• What fights over employer-sponsored health insurance are really about

    72 percent of respondents who became uninsured when they lost their job-based benefits said they didn’t fill a prescription, skipped a recommended test, treatment, or follow-up, had a medical problem and did not visit a doctor or clinic, or did not get specialist care because of cost.

    72 percent of respondents who became uninsured when they lost their job-based benefits reported problems with medical bills, including not being able to pay their bills; paying off medical debt over time; being contacted by a collections agency over unpaid bills; and changing their way of life to pay medical bills.

    40 percent of adults who lost their job-based benefits and became uninsured were forced into making difficult financial tradeoffs in the past year because of medical bills: 32 percent had used up all their savings; 27 percent could not pay for basic necessities like food, heat or rent; 14 percent took on credit card debt; and 9 percent took out a home mortgage or loan.

    Those are some of the findings of a recent Commonwealth Fund report. In light of these facts, and the other problems caused by America’s reliance on employer-sponsored insurance (ESI), why do we seem so interested in maintaining the system? Sure, it has a few advantages, one being the risk pooling effects of large groups, but it also has so much baggage. Hardly any policy wonk would choose it as the preferred means of offering health insurance.

    Yet, with each release of survey results on what proportion of firms will continue offering coverage after 2014, we fight over whether the findings are credible and what they really mean. One side always says that if employers drop coverage that reveals a flaw in the ACA, which, by the way, will provide coverage options for those without affordable employer options. The other side says if not too many employers drop coverage, it reveals a strength of the health reform law.

    But why are we even fighting over something hardly anybody likes? We should want to get rid of the employer-based insurance system. In fact, it’s pretty likely we will, not all at once, but gradually over time. If Americans are to remain covered, as employers shed insurance and its cost, someone else must offer it, and someone else must pay for it.

    It’s relatively uncontroversial who will offer that insurance: private plans. I say “relatively” because there are those who would rather see the government provide it, at least as an option. Still, realistically, private plans are likely to be involved if not dominant players.

    There’s less consensus about who should or will pay for that coverage, individuals or taxpayers through subsidies. Of course individuals and taxpayers are the same people, so this is really a question of redistribution. How much should there be? The right answer to that question is … there is no right answer. (However, there are correct and incorrect arguments on both the “more” and “less” sides.) Current law–the ACA and our tax code–offers one answer. Some like it. Some don’t. Many are mixed.

    Already we’ve come quite far from the fight over whether the ESI system should or will be maintained. I’ve argued that the real battle is over income redistribution. That, in fact, is what those at war over ESI are really fighting about since the degree to which workers receive subsidized exchange coverage affects aggregate redistribution. So, why don’t we just discuss that? Why do still have people talking repeal? Repeal and do what? If you look closely, it’s repeal and redistribute income in a different way. Well, why don’t we just work the redistribution question directly, examine the tax code and the ACA subsidies?

    In fact, after all the campaign sturm und drang settles, I imagine we’ll do just that. It won’t be in any neat, tidy, civil way. It’ll be in the modern style of political brinkmanship. At the end of the day, though, we’ll probably still have the fundamental structure of the ACA. We’ll likely still have the basic outlines of our current tax system. But a few numbers will shift. A few things will be tweaked. After all the sound and fury, we’ll still redistribute income, just a little differently.

    That’s not to say redistributing income differently is not a big deal. It is, both in real terms and symbolically, if not politically. That’s why the fights over the future of ESI are so fierce. People really care about how income is redistributed. If it weren’t for that, I don’t believe people would fight as much over which institutions–employers or exchanges–will provide insurance coverage.

    • Hey Austin,
      Can you talk a little about the history of ESIs. I learned that they were implemented during World War II as a means of competition between companies to hire employees. They appear to be a recent phenomenon and not everyone seems to realize this. There is some mantra that they have always been around. I might be wrong, and they may have been but I am curious nonetheless. Maybe by shedding the myths of how ESIs started might add to the larger debate.

      • Good idea. Yes to WW II, but also employer-sponsored health programs and income insurance existed in some industries prior to WW II. I’ll find an article that gives a good summary. Actually, I’ll crowd source it. Tweet forthcoming.

      • @Jonathan
        Social Transformation of American Medicine (by Paul Starr) has a good history of employer sponsored. He has another book coming out that Austin reviewed earlier this summer. Bruce Bartlett has a book on Tax Reform coming out that has the clearest history of this I have read, but not sure when out….when is will be a not to miss.

      • Knowing the history of ESIs may be interesting but probably of little value. Clearly ESI is government social engineering using the tax code to compensate for our flawed human nature. Few (working class) employees would purchase health insurance if not provided by the employer, especially young people. A better discussion is how the WWII ESI model hasn’t changed to meet the needs of today’s rapidly changing, task-oriented, employment environment. A recent Fox Business article highlighted how ESIs are finally changing to meet current employment needs. http://smallbusiness.foxbusiness.com/legal-hr/2011/07/18/insurance-coverage-tailored-to-workers-lyfe/

    • It would be interesting to consider how eliminating ESI from the coverage mix impacts the health care delivery system. If you have VA for the veterans, Medicare for the elderly, Medicaid for some poor and everyone else on their own for coverage, will access to care remain intact? Is it part of the analysis that those who are uninsured and can’t pay also redistribute income? They just do it outside of the tax code.

    • Not sure, but… isn’t the issue more that the person who lost their job is likely without income than that they lost their employer sponsored coverage? When you lose your job, you have the option of COBRA and possibly state mandated continuation coverage as well. It’s just that without the (tax subsidized) employer contribution to premium, most people don’t find these options affordable.

      Put differently, under an individual exchange with federal subsidies (per PPACA), why would the the people who are struggling now be expected to do significantly better? A “bronze” plan is only 60% actuarial value, so even if the federal subsidy is enough to make the premium affordable, I would expect anyone without employment to be disproportionately likely to skip specialist care, for example.

      • Mark, a lot depends on the state. In a state with experience rating and/or no guaranteed issue, people with existing conditions who lose their jobs can find it impossible to become insured. It isn’t just that they earn less, or that there is less subsidization of the premium, but that no one will insure them, or will do so only at very high cost. On the other hand, in states with community rating and guaranteed issue in the individual market, like New York, there is a slow actuarial death spiral that has made coverage also very expensive, because there is no mandate for coverage. It is still better for the sick than no guaranteed issue, but not good.

        ACA is supposed to address these problems, of course.

    • Others on this website have pointed out that the ACA provides some protection for people pushed into the individual market through its protections for people who ill and/or older. Will the health exchanges provide a from of risk pooling? If not, could they be made to provide risk pooling?

      I understand the concern that people lose their coverage when they lose their job and the argument that this is largely due to the loss of income. Another argument that people often make is that ESI promotes health cost inflation by partially hiding the cost of insurance from individuals. Do you regard that as a valid argument?

      Forgive if you answered that question in an earlier blog.