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Health-Care Solutions for Franchise Systems Debated in the 110th Congress
May 2007 Franchising World
Health-care coverage options for franchise systems are often unaffordable or inadequate. The root of the problem is that the costs of health care and health insurance have been rising much faster than the rate of inflation. In addition, federal and state regulations often keep affordable health-care coverage from being available to small employers or individuals. To better address the health-care challenges facing the franchising community now, and to remedy the regulatory obstacles that prevent better and more affordable products from being offered, the International Franchise Association is renewing its review of health-care policy proposals for franchise systems. Policy proposals do not exist in a vacuum. The political reality of 2007 weighs heavily in all discussions about health-care reform. Democrats control both houses of Congress, altering the political context of the health-policy debate for the first time in more than a decade. Additionally, the 2008 elections are just over the horizon and will be an unavoidable factor in determining any congressional agenda items, especially health-care-related ideas. Some Washington-insiders speculate that Congress will serve mainly as a laboratory for extreme approaches to health-care reform, so both political parties can define their presidential platforms on health care. While it’s unclear what middle ground can be struck or achieved, it is clear that Congress is at least poised to conduct a vigorous debate on the subject of health care and insurance for the individual and small-group markets. The new congressional environment has created fertile ground for debate and led to the formation of several private-sector partnerships. Odd bedfellows such as Wal-Mart and the Service Employees International Union have grabbed headlines as they announced their shared support for broad comprehensive health-care reform, including a mandate that all individuals purchase health insurance. Congress also has been moving in a bipartisan way to unify the opposing approaches to health-care reform. Most recently, 10 influential senators sent to the president a bipartisan letter outlining six goals for this Congress. Those signing the letter were Jim DeMint (R-S.C.), Kent Conrad (D-N.D.), Robert Bennett (R-Utah), Ken Salazar (D-Colo.), Trent Lott (R-Miss.), Maria Cantwell (D-Wash.), Mike Crapo (R-Idaho), Herb Kohl (D-Wis.), John Thune (R-S.D.) and Ron Wyden (D-Wash.). IFA supports their overall goals which include the following elements: • Ensure affordable, quality, private health coverage, while protecting current government programs, Any middle ground on health care will mean a leftward shift from the health-care agenda in recent congresses. In place of market-based solutions for the uninsured and small businesses, for example, the IFA expects more mandated benefits and more government control. Examples of this trend are already visible in the 110th Congress. At the far left edge of the policy debates are several “universal” health-care proposals in Congress. Such proposals would establish a single-payer, health-insurance system, with the “payer” being the federal government. The reforms that universal health-care proposals would accomplish are so far-reaching that they generally are too costly (most require prohibitively heavy public funding) and too radical to be considered viable proposals.
Market-Based Solutions and Consumer-Directed Health Care
Small-Business Health Plans Small-business health plans legislation has been stalled in Congress for many years due to partisan politics, and the outlook for 2007 is not good given the new composition of Congress. The lead sponsors of these plans, however, continue to discuss the possible introduction of a similar and more viable proposal. The new, modified proposal would allow pooling for small employers, but would likely prescribe a minimum set of mandated benefits. The ability of small businesses, as are many franchisees, to legally pool together across state lines for the purpose of accessing affordable health insurance remains an important goal for the franchising community. While IFA intends to remain an active participant in this debate, Congress’s likely lack of action on this legislative proposal until after the 2008 elections may force the association to explore the possibility of a regulatory solution to allow franchisees to pool resources.
Health Savings Accounts • The individual or family can make tax deductible contributions to the HSA even if they do not itemize deductions, IFA and other employer groups commend Congress for approving an expansion to HSAs (see below) and are pushing for further expansion of the accounts to make them more flexible and attractive to employers and individuals and to allow them to coordinate with health reimbursement accounts and flexible spending accounts.
Health Savings Accounts Unfortunately there are obstacles to expansion of HSAs. Being a relatively new concept in health-care coverage, there is still an educational gulf with the accounts. In addition, some members of Congress oppose tax-favored individual benefits programs because they view wealthy taxpayers as the principle beneficiaries.
More Tax Changes In the last Congress, House and Senate leaders introduced and championed legislation to create a health-care tax credit for low and moderate income workers. Many such proposals have already been introduced this year: Allowing the self-employed to fully deduct their health premium costs, as other employers can do currently is a concept that is gaining some traction. Another idea is to allow workers who are affected by changing trade practices to receive a tax credit to offset some of the expense related to maintaining their health insurance. This proposal would allow those who purchase health insurance outside of the employer-employee scenario to receive the same tax treatment as those who purchase it with pre-tax dollars through an employer-offered plan. The president also has proposed new tax incentives that would promote individually-directed health care. First announced during the State of the Union Address in January, the president’s proposal would change the current employer-based system by offering tax benefits to the individual and the family, not the employer. More specifically, the president proposed expanding access to coverage through the tax code by creating a standard deduction for individuals and families. All families covered by a private-family, health-insurance policy, whether purchased on their own or through their employer, would receive a standard deduction of $15,000 off of their total gross income. All individuals covered by a private, health-insurance policy would receive a standard deduction of $7,500 off of their total gross income. Essentially, the dollars used to purchase health insurance under those deduction amounts would be pre-tax dollars and any dollars spent on health care above the deduction amounts would be after-tax dollars. Congressional approval is required to enact the president’s proposal, and it is highly unlikely that this Congress would approve this vast change.
Improving Health-Care Quality
Pay for Performance
Health Information Technology
Outlook IFA is committed to promoting small-business health plans as a workable fix to the problems faced by small businesses now. SBHPs will continue to be one of the association’s highest legislative priorities and one of three legislative agenda items during the annual Franchise Appreciation Day, which will be conducted on Sept. 11 and 12 in Washington, D.C. In addition to SBHPs, IFA continues to explore policy proposals to help a growing percentage of a franchise system access affordable, quality health insurance. IFA welcomes your feedback on this most vital topic. n Jessica Bonanno is manager of political education and government relations of the International Franchise Association. She can be reached at jbonanno@franchise.org.
• Modernize federal tax rules for health coverage,
• Create more opportunities and incentives for states to design health solutions,
• Take steps to create a culture of wellness through prevention rather than perpetuating the emphasis on sick care,
• Encourage more cost-effective chronic and compassionate end-of-life care, and,
• Improve access to information on price and quality of health services.
Rather than expanding government-funded and controlled programs to help people gain coverage, market-based policies look to the private sector. Market-based policies affirm the importance of consumer choice and control by facilitating competition and providing individuals with necessary coverage at the best price. Incremental, market-based reforms are seen by the employer community, including IFA, as a realistic method to fix the most obvious problems within the present health-care system. IFA continues to advocate for incremental reforms that build upon the existing public-private partnerships.
IFA has been a longtime proponent of legislation that would allow small employers to band together across state lines to increase their purchasing power. Presently, large employers and labor unions are permitted to offer health insurance plans to their employees with no mandated minimum benefits, while plans offered by smaller employers must include the state-required set of benefits. Through small-business health plans, small employers would realize savings by being exempt, just as large employers are now, from complying with varying state benefit requirements. Small employers could purchase more affordable health insurance at larger group rates.
A fundamental element in the health-care debates today is the role of the individual or the consumer. Those to the right of center suggest that well-informed policyholders and patients will make wiser, more affordable choices. Such thinking gave birth to health savings accounts at the end of 2003. HSAs are individually-directed accounts designed to help the consumer save for future medical health expenses on a tax-free basis. The accounts are fully portable, so if account holders change jobs, their accounts remain unharmed. An HSA can grow tax free through investment earnings and, unlike flexible spending accounts, the funds are not forfeited at the end of each year. HSAs must be paired with high-deductible, employer-contribution insurance plans. According to the U.S. Treasury, tax-advantaged contributions can be made in these three ways:
• The individual’s employer can make contributions that are not taxed to either the employer or the employee, and,
• Employers sponsoring cafeteria plans can allow employees to contribute untaxed salary through salary reduction.
In late December 2006, Congress passed into law an expansion of health savings accounts that would, among other things,
• Allow a one-time rollover of a health reimbursement account and a health flexible spending account into an HSA.
• Allow one-time rollover from individual retirement accounts to HSA.
• Remove current limitation on HSA contribution amount that says that contributions can be no larger than the policyowner’s in-network deductible. Instead, contributions to HSAs are allowed to the maximum allowed under current law, regardless of the policy’s deductible.
• Allow an earlier announcement (March instead of August) of the annual cost-of-living adjustments for HSA contribution and deductible amounts.
• Allow the full annual contribution amount for those who become eligible and create HSAs mid-way through the year.
• Allow employer contribution to HSAs to be greater for non-highly compensated employees.
Other changes to the tax code are a direct way to offer incentives for small businesses and individuals purchasing health care coverage. IFA is generally supportive of targeted tax credits or tax rebates that offset the cost of offering or maintaining health benefits.
Initiatives aimed at ensuring health-care quality, to limit waste and inefficiency, reduce costs and help consumers to be smart shoppers, are generally non-partisan, viable reforms. Below are the main proposals to improve health-care quality and ensure high-value health care.
“Pay-for-performance” is the system of quality-based purchasing and reimbursement of health care. The goal is to rate providers based on their quality of care and assign prices and reimbursement levels accordingly. Increased transparency of quality ratings to patients and insurers would ensure that consumers receive more efficient and valuable health care. While the U.S. Department of Health and Human Services encourages states to create and implement their own pay-for-performance systems, a more uniform, nationwide system has been proposed in Congress. Pay-for-performance efforts would empower consumers to make informed health care choices.
During the most recent Congress, both the House and Senate passed bills aimed at improving the quality of health care through the development of an interoperable, nationwide health information technology system. The bills would create a functional framework for health information technology to protect patient privacy while reducing the errors, inefficiency and waste that contribute to the rising costs of health care. The bills would promote the use of health information technology, such as electronic health records, by developing standards for ensuring that different systems can store data and communicate with one another. This Congress is expected to overcome the obstacles of the previous one and to pass legislation that will win broad bipartisan support.
The 110th Congress is expected to attempt to reverse consumer-directed, health-care efforts in favor of government-administered, universal coverage. Given the political reality, they may not succeed before the 2008 elections. Fortunately, IFA envisions interesting attempts in the state legislatures, the private sector and through federal initiatives to forge common ground and find market-based alternatives that would work to reduce the cost of health care for small businesses.
