Health Care ‘Job Lock’ Stifles Entrepreneurship
Monday, March 23rd, 2009When I’m pitching my Web site, I’m often asked what my “cash-burn rate” is.
That’s startup speak for: “How long can you keep going until you run out of money?”
But cash burn isn’t my problem. My costs are low: You can run a Web site with laptop, an Internet connection and $6.95 web-hosting account.
The wall I’m facing is my COBRA.
COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1986, is the law that lets you stay in your employer’s health-insurance plan for 18 months after you leave your job, provided you pay the premiums yourself.
It’s not cheap. But it does give you some breathing room between jobs.
But once my 18 months are up, the chances of me finding affordable health insurance for my family on my own are slim, and I may have to punt on my startup and go hunting for a job with benefits.
According to economists, up to 25 percent of workers would move on to other jobs, or strike out on their own, if they didn’t fear losing their health coverage.
Time and time again, we hear that innovation, led by entrepreneurs and small businesses, is going to recreate the U.S. economy so it can thrive in the 21st century. And as behemoths, like General Motors, Chrysler and Ford, totter toward possible extinction, our only hope is that someone is coming along with ideas for new businesses.
But many of those potential entrepreneurs are not going to be given a chance to experiment and innovate if they can’t strike out on their own. They are locked into their current job because of health insurance. Shackling workers to jobs they don’t want hobbles the U.S. economy at a time when it needs to be nimble and quick.
So why do we have our current system? It turns out, our employer-based system is really an accident of history. After World War II, the U.S. economy was overheating, and to keep inflation down, the government imposed wage controls. So to attract employees, businesses started offering health and other benefits. In time, employer-based insurance ended up providing most Americans with their coverage but leaving more than 47 million — one in seven Americans — uninsured.
Today, even that flawed system is failing. Already, most small employers can’t afford to cover their workers. And as costs go up — the average premium for an employee now costs more than $12,000 — more and more large employers are shifting costs to employees with higher deductibles and co-payments or dropping coverage altogether. And as the economy worsens, it’s likely to get worse.
So what’s the fix?
Right now, it looks like any health-care reform coming out of Washington, D.C., is going to be a cobbled-together system that preserves the employer-based system and requires everyone else to buy his or her own insurance.
Individuals would be able to pool their purchasing power so they could get group rates, and there would be subsidies to help those with lower incomes pay the premiums. And insurers would be required to take all comers and not refuse to insure those with pre-existing conditions. This approach, modeled on Massachusetts’ health-reform plan, would help end health-insurance “job-lock.”
The major concern, though, is that it is not clear how Massachusetts will control health-care costs, and unless we can bring costs under control, the Massachusetts approach will fail.
One option for controlling costs is to put a cap on what health-care providers, pharmaceutical companies and medical-device makers can charge. But that price-control approach is likely to be unwieldy and politically unacceptable.
A better approach would be to find a way to force health-care providers and insurers to compete on the basis of price and service. Such an approach is being taken in the Netherlands, where a managed-competition system has been adopted. In the Netherlands, everyone is required to buy a basic health-insurance package or pay a fine. Individuals can buy additional coverage for services not covered by the basic plan.
Insurers must accept everyone who applies for coverage, whether or not they have a pre-existing condition, and a special fund helps balance out the burden to help insurers who enroll sicker patients.
To compete, the insurers must negotiate the best deal they can — on price, services and quality of care — from health-care providers. And to survive, the health-care providers in turn must become more innovative and efficient.
Such a system that guarantees everyone gets health-care coverage regardless of whether they have a pre-existing condition, that spreads the risk between the healthy and those less fortunate, and provides for competition to control costs, improve quality and spur innovation, is one we should seriously consider as we address health-care reform in the coming debate.
This post was written by Michael McCarthy, M.D., and first appeared in the Seattle Times. Michael is founder and editor of the Seattle health news Web site LocalHealthGuide.
