posted on: 11/20/2006     revised: 3/9/2010

Pennsylvania's Governor Ed Rendell is promoting a multi-faceted health care reform proposal that has been under development by his office for months. The planning and research behind the proposal was funded by a federal grant in the amount of $900,000 intended to encourage state governments to explore new initiatives to address ongoing health care concerns.  Many of the proposals that came from this planning project are commendable and Governor Rendell deserves praise for taking this initiative.  Yet a few portions of the proposal many be ill-advised.

One key provision that is likely to cause harm is the proposal that employers who do not provide health insurance to their employees will be required to pay an extra 3% payroll tax.  The tax would in turn be used to expand current state-controlled health plans similar to the current CHIP program for kids. This is not a new concept.  In fact, this has already been proposed and accepted in a handful of other states. The fundamental problem with the proposal is that it encourages employers to drop group health plans.  The secondary problem is that the proposed state tax would cover only a small percentage of the actual cost of providing health care to workers not covered by employers.  Everyone knows that we cannot provide decent health care for 3% of payroll. (If this were the case then we would not have a national health care crisis).  Health coverage would easily cost more than 10% of payroll, as evidenced by data from any of the state's larger employers. A typical large employer now pays about 16% of payroll for employee health coverage and many predict that number will exceed 20% by the end of the decade. Basic economics tells us that the Governor's proposal is fiscally unbalanced.

The underlying logic for this specific proposal may also be flawed.  A recent article in the Pittsburg Post Gazette said that the Pennsylvania Insurance Department believes that many of the state's uninsured are adults working full time.  This is a distortion of the facts.  U.S. census data shows that about 16% of Americans have no health insurance, and that more than half of these people are in a temporary life transition (recent graduation from school, changing jobs, starting a business, etc). There is no reason to believe that Pennsylvania data varies significantly from the national averages in this regard.  In reality, less than 10% of people working in permanent full time jobs have no health insurance. 

The most dangerous part of this proposal is that it would cut the availability of employer-provided group health insurance.    Under the Rendell proposal a fiscally smart employer would certainly opt to pay the additional 3% payroll tax if that meant that its employees would then have open access to a state-subsidized health insurance plan.  The lower cost health plan option would be a bargain and a blessing to many employers and employees.  Yet press releases surrounding the Rendell proposal suggest that the proposed law would increase rather than decrease the number of people covered by employer-provided health insurance.  This is ridiculous.   Each year the number of people  covered by employer-provided health insurance decreases by about one percent.  The Governor's proposal would accelerate the trend and greatly hasten employers' exit from the health care arena.

Pennsylvania has about one million people who need better health insurance options.  I estimate that I have spoken with at least a thousand of them in my work with Freedom Benefits over the past two decades.  From what I can tell, most want more low cost health plan options, not a state-controlled health insurance system. 

Mr. Rendell: please take a queue from our neighbors across the river. New Jersey's fifteen year old health insurance disaster makes Pennsylvania's health insurance market look like a paradise.  How did NJ get to be such a mess?  Through well-intentioned political initiatives to reform health insurance.  The proposals sound good in a press release, but lack underlying economic validity.  Please do not let Pennsylvania become another casualty along the road of politically motivated heath care reform initiatives.  In the big picture, Pennsylvania's residents are fairing better than most of our neighbors who need health coverage in New Jersey, New York and Maryland.  Pennsylvanians benefit from the choices available and the absence of governmental influences.  Let's keep it that way.

If, on the other hand, a New Jersey styled state-controlled and taxpayer-subsidized health insurance is politically inevitable, then let's please use real numbers and call it what it is.  Selling the proposal at a small portion of the real cost and then promoting it as an expansion of employer-provided benefits is just plan unfair to Pennsylvania residents.  This is a tough issue but let's not sugar-coat it for the sake of political acceptance.

keywords:   health care insurance reform, Pennsylvania, Rendell

related topics: see other health insurance reform articles at Freedom Benefits

Copyright 2010 by Tony Novak. Originally produced and published for the "AskTony" column syndication prior to 2007. Edited and independently republished by the author in March 2010. All rights reserved.