By Kathleen Sebelius, Secretary of Health and Human Services
When I was Governor of Kansas, like any Governor, one of my biggest priorities was bringing jobs to our state and keeping them there. I would regularly meet with Kansas business owners, from farmers to the CEOs of some of our state's biggest companies, in order to find out how we could do better for our industries. Inevitably the same answer would come back: we need to do something about health care costs.
Over the last decade, a lot of American business owners felt the same way. Insurance premiums doubled and companies were forced to make hard choices that all too often meant cutting back on benefits, dropping coverage altogether or reducing direct compensation to make up for rising health care costs. The percentage of businesses offering coverage fell from 69 percent in 2000 to 60 percent in 2009. Small businesses were hit especially hard: over that same period, the share of firms with fewer than 10 employees offering health benefits fell from 57 percent to 46 percent.
When President Obama took office, the trajectory of health care spending was out of control. A report from the Business Roundtable estimated that in the next 10 years, employer based health care costs would almost triple to $28,350 per employee. Health care spending was on track to account for one third of the US economy. Most companies would soon be forced to act like full-time health care operations that also happened to be in the business of running supermarkets or selling cars or developing software. Similarly, health care costs were swallowing the federal budget. As Doug Elmendorf, the director of the Congressional Budget Office put it: "Rising health care costs represent the central fiscal challenge facing the country."
While saddled with these costs, American employers must compete with foreign competitors who spend a fraction of what they do on health care. According to one study, for every dollar per worker hour that US manufacturing firms spend on health care, the average foreign firm spends 40 cents. For some firms, it's much less. Selling products in a global market is like running a race with a weight around our ankles.
Clearly, something had to be done. And so we took action.
The Affordable Care Act passed by Congress and signed by the President in March gives businesses, big and small, immediate relief from rising premiums, improves their insurance choices over time, and begins to stabilize out-of-control health care costs. After years of talking about the growing burden of health care on businesses, we're finally doing something about it.
Help For Small Businesses
Starting in 2010, many small businesses are eligible for a tax credit for up to 35 percent of their contribution toward their employees' health insurance premiums. In 2014, that tax credit goes up to 50 percent. We estimate that about four million small businesses will qualify for this tax relief, providing $40 billion in support over the next 10 years.
The Affordable Care Act will also help small businesses negotiate lower insurance rates. Right now, mom-and-pop shops don't have the same bargaining clout as large employers. Because of this lack of clout and the extra administrative costs that go with marketing to small business, they pay 18 percent more than large businesses for the same coverage and are vulnerable to big swings in premiums every year. In our current system, depending on a frayed tapestry of state laws an illness or accident affecting one employee or dependent can put coverage out of reach for an entire company. That's going to change. Beginning in 2014, businesses with 100 or fewer employees can join a new health insurance marketplace called an Exchange. Not only will this Exchange simplify the process of buying insurance and slash administrative costs, it will also allow businesses to pool their buying power, giving the local clothing store the leverage to negotiate the same low rates as the department store around the corner. And participating firms and individuals will have a wider array of plans to choose from—the same choices available to their Members of Congress.
In addition to being able to negotiate for better rates, small businesses will also see an end to unfair and unpredictable premium jumps. Before the Affordable Care Act was enacted, insurance companies routinely handed down double digit rate increases to small businesses that had little leverage to push back. Without negotiating power, most businesses had no choice but to take the new rate and make cuts elsewhere. Under the new law, HHS will partner with states to identify unreasonable premium hikes and demand information from insurers to support those increases. If rate increases are found to be faulty or unsupported, there will be consequences.
Small businesses with fewer than 50 employees that cannot afford to provide health coverage to their employees, even with tax credits, will be exempt from the employer responsibility provision in the Affordable Care Act. Out of the 6 million total firms across the United States, this exemption covers 5.8 million, or 96 percent.
Help For Large Businesses
There's help in the Affordable Care Act for America's biggest employers, too. Many large companies operate early retiree insurance plans that have become a huge drain on their balance sheets. Beginning this year, the Affordable Care Act provides a temporary reinsurance program that will allow employers to be partially reimbursed for a portion of their high retiree health care costs while securing the health coverage promised to retirees. The program will help shore up the health coverage that so many Americans depend on to be a bridge from the coverage they have while employed to Medicare.
One of the best things we can do for large and small employers—and their employees—is to change the way we pay for health care. Outdated fee-for-service payment systems encourage volume and fail to reward quality. As a result, we are driving up health care costs and not getting the return on our investment that we need. The Affordable Care Act includes an array of payment reforms that will help drive improvements in how care is delivered and make care and coverage even more affordable. Today, too many patients receive poorly coordinated care and in far too many instances do not receive the evidence-based care they need. This, too, raises costs.
Promoting Health Care Delivery Reform
In deciding how to change payment and delivery systems we went to the experts. For many years, private employers have been pushing for a greater investment in prevention and wellness. They have been asking for innovations like value-based purchasing, patient-centered medical homes, and accountable care organizations that promise to improve care coordination and reduce spending growth. The Affordable Care Act adopted many of those ideas and will invest in innovations that will pay huge dividends in the future. The Affordable Care Act sets up the Center for Medicare and Medicaid Innovation, which is supported with $1 billion a year to promote payment and delivery changes. The Innovation Center will be working hand-in-hand with the private sector so our efforts promote change for all Americans.
America's employers were some of the first to see that we were underinvested in prevention. They saw the costs of chronic disease first hand in sick days and missed shifts. According to one estimate, we lose $1 trillion in lost productivity due to our high levels of chronic disease. That's not surprising considering that 75 cents out of every health care dollar today goes to chronic disease and just four cents go to the kind of preventive care that can keep you from developing diabetes or heart disease in the first place. The Affordable Care Act invests in prevention in a number of ways including development of the first National Prevention and Health Promotion Strategy and creation of a Prevention and Public Health Fund that will invest $15 billion over the next 10 years. Already in 2010 we have made the first down-payment on that promise with a $500 million investment in public health and primary care training.
The Affordable Care Act also gets rid of disincentives for prevention by directing health plans to waive all cost-sharing—copayments, coinsurance and deductibles—for a list of prevention services proven to improve health and save money. We are taking a similar approach in Medicare and working with the states to do the same thing in Medicaid.
The bottom line is that this is one of the most pro-business bills enacted by Congress in more than a decade. And just in case a business owner might not get the chance to read this article, the Obama Administration is rolling out a massive education and outreach campaign to help business understand the new law. This effort will include millions of postcards sent to businesses urging them to take advantage of resources from the Affordable Care Act. Additionally, at Small Business Forums and Tax Workshops attended by thousands each year, IRS representatives will make their presentations with a special focus on the new law and what it means for businesses.
In addition, there is what may be the best consumer health tool that government has ever provided, our new website: Healthcare.gov. Aside from providing the most up to date information about the Affordable Care Act, the site also allows businesses to find local health care plans that fit their needs. And if a business cannot provide coverage, they can steer their employees to this site to find a plan that is right for them.
For years, America's employers have borne the brunt of exploding health care costs and led the way on improving the health of workers and their families and reducing health care costs. Many of our best innovations for saving money on health care started with you—America's businesses and business coalitions across the country. With the investments we've made over the last year and a half, we want to join you in leading the transformation of our health care system. After years of saying we need to do something about health care, we finally have a plan. After years of costs rising with no end in sight, we finally have a vision for a better future. We look forward to working closely with partners across the health care system—with employers, with insurance companies, with clinicians and other providers—to make good on the great promise of the Affordable Care Act.