EMPLOYER-BASED COVERAGE: Hashing Out Problems, Solutions
At a symposium last Friday by the Alliance for Health Reform in Washington, D.C., Sen. John Rockefeller (D-WV) opened a discussion on the viability of the employer-based health coverage system with the observation that Americans are abandoning the job-for-life commitment of their parents and instead changing jobs frequently, accepting contract work or signing up with one of numerous temporary staffing firms. He proposed that job-based coverage, which originated in the early 1950s, may "not necessarily fit with the trends in the economy or demographics." While the percentage of individuals with employer-based insurance has remained stable, Rockefeller labeled such stability "a dramatic retreat" and posed the unsavory question, "What in heaven's name will happen during a recession?"
The briefing, "Job-Based Health Care: How Solid a Foundation?" featured four panelists: Deborah Chollet, associate director of Washington, D.C.'s Alpha Center; Paul Fronstin, economist with the Employee Benefit Research Institute (EBRI); Uwe Reinhardt, professor of political economics at Princeton University; and David Scherb, vice president of compensation and benefits for PepsiCo Inc..
Showing Its Age
Fronstin noted that while employer-based coverage is the most common source of coverage among the non-elderly population, covering 152 million individuals, the percentage of Americans receiving coverage declined from 69% in 1987 to 64% in 1993. He attributed the decline to health cost inflation, welfare's shrinking rolls, small employers dropping coverage and large employers shifting coverage costs to employees.
Most recently, Fronstin added, the percentage of Americans receiving health coverage from their employers has seen a slight increase, resulting in "the only time in history that we're seeing an increase in employer-based coverage and an increase in the number of uninsured," Fronstin said.
Challot offered a hypothesis for rising health care inflation, namely a "bottoming out in the underwriting cycle," as insurers' efforts to slash prices in order to gain market share have slowed and are now being followed by price increases into the next decade.
Despite its potentially bleak future, panelists cited several advantages to employer-based health insurance, including its reduction of adverse risk, as employees represent a "natural group" of varying health statuses, thereby eliminating insurers' ability to refuse coverage for higher-risk subscribers. Employers can also seize upon the efficiencies of group purchasing, can represent their employees as advocates during disputes with insurers and, as Scherb said, are "incubators of innovation" in health care quality assessment and policy development.
The panel's strongest proponent of maintaining the status quo, Scherb also pointed out that employer-based coverage has proven "pretty resilient" to broad changes in the health care industry, including the growth of HMOs, medical technologies and new accounting systems. He also noted that health care coverage is among the top three reasons consumers will choose a job -- making it the most important job benefit to employees, outranking working conditions and company reputation.
However, panelists proved equally adept at highlighting employer- based coverage's disadvantages. Fronstin pointed out that the tax shelter for health coverage is extended to employees whose employers offer health insurance, leaving out those who must purchase health insurance individually. He also noted that "health insurance is not usually portable from job to job ... very few employers offer a choice of coverage," and 43 million Americans, or 18.3% of the nonelderly population, were uninsured in 1997," leading him to question the effectiveness of a "purely voluntary system" of employer-based coverage.
Challot noted that low-wage workers, who have access to the least health care subsidies, are the most sensitive to an increase in health care costs.
Reinhardt pointed out that employer-based health insurance "insulates employees from the true cost of health care ... and from knowledge of who actually bears the cost." It also, he said, enables employee benefit managers to access employees' medical information, thereby invading employee privacy -- a phenomenon that would never be tolerated in Europe. Reinhardt labeled the employees' health coverage tax benefit "regressive," as "low-wage employees ... contribute a much higher fraction of their gross wages to their employer's socialized health insurance system than do high-income employees."
Solutions, or at least measures to slow down the erosion of the employer-based system, were hard to come by. Scherb suggested that policymakers meet with employee benefit managers, employees and hospital administrators to "get a feel for" the dynamics involved in changing aspects of coverage. He cautioned against abandoning the system, adding, "Be sure you want to erode employer's incentive to participate and innovate and small employers' incentive to imitate."
Fronstin noted, "It's not as simple as offering tax credits and it's not as simple as moving to a competitive market, such as car insurance." He explained that car insurance, unlike health insurance, is mandatory. He also noted that selling a new health plan to American consumers could be difficult, as 68% of Americans reported they "like the composition of wages and health insurance they had."
Only Reinhardt proposed a total re-vamping of employer-based coverage -- a phenomenon he calls "an accident of World War II" and inherently "ephemeral." He suggested mandating basic health coverage that would be subsidized through taxes as well as the abandonment of the current tax shelter offered employers. The funds would be pooled at the federal level, but channeled to the states, which, in turn, would make capitated payments to hospitals. The uninsured would be granted vouchers for HMO coverage and could opt to enroll in Medicaid or Medicare.
Countering arguments that such a system would result in employers abandoning their coverage and employees "crowding-in" to the public health system, Reinhardt said, "Forget crowding-in. You can't have companies paying health care costs for someone who worked for them 20 years ago. Companies cannot be the social insurance function of the United States." He noted that programs like CHIP, that seek to avoid crowding-in, "have become so complicated the people who should be using it can't."
He also encouraged the formation of health insurance purchasing cooperatives to maximize leverage with insurers and enable individuals to obtain reasonable rates. His system, he said, would be a parallel system, built alongside the current employer- based coverage model and would require "a lot of regulation. That is what has been absent in the current system." One audience member pointed out that such a system, which would reimburse individuals for their health care costs, might prove too costly for those who cannot afford the up-front costs of medical care. "The plan may have to have a revolving loan fund to advance money to low-income families," Reinhardt suggested, adding, "Liquidity is one problem."
Scherb noted that no major shift has occurred in employer's willingness to provide coverage, rendering plans to abandon the current system potentially unnecessary. "We're in a very tight labor market," he said. "Most employers are good at controlling costs. Employers are also worried about what employees think." Reinhardt, however, stuck to his plan. "This is, at its core, a moral problem," he said. "Are you willing to be your brothers' keepers?" (Charmaine Marosi, American Health Line).