Employer-sponsored insurance, part I: You say you want a health care revolution? Not yet in our workplaces!

By Thomas P. Miller

As the political seasons change, forecasts of the long-predicted decline of employer-sponsored insurance (ESI) coverage tend to ebb and flow. Of course, more zealous advocates on the right and the left seem predisposed to disparage the longstanding role of ESI in the US health care system. From one perspective, employers’ dominance in determining the terms of most private health care market coverage means less choice for individual workers, disruptions in care arrangements whenever their job shifts or ends, and more expensive insurance costs (if not more comprehensive coverage) than at least some workers would prefer. From the other end of the health politics spectrum, ESI is seen as a barrier to restructuring and redistributing much more of health care spending and coverage arrangements in a more overtly politicized and centralized manner.

And yet, as most places of employment (in person and virtual) re-engage in another annual open season of workplace insurance enrollment, ESI mostly persists. It keeps doing so decade after decade, though declining gradually in its overall share of covered lives and health care dollars in the United States. The latest health insurance surveys generally show a modest decline at best in ESI coverage despite the immense stresses and strains of a pandemic and its accompanying deep, though brief, recession.

U.S. President Barack Obama holds a rally celebrating the passage and signing into law of the Patient Protection and Affordable Care Act health insurance reform bill, March 23, 2010. REUTERS/Larry Downing

The simplest Occam’s razor explanation would point to inertia, undoubtedly the most powerful force in the US health policy universe. Policies in place for many decades tend to stay in place, due to embedded reliance interests, the difficulties of gaining sufficient majorities to displace them, and heightened risk aversion to disruption in established arrangements (particularly ones for health care).

But let’s first take a quick look at the balance sheet of standard pros and cons for ESI and its elusive alternatives. On the debit side, ESI has to try to accommodate diverse workers’ preferences by steering its coverage options toward the least-objectionable middle ground (or at least around whatever pleases most of the firm’s more important employees). It distributes more compensation in the form of comprehensive, but also expensive, health benefits, even for less-well-compensated workers. The offsetting price for what the latter may value less is mostly paid in lower cash wages than they might have preferred instead. ESI arrangements also work much better for older, long-term employees than for younger ones more likely to leave a company sooner. ESI works better for larger and more profitable businesses. It faces more difficulty in covering workers as consistently or generously in smaller ones. But even the largest employers lack the market clout, unified strategies, and coercive tool kit of government agencies in shaping reimbursement levels and coverage rules.

As usual in comparative policy calculations, a number of these “liabilities” also operate as “assets” when viewed from another perspective. Lack of uniformity and standardization also can be seen as an opportunity for flexibility, experimentation, and customization. The practices and politics of a centralized administrative state inevitably drift toward one size that fits few and sclerotic barriers to periodic adjustments or well-tailored exceptions.

It is also far easier to ascertain and reward a more stable majority of employees in most companies and hold the latter’s executives accountable than it is to assemble a sustainable legislative political majority in Washington that will reach final decisions. Recruiting and retaining more productive workers with more attractive health benefits (as well as higher wages) remains part of what we still prefer to presume remains a largely competitive, results-driven economy (particularly amid very tight labor markets). Employers actually have to balance the value of what they provide in health benefits against its costs, compared to different compensation options. On the other hand, government officials find it far easier to scapegoat and blame shift when the numbers do not add up attractively.

The relative generosity of ESI reimbursement provides part of the financial food chain that keeps the health care sector well-nourished (if not approaching metabolic syndrome) through multiple payers and indirect cross-subsidies. On the other economist’s hand, the deadweight economic losses of increased taxes, in place of employer payments through non-wage health benefits compensation, should not be omitted from more simplistic single-payer cost comparisons. Employers that imagine significant cost relief by leaving health care financing to the public sector should check to see exactly who will be making up any difference through increased tax-side “contributions” to federal and state health care budgets.

These offsetting columns in the financing ledgers for health benefits can result in close political calls from time to time, but the most decisive factors in determining and maintaining our mix of public versus private and group versus individual in health care markets may be found elsewhere. Hence, we next will examine the broader political economy of health care regulation and most voters’ resistance to the uncertainties and disruptions of rapid change, in part II ahead.

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Source: aei.org

Employer-sponsored insurance, part I: You say you want a health care revolution? Not yet in our workplaces!