Sirotablog

By Assemblyman Adriano Espaillat and David Sirota
Baltimore Sun - 1/18/06

State lawmakers face a crisis this year: how to address the health care issue without breaking the bank.

States are dealing with a double whammy of public outrage over health care prices and massive federal cuts to health care programs such as Medicaid. In response, states should consider health care mandate bills requiring big employers to provide a minimum level of medical coverage to their workers, just as they are required to pay workers a minimum wage.

The fight on this issue has been predictable. Politicians such as Republican Maryland Gov. Robert L. Ehrlich Jr., for whom big corporations like Wal-Mart have raised huge amounts of money, say health care mandates will hurt business. But this simplistic view misses a critical point: Mandates, when written properly, do not hurt the economy. They channel the energies of the free market and economic growth into addressing society’s pressing problems.

Clearly, this country must find a way to curb the ceaseless increases in health care costs. Our current policy of pretending a health care crisis doesn’t exist will end in one of two ways: Most Americans will be forced to go without health insurance because of the cost - a politically unacceptable solution - or the government will pick up the tab and increase taxes to pay for it - a policy that polls show the public supports but is unrealistic in today’s political environment.

Health care mandates, then, represent the critical “third way” out of this polarized debate.

These mandates are simple: The state government would set the minimum benefits that companies must provide and companies must find ways to meet those standards on their own. That means all of corporate America’s talents for innovation, cost savings and streamlining suddenly will be focused on driving down the overall cost of health care rather than eliminating workers’ medical coverage.

The best way to get an idea of what this would mean is to think of Wal-Mart because the company has become the world’s biggest corporation specifically by using cost-cutting to drive down its overhead. So far, that has resulted largely in lower wages and increased outsourcing.

But if Wal-Mart were forced to provide health care to its workers, it could apply its size and bargaining power to pound down prices charged by health maintenance organizations because those prices would mean new overhead costs for the company.

If an HMO wanted to raise its premiums, Wal-Mart could argue that either the HMO find a way to lower its prices or Wal-Mart will find another insurance provider for its employees. The HMO will find a way to cut costs or be undersold by a competing insurance company eager for Wal-Mart’s business.

This kind of interaction, which would be duplicated by other large businesses facing the mandate, would not only guarantee health care for millions of workers but also lower health care costs for all Americans. How? The companies that would be forced to provide coverage to their workers are so large that the health insurance industry would have to lower its costs and end profiteering throughout the entire health care system - industry-wide moves that would benefit the entire economy.

It’s not as if there’s no fat to be cut. In 2004, the health insurance industry made $11 billion in profits, up nearly 11 percent in one year. In 2003, HMO profits rose by 80 percent. Meanwhile, industry executives earn millions each year in salary and bonuses paid for by higher and higher premiums. With mandates creating employer demand for lower prices on the health industry, there would be pressure to eliminate some of that excess and redirect it into providing better, more affordable health care for ordinary citizens.

These mandates also would benefit the health care industry. While HMOs would certainly feel cost-cutting pressure from Wal-Mart and other large employers, they would also be guaranteed millions of new customers and thus billions of dollars in new revenues. It’s the volume model: Health insurance companies would be guaranteed to sell much more of their product, meaning they could still remain profitable while lowering their prices.

There is a big difference between creating minimum health care mandates and forcing companies to spend at least a percentage of their budgets on health care, as the Maryland General Assembly courageously did last week. Both policies are bold moves toward increased health care coverage for workers. But minimum health care mandates are the logical next step, providing a financial incentive for companies to squeeze down overall health care costs because those costs become part of the companies’ overhead.

State legislators across America must lead in making these mandates a reality.

Adriano Espaillat, a Democratic New York assemblyman, is a board member of the Progressive Legislative Action Network (PLAN). David Sirota is the co-chairman of PLAN and author of the forthcoming “Hostile Takeover.”