How do you want your children to get health insurance in 20 years?

This was the first slide, and the last slide that I showed the Wake Forest, North Carolina Chamber of Commerce Health Care Summit yesterday. I was trying to encourage them to take a deep breath and think longer term about the type of health care system they would like to see for their kids (or grand kids).

Of course, employers must deal with the present, and I talked about the impact of the ACA on small business. For example, this August 2013 CRS report says that out of 4.4 Million businesses the IRS believed to be eligible, only 278,000 used the small business tax credit to help employers pay their portion of employee insurance premiums during the transitional year 2010. Barriers identified include: the credit isn’t large enough; the credit is only available to businesses with tax liabilities; determining the size of the credit is complicated, because it varies by the number of employees and their average wage; employers reporting employees not being interested in insurance coverage; and the overall complexity of the process.

Why is the small business tax credit so complicated, particularly the walk down of the subsidy? (max subsidy of up to 50% of employer cost in a firm with less than 10 employees, with average wages of less than $25,000; subsidy ends at firm size of 25 employees with average wages of less than $50,000).

The answer is because the Affordable Care Act is a ‘conservative with a little c’ health reform. By that I mean that the law starts from the maintenance of the Employer Sponsored Health Insurance (ESI) system (first step, keep what we have there), and then seeks to increase coverage by expanding Medicaid, setting up insurance markets in which people can buy insurance with income based subsidies, and trying to incentivize small businesses who are not now doing so to offer ESI.

Viewed through that lens, you see how we got to such a complicated small business tax credit program. From CRS:

  • 83% of firms eligible for the small business tax credit did not provide health insurance, so it is reasonably well targeted to encourage expanded coverage
  • From page 10 of the report is this figure showing why the maximum tax credit focuses on firms with less than 10 employees; they are much less likely to offer health insurance. You can also see the logic of other decisions, such as the 50 employee limit for the (now delayed) employer mandate, another little c conservative aspect of the ACA whose goal is to maintain the nation’s existing ESI systems while expanding coverage around it.

The CRS report lists all sorts of alterations to the small business tax credit program and other aspects of how the law impacts small businesses that could be changed. In any reasonably functioning political system, we would have revisited issues such as this since passage and enacted changes, but that is not our country now.

The bigger, longer term question is whether the gymnastics required by a credit program like this to get small employers to provide health insurance, are worth it?

How do you want your children to get health insurance in 20 years?

Today at Duke University, there is an entrepreneur with an idea not being acted upon because s/he needs the health insurance benefits provided by the University. If a stable source of health insurance such as the ACA exchanges can be set up, this could be remedied, and it could unleash a great deal of innovation and risk taking in our country. What is at stake it lots bigger than just which political party has the better talking point for the midterm election.

It is not a risk free endeavor to move away from employer sponsored health insurance as the main way those younger than age 65 get insurance; it is how we have done it for 70 years. However, moving over time to decouple insurance from employment, enabling people to take risks without having to worry about health insurance, and ridding the system of stealth financing in favor of all subsidies being explicit, is the 20 year destination under which I want my children to obtain health insurance.

The ACA exchanges can be the first step towards that.

[Cross-posted at The Reality-based Community]

Don Taylor

Don Taylor is an associate professor of public policy at Duke University, where his teaching and research focuses on health policy.