Employer Health Plans – Is there a Future?

May 30, 2009

Is there a future for employer based health insurance?

This is not a rhetorical question.

This is not an anxious question from an employee benefits professional.

This is not wishful thinking by a single payer advocate.

In the Call to Action by the Senate Finance Committee,  Chairman Senator Max Baucus (D-MT) calls for “Strengthening the Employer-based system.  We must ensure the continued viability of the employer-based system – the principal source of health coverage for most Americans.”

Fine words.  But the weak point in the statement is the phrase “continued viability”.  It is fair to ask whether the current system is viable and whether it can continue.

Both the percentage and the number of people covered by employer provided health insurance and the percentage of firms offering health insurance has declined over the last two decades. 

There are fundamental contradictions in the commitment of conservatives and employer groups to employer based health care plan.  And the two are not entirely in sync.

Conservatives for ideological reasons cling to things “private” and abhor government intervention, even when it makes markets work better.

Employers are a bit more practical in their approach.  But for the most part don’t seem able to see their way out of the box they are in.  They may have an ideological aversion to government action, or they may just not be willing to give up their current way of doing things.

But some employers are willing to question the current system.  Jonathan Weber, CEO of New West, challenges the assumption that employers should have a responsibility to pay for the health care of their employees.

He writes:

Why is this my responsibility? 

Quality health care is a societal good, so why should it be the obligation of private-sector entities to provide it?

 A recent Reuters article by Andy Sullivan describes how “job lock” inhibits entrepreneurs, an argument also made here.  He quotes Todd Stottlemeyer, former CEO of the National Federation of Independent Businesses (NFIB).

 “There are lots of factors that go into why somebody starts a business or doesn’t start a business: Do I have a good idea, do I have capital, do I have risk tolerance?,” said Stottlemeyer, now an executive at a hospital chain. “Being able to get health insurance … should not be one of those determinant factors.”

But even if they acknowledge the box they find themselves in, employers are schizophrenic about their way out of the box.  Few employers would go as far as Jonathan Weber.

A 2007 article in USA Today by Julie Appleby observed discussions in Congress at that time to de-couple health insurance from employment.

The measures can be lumped into differing philosophies about the direction the USA should move: either toward a health insurance market in which people buy policies on their own while armed with tax credits or deductions, or one in which people are able to buy insurance through group-like “exchanges,” with some government oversight. Some of the plans likely would encourage employers to drop coverage because the employers would lose all or part of their ability to write off insurance as a business expense.

Noticeably absent is a public plan alternative, either the single payer proposal or the public plan option.

Employers also speak by their actions.  Two very clear trends indicate what employers really think about their obligation to provide for the health care of their employees.  The first is cost shifting to employees in the form of increased out of pocket expenses at point of service and increased deductions from pay for health care premiums.

The second trend is toward something resembling a defined contribution approach to health care financing.  This is characterized by High Deductible Health Plans and Health Savings Account, a favorite concept of conservatives in the last administration.  The theory behind the practice is that by giving employees cash instead of benefits, they will become wiser shoppers for health care services and thus help to constrain health cost inflation.

What is the conclusion?

Employers don’t want the responsibility for the health care of their employees.  They occasionally admit this.  They will concede that it is not good for small and new businesses.  Their practices clearly tell the true tale.

They just won’t admit it.  The just can’t get past old practices and ideological constraints.

But employers need to let go.  Health care needs to be de-coupled from employment.

Julie Appleby quotes Sara Horowitz, founder and director of the Freelancers Union whose members are independent workers in finance, non-profits, domestic services, publishing, advertising and health care – says something needs to change, because the working world has.

“The nature of work is changing: Jobs are much more short-term and flexible,” Horowitz says.

Employers need to catch up.  Maybe Congress will catch on.


Tax My Benefits? The Devil in the Details

May 16, 2009

Taxing everyone’s health care benefits seems to be a back in vogue.  But it is also a reality for some right now.  One of those situations can help us understand the real implications of taxing health care benefits.

Small Businesses

Many small businesses are acutely aware of the inequity in the tax code when it comes to health care.  A small business that files as an individual entrepreneur, files an individual return.  Like you and me, he or she must meet the 7% test.  Only health care costs that exceed 7% of adjusted gross income are exempt from taxation.  For most people with decent employer sponsored health care, that’s a tough threshold to meet.

For small businesses, it means that the they are paying taxes on the 7% of their income that they pay for health care.

But there is another even more relevant example of wage earners who pay taxes on their benefits. Read the rest of this entry »

Do we want employment based health insurance?

January 31, 2009


Why is there not more support for an expanded employer role in providing health insurance to all Americans?  I sense a certain exhaustion among decision makers and employee benefit professionals as they grapple with costs that just defy control. I notice at professional conferences an increasing openness to the single payer model.    

We have seen one cost control fad after another.  More and more employers are dropping health benefits in order to stay afloat.  In this game of Old Maid, those employers who do provide benefits struggle to maintain their social compact with their employees without footing the bill for the rest of the world.

The rest of the world? How does that occur?  In a number of ways. Read the rest of this entry »

Health Care Reform as Economic Stimulus

January 3, 2009

There is some dicsussion that health care reform should take a back seat in an economic stimulus package. 

I suggest that health care reform can go a long way to jump start the economy by itself.  

I make that argument for three reasons.  First the current system of health care financing distorts the competitiveness of the American economy.  Second, the current system of health care financing distorts the job market.  Third, which is really an extension of the second,  the current system of employment based health care financing inhibits the very creative forces that can energize the economy. Read the rest of this entry »

Health Insurance for Small Business

November 22, 2008

Every health care reform proposal attempts to offer some relief for small businesses.  According to the National Federation of Independent Businesses (NFIB), small businesses create 2/3 of American jobs, yet half of the uninsured are in small businesses.

Look at President-elect Obama’s health care proposal on his campaign’s web site.  The first two items:  

  • Require health insurance companies to cover pre-existing conditions so all Americans regardless of the health status or history can get comprehensive benefits at fair and stable premiums.
  • Create a new Small Business Health Tax Credit to help small businesses provide affordable health insurance to their employees.

What’s remarkable about these proposals is that we are still discussing them. Read the rest of this entry »