The Future of the Employer-Based Health Plan

The origins of employer-based health coverage are shrouded in the mists of time, or so it may seem, but the truth is it apparently developed during the second world war as an inducement to workers at a time of labor shortages and as a way to maintain employee health and increase productivity.  About 167 Americans currently have such coverage, the largest single source, and health insurance in the most valued employee benefit.  At the same time, employees and companies are concerned about costs, rising spending and other aspects of benefit design. Over the past 30 years, annual spending for these plans has increased at a rate generally much in excess of worker wages or economic growth, although the last few years have seen a significantly lower trend rates.  An Employee Benefits Research Institute brief reviews the history of the system and its possible future.   (EBRI Brief)   The continued presence of the employer-based health plan is in some part also due to the tax preferences these plans receive, being tax-deductible for employers and excluded from employees’ income.  The Congressional Budget Office has estimated that over $275 billion in tax revenue is currently lost due to these tax preferences.  Although this is a lot of money, it is relatively inexpensive to the taxpayer compared to the cost of alternatives, like Medicaid or Medicare for all.

Some alternatives being aggressively pushed by certain so-called progressives include a Medicare for all that would eliminate private insurance, ones that would somehow retain some role for private plans, proposals to allow Medicare or Medicaid buy-ins or to give people a “public plan” option, and proposals to expand the use of tax initiatives or health savings accounts.  In some of these, costs might be shifted from employers to the public sector, depending on the level of subsidies.  The stark reality from an employer perspective is that even if a substantial portion of health insurance costs is shifted to another form of coverage, they are likely to pay in higher corporate income taxes and for employees this is an even starker reality, as for most, their out-of-pocket costs and taxes will both likely rise or one will be substantially higher.  There is no free lunch, at least for most workers.  If you want to be a complete slacker in this country, apparently there is, but lets not get into the fairness of that.

Some of the benefits of maintaining in some form employer involvement in health coverage include employee familiarity with and preference for that system, group purchasing leverage, employer interest in worker health and productivity, employer ability to advocate on behalf of employees, and encouragement of innovation in health delivery.  One large downside is lack of portability–other than some continuation period, people who change jobs or stop being employed for some period of time have to switch plans and sometimes providers.  That seems like a minor issue compared to a complete upheaval of how most people get coverage.  And of course the reality of government-sponsored alternatives is that they pay providers substantially less than commercial plans do, which can only be carried so far before it affects access or quality.  Whatever you think about the employer-sponsored system, it may be better than the alternatives.