Healthcare Reform: ItHealthcare Reform: It’’s Your s Your Business and Your Bottom LineBusiness and Your Bottom Line

Presented by Damon ThompsonPresented by Damon Thompson

Damon ThompsonPartner, G&A BeneficialPartner, G&A Beneficial

• Graduated from Austin College in 1979.

• Immediately began working with business owners for their insurance needs.

• Began working with G&A Partners as they began to develop their independent insurance agency with the focus of helping business owners identify and mitigate risks.

Housekeeping items• Highly explosive topic• I am not a professional speaker• This is not a Town Hall meeting• I am not a Congressman• I am involved in health issue because it is one component of the

services that G&A Partners offers to business owners• I will assume

– ½ of you are democrats– ½ of you are republicans– ½ of you are union members– ½ of you are not union members– ½ of you want absolutely no changes– ½ of you want the most extreme changes– ALL of you want to learn about various pieces of legislation

impact your business, cash flow and ultimately profits

A very brief history

• After a 10 year rising stock market…– A big crash, high unemployment, banks failing and a

bad economy the Feds step in to fix and also want nationalized healthcare, but fail because it is too expensive… 1933 President Roosevelt

– Continued growth, low unemployment, banks are strong and the economy is growing the feds step in to get nationalized healthcare but fail because it is too expensive… 1993 President Clinton

– A big crash, high unemployment, banks failing and a bad economy the Feds step in to fix and also want nationalized healthcare … 2009 President Obama

How did we get health insurance linked to employment?

• Prior to WWII how citizens paid for their medical bills personally or with private insurance

• During WWII Congress & IRS approved– the tax deductible nature of premiums to the

employer and – the tax free nature of the benefit to employees

Universal CareUniversal CareThe Single Provider System

An Exchange / Co-opCompetitive option

All are different names for the same system

Sources of data from 130+ reports

• The Wall Street Journal• Investors Business Daily• The Dallas Morning News• The Economist• Time Magazine• The New York Post• Insurance Trade Journals• Congressional Budget Office Reports• IRS data • 1,017 page House healthcare bill• 615 page Senate healthcare bill

Overview• G&A Partners works with business owners providing services for payroll,

human resources, workers compensation & health insurance• We recognize that company owners wear two hats

– Employer, providing benefits– Employee, consuming benefits

• Simple math– If 11% of payroll is currently what average employers spend for benefits– and 8% of payroll is currently ONE healthcare tax option– Then an employer could pay 8% tax then pocket the 3% resulting in

higher profits, thus allowing them to purchase the richest set of benefits ever for themselves and still increase profits

• In this situation is there a compelling reason for the business owner NOT to go this route?

• Like everything else, the devil is in the details.• So let’s review various Problems-Solutions-Results

The Problem as Stated • 45,000,000 in the US have no health insurance• Insurance companies have no competition• Costs are rising and• “…our health results look like we’re a developing country” HHS Sebelius

– Higher infant mortality• We count all births in our statistics

– Shorter lives• Exclude murders we have almost the longest life expectancy• Breast cancer mortality is 88% higher in Britain & 9% higher in Canada• Prostate cancer is 604% higher in Britain and 184% higher in Canada

– Preventive and Diagnosis • CT Scanners per 1,000,000 people

– 8 in Britain, 12 in Canada, 34 in the United States

The Solution as Proposed

• 1,018 pages of new regulations• The Federal Government will provide health

insurance to all who live in the US• The Federal Government will offer a plan to

compete with the private insurance companies• The Federal Government will lower the cost per

capita enough that 45,000,000 will not increase the total outlay over the level at which it is today

• Subsidize premiums for people making up to $110,00 for a family of four (500% of poverty)

The Cost as Stated

• $1,000,000,000,000 – One Trillion over the next ten years– One Trillion is 1,000 Billion dollars

The Track Record

• Medicare cost overruns in the year 1990 vs. original Congressional estimate– Medicare for Physicians – 7 times estimate– Medicare for Hospitals – 11 times estimate

• Level of care for our Veterans• Level of care for Native Americans• Level of care for Medicaid• The government controls almost 50% of all

health care spending now, if the costs are out of control now, how is that going to change?

If single payer system is not working will Congress allow it to fail?• Medicare• Veterans• Native American Care• Social Security• Schools• Fannie Mae• Freddie Mac• Recently UPS and FedEx were showcased as examples where

the Government allowed competition with the Postal Service and the Postal Service was coming up short.

• Leaving the question: Will Congress allow failure of a Government program in competition with a private sector program?

The Problem Restated

• Did the States grant the Federal government the responsibility to provide healthcare? No

• Is medical care funded by the Federal Government a right protected under our Constitution? No

• Has the Supreme Court ruled that Medicaid is NOT a right? Yes

• 45,000,000 might not have insurance, however, they do have access to care

The 45,700,000 uninsured• Subtract

– 6,400,000 have Medicaid– 4,300,000 have government programs– 9,300,000 undocumented workers– 10,100,000 over 300% of poverty level– 5,000,000 childless young adults

• 10,600,000 is what net number, further analysis finds– This includes anyone going without insurance for at least one

day in the prior 12 months– This includes those changing jobs (in their waiting period)– 24.7% are eligible for public programs– 55.7% are in the “need assistance” category– 19.6% are likely to be able to afford their own insurance (next

page)

Of the 45,700,000 uninsured

• 17,000,000 live in households with income exceeding $50,000.

• 7,000,000 live in households with income exceeding $75,000.

• 18,280,000 (40%) are between the ages of 18-34• “Uninsureds consumed an estimated $116 billion in

healthcare during 2008”• Do the Bill Gates or Warren Buffett really need to

be forced to purchase a policy $1,000,000 or $2,000,000 of medical benefits?

The Solution Restated• Allow each State to design programs based upon the need of their

local populations• Recognize that “not having insurance” is not the same as “not have

access to medical care”• Perhaps that 45,000,000 is a questionable number• Don’t create protected classes when designing solutions

– nontaxable benefits for union members – Exemption for undocumented workers from federal fines that apply to

citizens and legally in the US if they don’t purchase federally mandated insurance.

• Don’t allow lawsuits when following accepted medical protocols.– Defensive medicine in Mass. alone is $1.4 Billion annually. – Extrapolated to 50 states * 10 years = $700,000,000,000

The Restated Solution - Safeway

• Market based solutions = 40% savings• Reward health behavior• Per capita costs are flat over last 4 years• 70% of costs are related to behavior• 74% of ALL costs are tied to 1. cardiovascular disease 2. cancer 3.

diabetes 4. obesity• In 1996 allows for employee contributions to vary based upon

behaviors.• Safeway’s focus is on tobacco, weight, blood pressure & cholesterol • Passing all four tests = $780 employee and $1,560 family savings

from the standard payroll deduction costs• Obesity & Smoking at Safeway is 70% of national average• 78% of employees asked for more implementation of additional tests

Eight specific private sector solutions…from Mr. Mackey, cofounder and CEO of Whole Foods Market Inc.

• Remove the legal obstacles that slow the creation of high-deductible health insurance plans and health savings accounts (H.S.A.s)

• Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits

• Repeal all state laws which prevent insurance companies from competing across state lines

• Repeal government mandates regarding what insurance companies must cover• Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance

costs of hundreds of thousands of dollars per year• Make costs transparent so that consumers understand what healthcare

treatments cost• Enact Medicare reform• Finally, revise tax forms to make it easier for individuals to make a voluntary

donation to help the millions of people who have no insurance and aren’t covered by Medicare, Medicaid or the State Children’s Health Insurance Program

The Cost Restated

• $8,000 * 10,600,000 uninsured = – $ 84,800,000,000 annually or– $848,000,000,000 over 10 years– Substantially less than $1 – $4 trillion– $ 28,000,000,000 is CBO estimate of unpaid

care for those without insurance – All without any additional government entities

The Track Record

• There are reasons to believe we have the best healthcare in the world– Do members of Congress seek medical care in the

United States or foreign countries when their family members need care?

– Did the past Prime Minister of Canada bring his mother here for a hip replacement? Yes

– Is anyone touting the cost containment success of Medicare, Medicaid, Veterans Care, Native American care as examples of how well the reforms will work?

Unreported provisions from various versions of the bills• No new private policies may be issued once the bill becomes law• Only union members are exempt from paying a tax on their benefits• “End of Life” counseling is mandatory every 5 years upon reaching age

65 and more often when you are sick• No one is required to prove legal status to get care• At least 31 new government programs, agencies or commissions• “We have not yet estimated the administrative costs to the federal

government of implementing the specific policies, nor have we accounted for all of the proposal’s likely effects on spending for other federal programs” C.B.O.

• It shifts $200,000,000 from Federal to State (Medicare to Medicaid)• New programs need 60 votes to pass, Budget Reconciliation bills need

51 votes to pass. This is filed as a Budget Reconciliation bill.

Impact to you and your company

Two sides of the same coin

• What you have just seen is the – Problem– Solution– Cost – Track record

• From the Single Payer and the Private Sector points of view

Even with proven market solutions the reality is . . .• The powers that be are pushing the

House and Senate versions for a vote then send it to the President

• That being the case, how would those plans impact the ability of business owners on a go forward basis?

Sources of funds

• If promises made are – “No additional taxes for those earning less than

$250,000 annually”– “95% of Americans will not pay one additional cent

of taxes”? • Then

– It would fall the top 5% of income earners and– Businesses of all sizes

Proposed new taxes• $1,000,000,000,000 t Amount of stated need over 10 years

• $ 685,000,000,000 b Congressional down payment from the Stimulus bill• $1,200,000,000,000 t Hospital deferrals over 10 years• $ 300,000,000,000 b Rx deferrals over 10 years• $ 550,000,000,000 b Tax on millionaires over 10 years• $ 583,000,000,000 b Tax on non-union medical benefits over 10 years

» it would be $2,300,000,000,000 if unions were not exempt» this would be almost 5 times more money if unions were not exempted

• $ 300,000,000,000 b 8% employer payroll tax• $ 112,000,000 m Soft drink tax• $ 62,000,000,000 b Additional alcohol tax• $3,716,112,000,000 t Total revenue from new taxes

• $ 70,000,000,000 b A 1% Value Added Tax is being discussed if additional revenue is needed» Could increase to 2% - 3% of housing, education and medical care is exempted

Tax the top 5% of income earners

• In the tax year of 2000, (with a lot more high income earners)– There were 6,411,357 tax returns filed– The adjusted gross income averaged $128,336– The tax rate averaged 27.45%– Yielding $225,913,569,355 of revenue that year

• The government would have to keep 100% of the income tax from the top 5% of the income earners (generating a little over two trillion dollars over 10 years) to make the “tax the rich” strategy work.

Exemptions for 8% payroll tax

• Less than $500,000 - $750,000 payroll– When you add the employee that takes your payroll over

$500,000 you trigger $40,000 surtax or– When you add the employee that takes your payroll over

$750,000 you trigger $60,000 surtax

• Less than 20 employees– When you add the 20th employee you add $38,400 surtax

• Assuming you pay all 20 employees only $2,000 per month

• There is no exemption for part time employees• There is no exemption for employees covered

through their spouses insurance

What if I already provide insurance?

• If you already provide insurance and it is less generous than the government authorized plan you will need to upgrade

• If you already provide insurance and it is more generous than the government authorized plan your employees or the insurance company can be taxed on the increased value of the benefits

• If you have insurance you can keep it until you change, the change will then be to the government plan.

• New spouses or children will be added to the government plan even if you are not making a change

• One version requires everyone to change to the government plan by 2013

Now, ask yourself, as an individual…• Does the proposed legislation provide the greatest level

of choice to my family members and to me?• Will I be happy changing to the authorized plan when

required?• Should union members get a tax break when non-union

members don’t?• Should undocumented workers be exempted?• Will I receive the federal premium subsidy?• Will members of Congress join the same program as

me?• How high will individual tax rates go in order to pay for

the plan?• Why do we not have to prove citizenship to participate?

Now, ask yourself, as business owner …• Does the proposed legislation cover all 45,000,000?• Will the service level stay the same?• Will the per capita cost stay the same?• Will the quality of equipment and drugs continue to increase?• Do the extra taxes paid by my company or me impact

– My ability to fund growth internally?– My ability to borrow money to fund growth?– My ability to hire new employees?– My ability to fund a 401k program?

• Do the extra taxes paid by my employees– Limit their desire to spend money on goods and services?– Increase the chance of them asking for an offsetting raise from me?

Recap• G&A Partners works with business owners

– Company owners wear two hats• Employer, providing benefits• Employee, consuming benefits

• As a provider or consumer of medical benefits– Will these proposed changes improve or degrade your

ability to grow your company?– Will these proposed changes improve or degrade your

ability to secure quality medical care?

Thank You

If you have any questions please contact:

Anthony Grijalvaagrijalva@gnapartners.com

T: 713.784.1181or

PresenterDamon Thompson

dthompson@gnapartners.com