NJ Business Matters: The Blog of the CIANJ

First, Do No Harm

This week's NJBiz highlights the 9.4% jump in health insurance premiums paid by New Jersey companies last year, and the impact the escalating rates are having on employers and employees alike. For a family of four, the average national premium is about $12,000, but it is closer to $15,000 in New Jersey, adding to the costs of doing business we mentioned in today's first post.

The faster prices escalate, the more likely an employer is to be priced out of the market.

Despite the increases, 98 percent of companies with 51 or more employees said they still provide health coverage as an employee benefit.

But a growing number of smaller companies said they have dropped coverage because they can no longer afford it. Twenty-five percent of respondent companies with between two and 19 employees reported not providing health insurance, up from 8 percent four years ago.

There are many, many causes for high insurance premiums, but the legislature could act today to help slow the increases simply by doing nothing.

CIANJ's Legislative Agenda calls for a moratorium on all health insurance mandates. These mandates set requirements for what insurance companies must cover as part of a standard plan in the regulated market. No matter how well-intentioned the mandates are, they result in higher premiums and add to the problem of the uninsured. Presently, mandates already account for up to one-fifth the price of insurance.

Legislators should first, do no harm.

High Insurance Costs Are Bad Medicine

The state with the highest per capita income can do better than this.

United Health Foundation, the American Public Health Association and the Partnership for Prevention have released a joint study indicating New Jersey's healthcare system is slipping toward mediocrity with an increase in preventable illnesses and a decrease in prenatal care primary reasons for driving our national healthcare rating from the 14th best to 21st.

The number of New Jersey residents without health insurance has been steadily increasing -- a rate that has risen by 76 percent since 1990. At the same time, the percent of children in poverty in the state nearly doubled in just the past year.

Among the most troubling areas cited by the report was prenatal care. The percentage of pregnant woman receiving adequate prenatal care in New Jersey was just 63.4 percent -- worse than any state except New Mexico. The rate of infectious diseases dipped slightly, but the state still scored near the bottom in such cases nationwide.

None of this is surprising to our army of three regular blog readers. You already know that insurance in New Jersey is higher than anywhere else in America. You also know that New Jersey places enough mandates on insurance companies that it increases costs by up to 20% and has priced many of our poorest citizens out of the market.

Oh, and we can also partially thank the trial lawyers.

[NJ State Health Commissioner Fred] Jacobs attributed the state's low scores in prenatal care in part to the declining number of obstetricians -- some to retirement and others surrendering to the high malpractice premiums of the specialty -- calling it a major issue that needs to be addressed. (emphasis ours)

Not-So Breaking News: Higher Costs Lead to Fewer New Jerseyans with Health Insurance

Yesterday the Economic Policy Institute released a study demonstrating the percentage of New Jerseyans under 65 who hold employer-provided health insurance has slipped by 3% over a five year period. The chief reason cited was an increase in costs that made coverage unaffordable.

Of course, our friends at New Jersey Policy Perspective used the opportunity to call for a government-led charge for universal healthcare.

Here at CIANJ we wish to see an environment in which everyone who wants health insurance can afford it. Unfortunately, many of the proponents of government-led universal care are also the ones who work to make that impossible. Insurance costs are rising by up to 12% per year. At that rate, the government will not be able to afford it, meaning universal government coverage merely treats the symptoms and not the cause.

New Jersey has more than 30 mandates which health insurers must provide as part of basic coverage to their small business and individual policyholders. That leads to many New Jerseyans purchasing coverage for things they do not need or do not want. In total, that accounts for up to one-fifth of our premiums. Then, unlike car insurance whereby your rate is determined by your particular situation, NJ requires community coverage rates. So young healthy people now have a disincentive to get into the pool.

Reversing those trends are concrete ways to reduce the cost of insurance. To drive the cost up and then decry the fact fewer of our hard working men and women can afford it seems a little... 

Now That's Sicko

Yogi Berra gets credit for being the first to declare, "No one goes there anymore. It's too crowded."

When fiscal conservatives point out the flaws in socialized government-run medicine, the same axiom applies. For evidence, look no further than the British National Health Service, which is dealing with the fact 70,000 Britons will fly to a foreign country to get treatment for their illnesses. And the reason,

The first survey of Britons opting for treatment overseas shows that fears of hospital infections and frustration of often waiting months for operations are fuelling the increasing trend....

New research shows that growing NHS bureaucracy has left nurses with little time to see patients – most spending long periods dealing with paperwork.

Katherine Murphy, of the Patients' Association, said the health tourism figures reflected shrinking public faith in the Government's handling of the NHS. 

These "health tourists" will travel to 48 countries to seek treatment. Fewer than half of Britons were treated within 18 months of visiting a General Practitioner. Sometimes the mantra of "government inefficiency" loses its meaning - until you read this piece from the Daily Mail. This is why socialized care is bad medicine.

Coulda, Woulda, Shoulda...

Assemblyman Michael Carroll has increased the frequency of posts on his blog, bringing more truth to the New Jersey blogosphere. On Saturday, he blasted proponents of the State Children's Health Insurance Program (SCHIP), a government-run program which has led to much gnashing of teeth without serious discussion over the past few weeks.

During the debate, we totaled up the number of SCHIP press releases posted to PoliticsNJ (a bill NJ legislators do not vote on) versus those regarding the fact nearly half of Garden State residents would like to leave thanks to our high cost of living (a subject the NJ legislature can impact). Guess which side had the majority?

On the subject of health insurance, Asm. Carroll makes the same point we have at CIANJ - NJ has high health insurance rates in large part due to legislative actions. Every time the legislature requires something such as unlimited coverage for substance abuse to be part of the small market's basic coverage, premiums increase and New Jerseyans are priced out of the market. The legislature, in the interest of the children, could take steps to reduce the cost of health insurance in New Jersey. They haven't,

Health insurance is not difficult to come by; it’s just expensive. And while the blame for that can be laid at numerous feet, primary among these is government. NJ boast the highest health insurance costs in the country, but that could be ended with a single stoke of a gubernatorial pen, signing legislation which permits a state resident to purchase a policy approved in any other state. A policy of insurance in Kentucky costs one-sixth as much as does a policy in NJ, primarily because of "community rating" and the huge number of incredibly expensive coverage mandates placed upon policies by the Legislature.

Put another way, faced with the choice of making basic coverage available to everyone at a reasonable price – that is, letting people decide for themselves what coverage they need and want – and compelling everyone to purchase a hugely expensive policy, covering numerous services that most folks don’t want and will never need, the Legislature chose the latter.

Click here to read all of Assemblyman Carroll's recent posts. 

That Whole Tree in a Forrest Thing

It seems as though every hour on the hour, a new press release is posted to PoliticsNJ.com assailing the President for vetoing the $35 billion expansion of SCHIP. Examples are available here, here, here, here, here and here.

For the moment, we'll put aside the fact that these state legislators will not directly vote on any attempt to override the presidential veto because of that pesky constitution and the fact federal dollars are directed by the federal legislature. Then, we'll also forget that health insurance mandates voted on by many of those issuing press releases account for up to 20% of insurance costs in New Jersey. Maybe, if the costs weren't so high and we had a system that allowed for basic coverage with additional coverage paid for by consumers on an 'as needed' basis, SCHIP would be less of a necessity.

As mentioned, we'll put those concerns aside and address a few of the myths that have arisen during legislators' frenzies.

• Myth: The administration sought to end the SCHIP Program
• Fact: The administration's budget calls for a $5 billion expansion of the program. The bill vetoed yesterday would have expanded the program by $35 billion.
• Myth: This expansion is funded through a cigarette tax increase
• Fact: As noted time and again here at NJ Business Matters, the tobacco tax increase would not fund the program unless more Americans begin to smoke than are projected. This sets up a Hobson's choice between raising future taxes and moving children off the SCHIP rolls.
• Myth: The veto guarantees New Jersey children will no longer have their insurance subsidized
  
• Fact: In my philosophy classes at Seton Hall, this was taught as the fallacy of the false dilemma. There does not need to be an 'either-or' decision whereby either the federal government expands its program by $35 billion or children lose insurance. The state government has the ability to increase its share of the FamilyCare program and legislators have the ability to reduce insurance costs by reducing the number of mandates they impose on insurance companies.

SCHIP Expansion Vetoed

The President has vetoed HR 976, which would have expanded the State Children's Health Insurance Program (SCHIP) by $35 billion. Both you regular blog readers know the SCHIP program has been used by the states in ways that go beyond Congress's original intent. In certain states, the fund is used to subsidize health insurance for children and adults earning as much as 350% above the federal poverty level, rather than only benefiting children in families earning 200% of the poverty level as the law was written. The expansion also relies on a tobacco tax increase which would require 22 million new smokers to continue its sustainability. Thank you for smoking indeed.

As the President declares in his message to the House of Representatives,

The original purpose of the State Children's Health Insurance Program (SCHIP) was to help children whose families cannot afford private health insurance, but do not qualify for Medicaid, to get the coverage they need. My Administration strongly supports reauthorization of SCHIP. That is why I proposed last February a 20 percent increase in funding for the program over 5 years.

This bill would shift SCHIP away from its original purpose and turn it into a program that would cover children from some families of four earning almost $83,000 a year. In addition, under this bill, government coverage would displace private health insurance for many children. If this bill were enacted, one out of every three children moving onto government coverage would be moving from private coverage. The bill also does not fully fund all its new spending, obscuring the true cost of the bill's expansion of SCHIP, and it raises taxes on working Americans.

At the time of its inception, more than half of SCHIP eligible children already had private sector coverage. Rather than trying to move more Americans into government coverage, Congress and the state legislature should be doing all they can to reduce the cost of health care and health insurance.

CIANJ urges New Jersey's Congressional delegation to vote against any attempts to override this veto.

Garden Statism

The Wall Street Journal highlights New Jersey as an example of what has gone wrong with the much-discussed State Children's Health Insurance Program (SCHIP). All two of you regular blog readers know that SCHIP has provided a number of perverse incentives for states. As we send money to Washington, only to have it returned with strings attached, states have used the money to subsidize insurance for more than children in families considered to be poor but earning too much to qualify for Medicaid. Remember that up to 60 percent of children eligible for SCHIP already had private insurance at the time of its creation.

Nevertheless, states such as New Jersey have begun to subsidize insurance for a larger pool than those poor children. The Journal editorial ($ubscription required) points out that in New Jersey,

• The State CHILDREN'S Health Insurance Program in NJ covers adults with and without children.
• New Jersey's enrollment increases annually, without lowering the percentage of uninsured children.

Here at CIANJ we've got a fairly simple approach - to create an atmosphere whereby everyone who wants health insurance can afford it. Unfortunately, the legislature passes mandates on what insurance companies must cover as part of their basic benefits package. You may remember that earlier this year, the legislature required insurance companies to provide virtually unlimited benefits for non-biologically based mental disorders and substance abuse (versus the 30 days of inpatient and 20 days of outpatient care already being provided). That may be well intended, but it will also price 5,000 New Jerseyans out of the insurance market. And we haven't even begun to discuss our litigative environment that forced a drug manufacturer to spend its resources in successfully preventing a union from joining a class action lawsuit.

The intent of SCHIP is not being carried out in practice and states have no incentive to alter their behavior. Until then, Congress should reject its expansion.

The Consequences of Expanding SCHIP

This week, the House of Representatives will further consider expanding the State Children's Health Insurance Program (SCHIP). The program is designed to subsidize children's health insurance for those in families with incomes too high to qualify for Medicaid.

On the surface, who could be opposed to such a program? Today, the CATO Institute's Michael Cannon lays out the case for allowing it to expire given SCHIP's overuse in the states and it being another example taxpayers sending money to Washington, only to have it returned with strings attached. Then there's the matter of the increase on cigarette taxes which would require 22 million new smokers by 2017 to keep the program operational. Talk about perverse incentives.

More perverse incentives are found when one realizes that most of the children who enroll is SCHIP already have private insurance. As Cannon notes,

SCHIP casts a much wider net than suggested by its stated purpose - namely, providing coverage to children in families that earn too much to qualify for Medicaid (which ostensibly serves only the poor) but still can't afford private insurance. According to a study in the journal Inquiry, 60 percent of children eligible for SCHIP already had private coverage when the program was created.

According to the federal Department of Health and Human Services, "About 45 percent of American children are currently enrolled in either Medicaid or SCHIP."

Inevitably, many families simply substitute SCHIP for private coverage. Economists Jonathan Gruber of MIT and Kosali Simon of Cornell University find that, in effect, when government expands eligibility for SCHIP and Medicaid, six out of every 10 people added to the rolls already have private coverage. Only four in 10 were previously uninsured.

In other words, SCHIP and Medicaid cover four previously uninsured Americans for the price of 10. That's a bad deal even by government standards. Yet Republicans want to renew it, and Democrats think it's an absolute bargain. They want to enroll more than 70 percent of all children.

The perverse incentives continue. Because SCHIP and Medicaid pay drug manufacturers a fraction of what is charged to private entities, the manufacturers must raise the prices on everyone to sustain profitability - that results in an increase of as much as 13%.

Cannon's full column is available here.

All told this program is bad medicine. There isn't the political will to eliminate it, but its expansion should be halted on the House floor.

Lessons from Massachusetts

Governor Romney's universal healthcare proposal continues to reverberate in statehouses across America. Here in New Jersey, Senator Vitale is working on a plan roughly modeled after the Massachusetts plan.

"RomneyCare", as it's come to be known, begins with an individual mandate that requires every citizen in a given society to be insured. Just as drivers must possess auto insurance, individuals must have health insurance to be responsible citizens. Those who cannot afford insurance are caught in a safety net with free or very inexpensive insurance, and as more young and healthy individuals become insured, premiums are reduced for all. States already spend massive amounts of money on charity care in an attempt to partially reimburse hospitals for their care of the uninsured. That money, the theory goes, would be much better spent covering the individuals.

This morning on TownHall, Sally Pipes, President of the Pacific Research Institute, examines the shortcomings of RomneyCare in the program's infancy.

Pipes (a Guliani adviser whose criticism of RomneyCare began well before the campaign) writes,

In Massachusetts, the initial costs came in higher than expected. Faced with this reality, the bureaucrats in charge of the implementation at the Commonwealth Connector Board decided that universal coverage didn't need to be universal after all, and it promptly exempted 20 percent or one in five uninsured from having to comply with the mandate.

The Connector Board also bowed to political pressure and agreed to reduce the premiums, a move that boosted program costs by $13 million. Some plans are totally free--and have therefore been popular. Other subsidized plans for people earning between 150 and 300 percent of the poverty line will cost people as much as 9 percent of income for just the premium. Not surprisingly, these plans have proven less popular. Of the 79,800 people who've enrolled in the health plans as of June 1 of this year, 59,816 signed up for the totally free plans.

This structure will produce a fiscal disaster. Considering the high premiums for those who have to pay, many will opt to remain uninsured. The fine of $216 will be more attractive than the premium. Politicians will face strong pressure not to enforce the mandate if the fines increase. Indeed, before the program started they exempted 20 percent of the target population.

At the same time, the premium subsidy makes the plans a bargain for individuals who expect to consume large quantities of health care. The insured will be older and less healthy than the average citizen. Spending will skyrocket. The taxpayer will be forced to pay or services will be rationed.

CIANJ supports legislation that creates a climate in which anyone who wishes to purchase health insurance can afford it. As we study the Bay State, it looks as though a universal mandate may not be that answer.