? The short answer is no one knows for sure. The Initiative calls on a tax of 10% on all income in the state, including capital gains, pensions, annuities, and Social Security benefits.  The answer, from some perspectives, is always more taxes. Coloradans already pay 4.63% state income tax. The rate for federal income tax is subject to many adjustments, and less subject to a broad statement like that. But, the median American household income in 2014 was $53,657. According to one calculator, a single person with that income in Colorado would pay taxes of $13,187 as of now. 

The taxes for FICA (which means "Federal Insurance Contributions Act" - it is not tax, this is your "contribution" to the greater good) are roughly 7.5%. What many forget is that this percentage is paid by the employees from their check, but employers pay a matching percentage. Thus, another 7.5% of the employee's pay is provided to Washington in "contribution" for its payment of Social Security, Medicare and Medicaid. So, the tax for FICA is effectively 15%, or $4,105 for this median employee, plus another $4,105, or a total of $8,210 for FICA. Absent this contribution tax, this $8.210 could be paid to the employee to provide for her or his own expenses, Instead it is "contributed" to the common good of federal programs. So, effectively, one might argue that the real tax burden on this hypothetical Coloradan is actually $17,292 ($13,187 + $4,105), an effective rate of about 32%.

Then there is the federal excise tax on gasoline at $.184 cents per gallon and Colorado's gasoline excise tax of $.22 per gallon. The average car gets 23.6 miles per gallon (not enhanced for mountains or snow - which Coloradans might tell you decrease mileage just like the four-wheel drive they have to assist with it) according to the Washington Post. And Americans drive about 15,291 miles annually. So, about 648 gallons each year, adding up to about $261 more in taxes. This brings the total to $17,553 ($17,292 + $261).

In addition, Colorado has a sales tax that is at least 2.9%, and which localities may raise as high as 10.9%. To figure out what that amounts to, the "income after taxes" figure is an appropriate starting point, from this example, that is $40,470. The typical American saved $1,690 last year, which reduces the amount probably spent from the "after taxes" to $38,780. Fortune says that typically housing should be no more than 30% of income (but it notes some people spend more). Thirty percent of that $40,470 is $12,141. So removing savings and housing upon which no sales tax is paid, perhaps a Coloradan has $26,639 ($40,470 - $1,690 - $12,141) to spend. And if the minimum sales tax (2.9%) is applied to that, it is additional tax of $772.53 (if the rate is 10.9% it would be $2,903.65).

Colorado also has excise taxes on cigarettes, alcohol, gambling, and (you guessed it) marijuana. But assuming one does not partake, these would not be in the calculation. 

So, the average Coloradan, with a median income, and average tastes and needs would today have a tax burden of at least $14,220 (26.5%) to $18,325 (34%) (if one presumed that the employer contribution FICA, if not paid to Washington, would be paid to the employee). And, living in some locals with local option sales taxes that could be significantly higher. 

The new 10% tax for ColoradoCare care is divided into two categories, an employer share of 6.67% and an employee share of 3.33%. 

As an aside, ColoradoCare seems to alleviate any flexibility for employers as Obamacare has demonstrated. The Obamacare legislation mandates employer provided coverage for "full time" employees. The Obama plan also does not mandate coverage for an employer unless it has 50 employees or more. Its lack of vision and planning in this regard has reaped unintended (hopefully) consequences that some deride. But ColoradoCare is not so limited. It broadly defines "employee" as anyone that works or resides in Colorado and "who receives wages, salaries, tips or any other income . . ." There is also nothing to say an employer cannot pay the 3.33% for its employees, if it so desires. But, the fact remains that without ColoradoCare, an employer might pay the employee 10% more wages and remain competitive. 

This is an option only available to the small employer or the employer limiting worker hours under Obamacare, but today it is an option. Under ColoradoCare it ceases to be an option and Coloradan's effective tax rates increase. So, the if the employee pays only the 3.33% for ColoradoCare, this would change the tax burden calculations between $14,220 (26.5%) to $18,325 (34%) instead to between $16,007 (29.8%) to $20,112 (37.4%). And the rate would be higher still if one considered 6.67% "employer" ColoradoCare share as money that, absent "ColoradoCare," might be wages paid to the employee. 

But, how would the cost of ColoradoCare compare to the current options available to employers, that is group health coverage in a commercial market? The first consideration is that ColoradoCare is universal coverage. There is no apparent exception for the self-employed or small employers or employees who work deminimus hours (work an hour, pay a tax; get a divident, pay a tax; receive Social Security, pay a tax - sounds a little like the Lee Iacocca rebate offers of the late 1970s - "buy a Chrysler, get a check"). 

In the current state of medical insurance, there is not such a broad mandate. So, for some workers, the cost of ColoradoCare will certainly be higher than their current option of having no insurance. Some in today's market need not have coverage due to their work hours or the size of their employer. They choose to "self-insure" and upon illness or injury they either pay the bill or the taxpayer and public are saddled with that loss. ColoradoCare will make that choice harder or perhaps prevent that choice at all. 

There is, of course, also a population that does not work and does not earn wages. Colorado says it has a plan to collect ColoradoCare taxes on such non-salary income. Social Security is specifically mentioned. I have found no discussion of people who receive other government income such as welfare, food stamps, WIC, unemployment compensation, workers' compensation or others. It is unclear whether these individuals will pay tax to provide for medical care, or whether the financial cost for their care is shifted to the Coloradans who do pay taxes to support the new system. 

Enforcement may be a challenge. Despite Obamacare being "mandatory," I am assured that there are many uninsured Americans and that the government is not pursuing them to force "mandatory" care upon them (that is force their financial participation - premium payment). Some wonder how persistent or successful ColoradoCare will be in pursuing those who work for unreported cash or otherwise subsist without traditionally recognized income?

So, how does the proposal compare to the system many use for health care today? The average health insurance cost last year, for a single person, was $521.00 per month or $6,251 per year. On average, the employer paid $5,179 of that amount. ColoradoCare promises less expensive medical care. And, when the additional savings in workers' compensation premiums are considered, the projections may be significantly less in terms of overall cost. But, using the average numbers for cost and employer contribution, the ColoradoCare plan will significantly benefit the employer and burden the employee (in this single, discreet comparison). And, the employer may find that the "savings" evaporate to some degree with the inclusion of all employees, rather than the "full time" employees and without the exceptions for small employers.

So, it appears that for employees the ColoradoCare plan offers: mandatory coverage (no employer or employee appears to be exempt), higher taxes, and increased cost for those who already enjoy employer-provided benefits. 

For small employers, it appears ColoradoCare offers: higher taxes and likely higher costs due to the mandate of coverage on all employees, part-time or full-time regardless of business size. Colorado mandates workers' compensation for employers with "one or more employees," and so there should be some corresponding employer savings from lower workers' compensation premiums when ColoradoCare takes care of the medical portion of work injuries. 

For large employers, it appears ColoradoCare offers: higher taxes and likely higher costs due to the mandate of coverage on all employees, part-time or full-time. Large employers may likewise enjoy some corresponding savings from lower workers' compensation premiums just as with small business.

And, finally, it must be remembered that all of these prognostications are tied to the calculations based on the 3.33% and 6.67% now stated. If the costs of the ColoradoCare system increase (as unlikely as it may seem that a bureaucracy's costs could increase), then those percentages might likewise rise to cover costs. As an independent governmental entity, ColoradoCare will be able to set its taxes, responsible solely to the people themselves. Only through the ballot box, either to amend Colorado's constitution eliminating ColoradoCare, or to change the ColoradoCare leadership, will Coloradans have any say in the cost, effectiveness, or value of their new socialized health plan. 

In today's market, although Obamacare mandates (at least in some population) coverage, the consumer has choice regarding which coverage to purchase. If a plan is poorly managed, or if losses are poorly controlled, then that plan's premium may rise and customers may cross the street and purchase from someone else. Though coverage is (depending on how you define the word) "mandatory," source today remains discretionary. But in the new ColoradoCare paradigm, if it is poorly managed the board will face a choice: manage better or charge more. Bureaucracies have been teaching us for centuries that "charge more" is easier in a tax-based system, and waste occurs. And, Coloradans will not be able to cross the street to purchase an alternative, better managed, less-costly alternative. Their only real choice will be to leave Colorado or not. With the seemingly strong national belief in socialism, that choice may not persist long-term. 

It will be fascinating to watch this develop. Will one size fit all? There was a time I would have bet against it. But, there was a time I thought the FDA would protect Americans from dangerous drugs. There was a time I thought the federal government would enforce its laws. There was a time . . . . (sounding like my grandfather now). As Bob Marley sang so many years ago, "Time alone - oh, time will tell."  

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