In the U.S., about half of the people who have health insurance get it through employment. (The others who have insurance get it from the government, through programs such as workers’ compensation, Medicare, Medicaid, and the Veterans Administration). The reliance in the U.S. on employment-related health insurance is very different from what happens in other industrialized countries, according to this interesting article by Princeton economics professor Uwe Reinhardt.
Most people don’t know that the dominance of employment-based health care insurance was not planned; instead, according to Professor Reinhardt, it was the result of efforts to evade World War II wage controls. Members of the armed services weren’t paid much, so Congress decided that civilian pay should also be kept low. A gaping loophole in the wage control legislation was the failure to include employer-paid fringe benefits in wages, and Congress also allowed companies to deduct the cost of their contributions to health insurance premiums from their taxes. Employment-based health insurance took off. Things have changed since then, and one writer recently argued that employer-based health care is dying.
One problem for employers is that the cost of health insurance has been steadily outpacing inflation for many years. According to a recent Kaiser Family Foundation study, employer-based family health insurance premiums have more than doubled since 1999. Employers, who typically pay about 80 percent of the premium, have been shifting the cost of insurance to employees. 42 percent of companies said they planned in 2010 to increase employees’ premiums, 39 percent said that employees would have to pay more to see the doctor, and 37 percent said employees would have to pay more for prescriptions. Employers trying to avoid increasing employees’ share of premiums may compensate by reducing pay increases. However, if pay rates are depressed by the high cost of health insurance, companies will find it more difficult to recruit and retain the best employees.
Large companies that compete internationally complain that having to foot the bill for health care insurance makes it more difficult for them to compete with companies in countries that finance health care in other ways. Small employers also have serious concerns about employment-based health care, because companies’ health-insurance premiums are based on the experience rating of their employee group. If even one employee in a small group develops a serious and expensive illness like cancer, the rates for the entire group can soar to the point where the company can no longer afford the plan. If a small company has members with pre-existing illnesses, it may not be able to get coverage at all.
In the latest development on the health care reform front, today Senator and Finance Committee Chair Max Baucus released the “Chairman’s Mark” of one of the health care reform bills, the “America’s Healthy Future Act of 2009.” The bill is too broad in scope to be summarized here, but an 18-page summary of the Mark (here’s a link to the full text of the Mark) is now available online. Under the bill, employers could still choose whether to provide health insurance benefits to employees.
All individuals would be required to have health insurance and would have to pay a penalty for not doing to, unless they were unable to afford the premiums. Subsidies would be provided for low-income individuals who did not have employment-based insurance. The government would provide subsidies to small businesses to help them provide their employees with health insurance.
Larger companies, with more than 50 employees, that did not provide health insurance would have to reimburse the government for any government subsidies their employees qualified for to enable them to afford insurance. The bill would establish state-wide online exchanges for individuals and small businesses through which they could comparison-shop and purchase insurance from private insurance companies. It would also authorize the creation of nonprofit “consumer owned and oriented plans” (CO-OP) that could operate at the state, regional or national level to provide health insurance. Insurers would not be allowed to deny coverage based on pre-existing conditions, rescind health coverage or impose annual or lifetime coverage limits.