quality.
An employer mandate will add to labor costs. As a result, we will experience some mix of job
loss, reduction in wages or other compensation, and price increases. These undesirable
consequences can be minimized, if pains are taken to design a mandate at the lowest feasible
cost, mechanisms are put in place to limit the rate of cost growth over time, premium subsidies
are targeted correctly, and the mandate is implemented on a reasonable schedule.
Some employers now pay considerably more than their fair share of health benefit costs.
Lewin-VHI has calculated that, as of 1991, 17.3 million adult workers were covered as
dependents under their spouse or parent's employer's health plan. This added about $26.4
billion to employer health benefit costs in firms that offer health benefits. Additionally, firms
offering health benefits picked up the cost of Medicare and Medicaid cost-shifting and
uncompensated care provided to non-workers, while firms which do not offer health benefits
avoid their share of these costs. An employer mandate would eliminate these extra costs in
firms now offering insurance.
APPWP's proposed financing of health coverage under an employer mandate differs in many
respects from the Administration's proposal for employer financing of health benefits. For
instance, the Administration plan would require employers to offer a much higher premium
subsidy than the APPWP plan. While APPWP believes that employers should provide a
minimum premium subsidy covering the majority of the cost of an efficient health plan,
employers should have the option of requiring individuals to pay enough of the premium to
stimulate strong cost-consciousness when choosing between health plans.
Additionally, APPWP believes that subsidies should be targeted to all low wage jobs. It is the
productivity of a particular job which determines whether it can support the cost of health
benefits. The Administration plan jeopardizes low wage jobs in mid-size and large firms by
limiting subsidies to small firms with low average wages.
B. Employer-Paid Versus Employment-Based Health Benefits
The Committee has asked whether the availability of the comprehensive benefits package to all
citizens without regard to employment has changed the status of health insurance as a benefit of
employment. In practical terms, coverage without reference to employment status, in itself,
does not change the status of health insurance as an employment benefit-so long as employers
are required to provide benefits to their workers. The status of health insurance as an
employment benefit is changed if employers are expected to pay most of workers' health
coverage costs, but are barred from being active purchasers with an incentive and ability to
control costs.
The Health Security Act would create an employer-financed health benefit system, but would
dismantle the employment-based system. The Act would eliminate virtually all employers from
their role in purchasing health benefits. Employers' purchasing role would be taken over by
regional alliances operated directly or indirectly by state governments. Eliminating employers
from their role in purchasing health benefits and turning this role over to the states is the Act's
fundamental fiaw, and is likely to result in increased costs.
Employers are driving the ongoing revolution in the organization of health care delivery
systems and the health care market. There is increasing evidence that these employer-led
efforts are beginning to payoff For instance, a recent study of employer-sponsored health plans
420
by KPMG Peat Marwick indicates that health cost increases, while still too high, are slowing.
Employers are limiting cost increases even though Medicaid and Medicare cost-shifting adds
several percentage points to the annual increase in employers' health benefit costs.
The Administration cites examples of employer-sponsored health benefit plans that have
achieved positive results in arguing that its proposal for regional alliances "builds on proven
models. " The Administration is correct to point out that employer-sponsored plans have
achieved positive results, but these results are not attributable to arrangements that are similar
to regional alliances. The employer-sponsored plans which the Administration identifies as
proven models work well because employers are involved as active purchasers of health
benefits.
A state-run regional alliance is no substitute for employers actively purchasing health benefits.
A government entity is less likely than private purchasers to make the tough choices needed to
cut costs and improve quality, since doing so could generate intense political opposition. For
instance, the Health Security Act would require fee-for-service offerings, even though many
employers are moving away from such options as an inefficient method of purchasing health
care. Moreover, it would give alliances the tools needed to prop up inefficient health plans.
VI. Conclusion
APPWP's members are confident that legislation can be crafted which would meet or exceed
every goal President Clinton has set for health reform and produce a better employment-based
system than we have today.
It is imperative that all elements of a reform plan—such as tax caps, collective purchasing
arrangements, and any measures designed to limit employer or employee premium payments-
be designed to highlight rather than obscure purchasers' and consumers' responsibility for the
financial consequences of their health coverage choices. It also is imperative that new revenue
requirements be minimized by avoiding overambitious commitments and creating mechanisms
which will effectively hold down costs over time. Finally, revenue and spending estimates
should incorporate purchasers' and consumers' likely responses to new health reform rules.
This will require expert examination of the assumptions which underpin the estimates.
Mr. Chairman, members of the Committee, this concludes my prepared remarks. I would be
pleased to answer any questions you may have.
421
Mr. KOPETSKI [presiding]. Very good. Thank you. Now we will
hear from Charles Weed from the International Mass Retail Asso-
ciation. Mr. Weed is director of benefits planning and design from
Schottenstein Stores Corp., Columbus, Ohio. Welcome.
STATEMENT OF CHARLES B. WEED, DIRECTOR OF BENEFITS
PLANNING AND DESIGN, SCHOTTENSTEIN STORES COR-
PORATION, COLUMBUS, OHIO, ON BEHALF OF THE INTER-
NATIONAL MASS RETAIL ASSOCIATION
Mr. Weed. Mr. Chairman, and members of the committee, thank
you for this opportunity to comment on the financing provisions of
the administration's Health Security Act and the other reform pro-
posals. I am Charles Weed, Director of Benefits Planning and De-
sign for Schottenstein Stores Corporation.
The International Mass Retail Association represents more than
160 mass retailers, including discount department stores, ware-
house clubs and off-price stores, as well as 550 suppliers. IMRA re-
tail members operate more than 54,000 stores and employ more
than 1.5 million people. Our retail members represent the over-
whelming majority of the $202 billion mass retail industiy.
Since 1991, the number of jobs in the discount retail industrv
has increased over 48 percent. The discount retail industry's job
growth is attributable to a number of factors: Disposable income in
America has declined, forcing consumers to become more cost con-
scious. Retailing jobs are more attractive to people seeking flexible
employment. Discount retailers offer non traditional working hours,
like evenings and weekends, and have a reputation of offering high
benefit plans, quality plans including health insurance, retirement
plans, and others.
IMRA is greatly concerned with the financing provisions of the
Health Security Act and their effect on the retail industry. IMRA
is opposed to the mandate that employers must pay 80 percent of
the cost of the health insurance premium for employees regardless
of the number of hours worked per week.
This mandate, which may originally be capped at 7.9 percent of
payroll, is the equivalent of a huge payroll tax and will undoubt-
edly result in massive job losses. Numerous studies cited in my
written testimony have indicated that employer financing man-
dates will put millions of jobs at risk.
If health care reform includes an employer mandate to provide
health care coverage, retailers will be forced to consolidate part-
time jobs into full-time jobs. IMRA estimates that approximately 20
percent of the jobs in our industry will be eliminated or seriously
threatened under the plan. Wages and other benefits may also be
reduced.
Any tax on labor threatens jobs in our industry no matter how
it is characterized. One of our affiliates employs 600 full-time and
1,900 part-time people in over 170 stores.
In 1993, this affiliate spent $750,000 to self-insure medical bene-
fits. With no change in the makeup of employees, the cost esti-
mates for health care coverage under the Clinton plan will increase
to $1,850,000, a 147 percent increase. To reduce this cost, this em-
ployer will be forced to consider eliminating 1,100 part-time em-
ployees. America cannot afford to eliminate so many part-time jobs.
422
Further, we oppose the corporate assessment of 1 percent on self-
insured companies forming their own health alliance. This is an ad-
ditional tax on top of the mandated health care coverage which is
completely unfair and burdensome to the self-insured employer. In
addition, there is no guarantee that this tax will remain at 1 per-
cent.
The financing provisions of the administration's plan also threat-
en the employer's ability to self-insure. Under the administration's
plan we believe most companies would be forced to join a regional
alliance rather than maintain a self-insurance plan.
Eliminating employer incentives to remain self-insured runs
counter to one of the President's basic objectives. By forcing em-
ployers into regional alliances, it will take away any incentive to
control costs. Employers will no longer incur the added expense of
providing on-site clinics or health care screening or other measures
if there is no incentive to do so.
By requiring employers to just simply write a check each month
for the regional alliance, they are no longer a participant in the
health care decision process. Similarly, the employee is also elimi-
nated from the health care purchasing equation, lliis is exactly the
opposite of basic free market principles. Instead of letting the con-
sumers make decisions on prices and qualitv, under the adminis-
tration's plan the government makes it for all of us. It discourages
individual responsibility and takes away any incentive to educate
ourselves on purchasing health care.
Another important concern to the large employer is elimination
of section 125 benefits, otherwise known as cafeteria plans. Rather
than eliminating this valuable benefit, we would encourage mem-
bers of the committee to consider expanding this benefit by passing
legislation that would allow companies to use medical savings ac-
counts.
A Medisave account would encourage individual responsibility
and reduce administrative costs bv billions of dollars. Medical sav-
ings accounts are the vehicle needed to bring the individual rather
than the employer or the government into the health care market-
place. It is clear that employers in the United States provide most
of the current financing for health care today.
This historical fact occurred because of the willingness of for-
ward-thinking employers to invest in their employees' welfare. Ben-
efits should remain voluntary. Let the best employers continue to
voluntarily offer benefits to attract quality employees.
IMRA looks forward to participating in a continuing debate on
health care reform. We welcome the opportunity to further discuss
our concerns and ideas with Members of Congress and their staff
on this most important issue. Thank you, Mr. Chairman.
[The prepared statement and attachments follow:]
423
Statement of the International Mass Retail Association
on the Financing Provisions of the Administration's Health Security Act
and other Health Reform Proposals
by Charles B. Weed, Director of Benefits Planning and Design
Schottenstein Stores Corporation
November 19, 1993
Mr. Chairman and Members of the Committee, thank you for this opportunity to comment on the
financing provisions of the Administration's Health Security Act and the other reform proposals. 1
am Charles B. Weed, Director of Benefits Planning and Design for Schottenstein Stores
Corporation. Before I begin, I would like to briefly describe the organization that I am
representing today.
The International Mass Retail Association (IMRA) represents more than 160 mass retailers that
include discount department stores, warehouse clubs, and off-price stores, as well as 550
suppliers. Collectively, IMRA retail members operate more than 54,000 stores in the U.S. and
abroad, and employ more than 1.5 million people. Our retail members represent the
overwhelming majority of the $202 2 billion mass retail industry in the United States.
The discount retail sector was recently characterized in a New York Times article (attached) as "a
new engine for job creation." Since 1991, the number of jobs in the discount retail industry alone
increased over 48 percent. Out of the 1.9 million new jobs created in every business sector in the
entire country since the beginning of the recent recovery in 1991, over 20 percent were in the
discount industry This job growth in the discount retail industry may be attributable to a number
of factors. Foremost is the fact that because of the recent recession, disposable income has
declined, thus forcing consumers to become more "cost conscious". IMRA members, operating
efficiently, and in large volumes, are able to provide the consumer with the best quality product at
the lowest possible price. Consumers now recognize that even in a prosperous economy, the best
values are found in discount retail stores.
Second, retailing jobs have become more attractive to people seeking flexible employment such as
the single parent, students, and senior citizens. Discount retailers, while offering nontraditional
working hours like evenings and weekends, also have a reputation of offering high quality benefits
including health care coverage, profit sharing, 401 (k) plans, dental care, and life insurance.
Although these generous benefits are normally offered to full-time workers, some retailers choose
to provide them to the entire workforce. Full-time workers in retailing are defined as those
working between 28 and 30 hours per week as compared to other industries that typically use a
40-hour work week.
IMRA is greatly concerned with the financing provisions in the Health Security Act and the effect
on not only the retail industry, but on job loss in general In particular, IMRA is opposed to the
mandate that employers must pay 80 percent of the costs of the health insurance premium for all
workers regardless of the number of hours worked per week This mandate, which is originally
capped at 7 9 percent of payroll, is the equivalent of a huge payroll tax which will undoubtedly
result in massive job losses. Numerous studies have indicated that employer mandates will put
millions of jobs at risk. The result will be lower wages, reduced benefits and fewer part-time jobs.
A study by the Employment Policies Institute dated September 1993, concluded that requiring
employers to pay for workers' health insurance expenses will increase labor costs leading to the
loss of 3 1 million jobs. These job losses will be concentrated in just a few industries with retail
trade as the second largest affected industry This study estimates that retailers will eliminate
726,000 jobs. In addition, a CONS AD Research study found that any health care reform plan
requiring employer mandates could put 7 5 to 18 million jobs at risk in terms of reduced wages,
reduction of other benefits, and potential cuts in hours worked Job loss estimates range from
400,000 to over 1 million as a result of a mandate proposal These are just a few of the many
empirical studies concluding that employer financing mandates threaten job loss.
With an employer mandate to provide health coverage, retailers will be forced to consolidate part-
time jobs into full-time jobs IMRA estimates that approximately 20 percent of the jobs will be
eliminated or seriously threatened under this plan In addition, wages and other benefits will also
424
be reduced. As much as we would like to, discount retailers simply cannot absorb the additional
burdens. To provide value to the customer, discount retailers operate on very low profit margins
We are also a very labor-intensive industry Therefore, any tax on labor threatens jobs no matter
how it is characterized.
An example from my own experience illustrates the effect of an employer mandate on job loss.
One of our affiliates employs 2,500 people in over 170 retail stores. Six hundred are full-time and
1,900 are part-time. Many of the "uninsured" employees have health care coverage through their
full-time job or through their parents' insurance policy. In 1993, through proper plan design and
careful administration of its benefits plan, this employer will pay only $750,000 to self-insure its
medical benefits. With no change in the makeup of employees, the cost estimates for health care
coverage under the Clinton plan will increase to $1,850,000 ~ a 147% increase! To reduce this
cost, the employer would be forced to consider eliminating 1,100 employees Unfortunately, over
1000 families that depend upon this firm for a second job to help make ends meet may no longer
be able to work for this company. America cannot afford to eliminate so many part-time jobs!
The financing provisions in the Administration's plan also threaten an employer's ability to self-
insure. Many large retailers have found that through self-funded plans they are able to control the
costs of providing health care while maintaining quality coverage for their employees. Through
initiatives set up within the company, like on-site clinics, free health screening, and educational
information, and through copayments and deductibles, employers are able to control health care
costs by encouraging individual responsibility and preventive care. Under the Administration's
plan, however, most companies would be forced to join a regional alliance rather than maintain a
self-insurance plan. This is due to several reasons: first, if the employer remains self-insured and
is mandated to provide benefits to all employees, the amount of employee claims are not limited
based upon the hours worked. For example, an employee working 1 5 hours per week could
potentially have the same or greater health care costs as a person working 40 hours per week.
The premium cap in the regional alliance at least enables the employer to predict the costs based
upon the number of hours worked.
Second, the corporate assessment of one percent on self-insured companies forming their own
corporate alliance is an additional expense on top of the mandated health care coverage. This tax
is completely unfair and burdensome to the self-insured employer because there is no guarantee
that their health care costs will be lower than those of employers joining the regional alliance. In
addition, there is no guarantee that this tax will remain at one percent Finally, if the revenue for
funding the health care plan falls short, the one percent tax is a likely target for generating new
revenue by future Administrations.
Eliminating employer incentives to remain self-insured runs counter to one of the President's basic
objectives. By forcing employers into regional alliances, it will take away any incentive to control
costs. Employers will not incur the added expense of providing on-site clinics, health care
screening, or other measures if there is no incentive to do so. By requiring them to simply write a
check each month to the regional alliance, they no longer become a participant in the health care
decision process. Similarly, the employee is also eliminated from the health care purchasing
equation. This is exactly the opposite of basic, free market principles. Instead of letting the
consumers make decisions on prices and quality, under the Administration's plan, the government
makes it for all of us. It discourages individual responsibility and takes away any incentive to
educate ourselves on purchasing health care services
Another important concern to the large employer is the elimination of IRC section 125 benefits,
otherwise known as cafeteria plans or flexible spending accounts. Employers have found that this
tax incentive has been very effective in controlling costs of health care and encouraging employees
to more actively participate in health care purchasing decisions With this type of plan, employees
can supplement their health care coverage by setting aside tax -deferred money to spend later on
additional medical services like eye care, dental services or other benefits not covered under the
regular employee policy.
Rather than eliminating this valuable benefit, we would encourage Members of the Committee to
consider expanding this benefit by passing legislation that would allow companies to use Medical
Savings Accounts. These accounts, also known as Medisave Accounts, would bring the
consumer back into the health care equation by making them the purchaser of health care, rather
425
than the government. With a Medisave Account, which is similar to an IRA, an individual would
purchase a high-deductible insurance policy to cover catastrophic illnesses. The savings from the
reduced premium cost would be put into the Medisave Account for purchase of routine medical
services. A Medisave Account would encourage individual responsibility and reduce
administrative costs by billions of dollars.
Also, unlike cafeteria plans, which have a "use it or lose it" feature at the end of the year,
Medisave Accounts would allow the employee to save the unused money and leave it in the
account for use in the following year. Overall, Medisave Accounts would reduce system-wide
health care costs by $588 billion over five years, according to a study conducted by the Council
for Affordable Health Insurance. Medical Savings Accounts are the vehicle needed to bring the
individual, rather than the employer or the government, into the health care market place.
Use of Medisave Accounts would also reward those individuals who maintain healthy lifestyles by
giving them the opportunity to save the money not spent on health care. The administration's plan
offers no incentive for individuals to maintain healthy lifestyles. It also does not penalize those
who make unhealthy lifestyle choices. The Secretary of Health and Human Services estimates
that as much as 30 percent of the costs of the American health care system are driven by
"unhealthy" lifestyle choices.
In addition to Medical Savings Account legislation, IMRA also endorses The Affordable Health
Care Now Act of 1993, introduced by Congressman Bob Michel (R-IL). This plan currently has
over 130 cosponsors. In addition, IMRA also endorses The Comprehensive Family Health
Access and Savings Act sponsored by Senator Phil Gramm (R-TX). We endorse these proposals
because they introduce market forces, rather than government intervention to control costs. In
addition, these plans build upon the strengths of our current system rather than breaking down the
elements that make it great. They remove impediments to obtaining affordable health insurance
and encourage individual responsibility.
It is clear that employers in the United States provide most of the current financing for health care
today. This is an historical fact that really occurred because of the willingness of forward thinking
employers to invest in their employees' welfare However, the fact that employers over the years
(since World War II) have voluntarily expanded the benefits provided, as well as significantly
increased their expenditures for health care, should not mean that they must be continually
burdened with the additional costs imposed under the Administration's plan. It should also remain
voluntary Let the best employers continue to voluntarily offer benefits to attract quality
employees.
IMRA looks forward to participating in the continuing debate on health care reform We
welcome the opportunity to discuss further our concerns and ideas with Members of Congress