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Saturday, Jun 3, 2023

A Healthcare Premium Funding Proposal

No matter whom one talks with or how one looks at the issue, California is experiencing a healthcare crisis of major proportions! The current crisis is often blamed on the many underinsured or uninsured members of our society. These people drive the cost of healthcare up considerably thus creating increasing costs of health coverage. Those who are underinsured or uninsured frequently use emergency rooms rather than private physicians for treatment of minor ailments because the emergency rooms cannot turn them away for inability or failure to pay. The problem with utilizing emergency rooms instead of private physicians is that the cost of treating someone in the emergency room is much higher than the cost of being treated by a private physician. Additionally, since the emergency rooms continue to be forced to treat many patients without insurance that cannot or will not otherwise pay for the medical services they receive, the emergency rooms are experiencing significant losses and are being forced to close. There are several proposals being considered by our lawmakers to alleviate the problem and it appears relatively clear that if any of the current proposals (or combination of proposals) is chosen, employers’ costs will rise. With the current high costs of doing business in California, and therefore our decreased ability to be competitive with other states and countries, many jobs are being lost to outsourcing and many businesses are choosing to relocate or to expand in other states. We simply cannot afford to have more increases in costs of doing business . Some people say: who cares if employers have to pay more? They can just pass it on to the consumers by charging higher prices. Unfortunately, due to the pressures of the marketplace, employers in manufacturing and other sectors (where products or services can be outsourced) cannot do this. So what is the answer? Perhaps there is a way for employers to pass the costs on without affecting competition by utilizing direct pass-throughs. I think that if you ask most people whether they believe that all California residents should be entitled to quality health care they will answer affirmatively. I also believe that most people will not complain about paying a small additional amount when they purchase everyday items such as groceries, clothing, etc. to assure that others receive quality accessible healthcare. Consumers would probably be concerned that if retail vendors (a sector which, except for internet sales, cannot utilize outsourcing) were charged higher premiums these vendors would use their higher premiums as a way to justify increases in the products they sell by significantly greater amounts than the costs of the higher premiums. What if premiums in excess of a “base level premium” (defined as the premium that would provide coverage under a medium-deductible HMO plan) were passed on to consumers directly and not hidden in increased product prices? Let’s say that when you purchase groceries from your local retail vendor a small percentage (assuming for the moment that it would be no greater than 1 and one-half percent) of the total purchase price is added to the bottom of your register receipt as a “healthcare pass-through.” This amount would be used to cover the excess premium costs payable by employers at all levels (manufacturing, wholesale and retail) and to provide an amount, payable to the state, to provide “base level premiums” for the unemployed (group coverage could be purchased by the state utilizing “best practices” to cover the unemployed). Since the charge would be collected at the retail level, it would not impact the competition between manufacturers, growers, etc. No matter where the products were made or grown, the charge would be applied when consumers purchase them. To keep the vendor/employer honest, the vendor would be required to file a monthly report with the appropriate department of the State of California showing the amount of funds collected, the amount paid in excess premiums and the amount deposited with the state. At the end of the year, the insurance carrier could send a form similar to a 1098 (which mortgage companies send to their borrowers to report the amount of interest received from the borrower during the year) to the vendor, with a copy to the state (for comparison with the total of the monthly reports), indicating the amount of additional premiums received from the vendor during the year. Since this direct pass-through method of paying for insurance premiums would have similar characteristics to the state sales tax (a value-added tax) critics would, no doubt, claim that it is a regressive tax and would thus impact the poor to a greater degree than it would impact the middle and upper classes. In this case however, unlike the sales tax where those benefiting from the services provided by the tax are, to a greater degree, the middle and upper classes, those benefiting most by the “healthcare pass-through” would likely be the poor. Regardless of which solution is ultimately chosen to fix our broken healthcare system, I sincerely hope that action is taken soon. Gregory N. Lippe, CPA, is managing partner of the Woodland Hills-based CPA firm of Lippe, Hellie, Hoffer & Allison, LLP and Vice-chair of the Valley Industry and Commerce Assoc. (VICA).

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