'Play or Pay' Won't Work

STUART M. BUTLER

March 03, 1992|By STUART M. BUTLER

WASHINGTON. — No one argues anymore that medical costs are just a minor nuisance, like a runny nose. How could they: Americans spent $837 billion last year on health care -- one out of every eight dollars.

For many companies, the costs of providing medical insurance for employees has doubled, trebled, even quadrupled in recent years. The typical company paid $3,605 last year for health insurance for each employee, nearly a 400 percent increase since 1980, according to the consulting firm Hay/Higgins & Company.

The exploding costs of medical care have forced the issue to the front of the political burner. Congress is seriously considering legislation, sponsored by Senate Majority Leader George Mitchell, D-Maine, that requires employers to provide a basic package of medical insurance to their employees or pay a new tax to fund a public program.

On a straight party-line vote, the Senate Labor and Human Resources Committee has approved the idea.

This is the wrong prescription. Dubbed ''play or pay,'' the plan will surely lead to even higher costs for employers, hiring discrimination against workers with large families or medical problems, and endless discrimination lawsuits.

Most everyone agrees what we need: a system that eliminates the gaps in coverage for workers in small firms or those changing jobs; promotes cost-consciousness; encourages competition; cuts down on the administrative paperwork that has turned most doctors' offices into accounting jungles, and delivers the kind of top-quality medical care that Americans expect.

But play-or-pay won't deliver the goods.

First of all, nothing starts off small and simple in Washington and stays that way. Since the government will determine what benefits are to be included in the ''basic'' plan a company offers, unions, medical groups and other special interests will lobby for all sorts of additional benefits. Thus, over time, the basic benefits package will grow -- and so will costs.

When the cost of insurance premiums exceeds the cost of paying into the government insurance fund, business executives will have two options: Find ways to cut costs, or drop the company insurance and pay the government's non-insurance tax.

But cutting costs will prove both painful and dangerous: The surest way to reduce insurance costs is to trim the size of the full-time work force, or make sure you hire people who are unlikely to incur high medical costs.

Imagine how a personnel manager would react to an overweight candidate for a minimum-wage job who smoked heavily during the interview and insisted on showing the manager pictures of his five kids. Since companies would be required by law to provide medical coverage to workers and their families, employers will try to avoid hiring such high-risk workers.

Sound illegal? Under the bill, it would be -- and companies that provide medical insurance would risk heavy fines and crippling lawsuits if it is thought that they discriminated against job applicants with high medical risks.

The combination of skyrocketing insurance premiums and the threat of expensive lawsuits would most certainly push many businesses into the waiting arms of the public program. In a comprehensive study of play-or-pay, the Urban Institute found that an estimated 52 million people now covered by employer-based plans would be dumped into the public program. Eventually, about 112 million Americans would end up ZTC in the mega-Medicaid system, according to Urban Institute estimates.

What ''play-or-pay'' amounts to, then, is this: It's a way station on the tortured road to a giant government-run Medicaid program for all Americans -- a phony alternative that will become so unattractive that eventually we'll get those long lines and waiting lists, so common in Canada in Britain.

Stuart M. Butler is director of domestic policy studies at the Heritage Foundation, and co-author with Edmund Haislmaier of ''A National Health System for America.''

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