The federal government supports employer-sponsored coverage
through the tax code by recognizing that insurance premiums paid on
behalf of workers is a business cost and is generally deductible
for tax purposes. This is a strong encouragement to employers to
offer coverage. But most employers offer coverage for a different
reason: a healthy workforce is directly linked to productivity.
Employers’ ability to offer health insurance as a non-wage related
benefit helps them attract the best workers and remain
competitive.
By Rick Shelton
Although it’s clear that change is coming to the U.S. health care system, doing away with the employer-based insurance system is not the answer. The employer-based system currently provides more than 160 million workers and their families with comprehensive health insurance coverage. Disrupting the current private U.S. health care system would be an imprudent policy action that would jeopardize the health benefits that millions of Americans currently receive.
Rates of private employer-sponsored coverage have remained relatively constant over time, with the proportion of workers having coverage through either their own employer or a family member’s employer averaging between 70 and 74 percent over the past 15 years. The Kaiser Family Foundation’s annual employer benefit survey indicates that 99 percent of large firms (200 or more workers) and more than 83 percent of firms with 25 or more workers offer health benefits.
The federal government supports employer-sponsored coverage through the tax code by recognizing that insurance premiums paid on behalf of workers is a business cost and is generally deductible for tax purposes. This is a strong encouragement to employers to offer coverage. But most employers offer coverage for a different reason: a healthy workforce is directly linked to productivity. Employers’ ability to offer health insurance as a non-wage related benefit helps them attract the best workers and remain competitive.
For individuals, there are a multitude of advantages to employer-sponsored coverage, not the least of which is the significant financial contribution most employers make towards the cost of coverage for the employee and often towards coverage for dependents as well. The Kaiser Family Foundation indicates that in 2007, employers on average paid 84 percent of the premiums for single employees and 72 percent of the premium for individuals with family coverage, and these percentages have remained stable over the last several years. To help encourage the provision and acceptance of employer-sponsored health insurance, the premium payments made by employers are not included in an employee’s taxable income. This exclusion from taxation is a significant benefit of employer-sponsored coverage.
The actual cost of coverage relative to the benefits provided is often much better in employer-sponsored plans. Group purchasing power helps employers obtain preferential pricing and provide benefits that are generally much more extensive than what is available to consumers spending a similar amount in the individual market.
Administrative costs are lower because coverage is provided to many individuals through a single transaction with one employer. And controlled entry and participation into an employer’s plan ensures a balance of risks that are spread more efficiently and effectively than is possible in the individual market, further adding to the cost advantages of employer sponsored coverage.
In spite of the success of employer-sponsored coverage, there remain more than 44 million uninsured Americans. More than half of these individuals are the working poor or near poor, many of whom already have access to health insurance through an employer-sponsored plan. If employers already provide access to health plans and pay a significant portion of the premiums for many Americans, why are so many uninsured? The problem isn’t access-it’s affordability. It is important to remember that health insurance is a financing mechanism for health care. As the cost of care increases, so does the cost of health insurance. The biggest reason there are 44 million Americans without coverage is that they just can’t pay for it. Thus, because the cost of health care drives the cost of health insurance, we need to address the drivers of health care costs before we change health insurance benefits for millions of Americans.
Real solutions will not happen overnight, but a good starting point is to look at what part of the cost of health care we can change. Studies show that as much as 40 percent of our health care costs go towards the treatment of preventable, lifestyle-related conditions: obesity, lack of exercise, smoking–all things that hinder wellness and can be changed. We must create incentives for individuals to participate in healthy behaviors that will improve their health and decrease the cost of financing health care for everyone. We also need to look at excesses in our system and pay more for the right outcomes. We need to ensure that the use of evidence-based medicine is the rule and not the exception, and that we use every means at our disposal to encourage high quality care, which is ultimately also the least expensive care.
As we debate which proposals will change the way we deliver, ensure, receive and finance health care, we must carefully consider the impact these changes will have on Americans and the American economy as a whole. In the long run, doing away with the efficiencies of the employer-based system will result in higher costs, lower productivity and fewer health care choices. We must implement solutions that reduce the cost of care and focus on changing those areas that need to be changed rather than those that already work and provide the coverage that insures so many Americans today.
Rick Shelton is owner of a local insurance business.
