ERIC: Health Reform Proposals Could Harm Employer-Sponsored System

June 23, 2009 (PLANSPONSOR.com) - In testimony before the House Education and Labor Committee, Michael Stapley, President and Chief Executive Officer of Deseret Mutual and Vice Chair of The ERISA Industry Committee (ERIC) urged Congress to first "do no harm" in seeking to reform the U.S. healthcare system.

At a hearing on the Tri-Committee Draft Proposal for Health Care Reform (see House Dems Roll Out Health Care Proposal ), he cautioned that employers "should not be required under any circumstance to provide financial resources to employees to purchase insurance through an insurance exchange when the employer has chosen to offer a plan. To allow this would create systematic adverse selection problems that could ultimately result in the demise of the employer-based system." 

Stapley also testified that ERIC has serious concerns with limiting the ability of an employee to exclude from income the value of employer-provided health insurance (see Baucus Reportedly Considering Ways to Tax Health Benefits ). "If this exclusion were curtailed, many large employers would follow one of two approaches.  Some would redesign their plans to meet the new cost standard in the legislation, below which taxation would not be imposed. . . . Other employers would choose to keep their existing plans; if the value of the plan exceeded the standard in the legislation, employees would face taxation on the 'excess' value.  If this were to occur, employment-based insurance would suffer," he said.

In addition, Stapley said ERIC has serious concerns with a public plan modeled after Medicare that would compete with the current private marketplace (see Pomeroy Puts Out Health Reform Bill ).  He said ERIC's "most fundamental concern with a public plan based on Medicare is the potential for even greater cost-shifting than exists today," and that right now ERIC members subsidize the cost of Medicare, including both administrative and claim costs.  Thus, as presently envisioned, the public plan is unsustainable.

Moreover, Stapley explains the concern about the adverse selection that would be experienced if individual participants in employer-sponsored plans were permitted to opt out of the employer plan and into a public plan.  "If permitted, an opt-out would undermine the demographic fairness of a large risk pool that is a feature of employer plans.  Over time, young, healthy employees would seek cheaper coverage outside of the employer's plan, and older, sicker employees would remain in the plan," he commented.