Preserving what works: The perks of employer-provided coverage
Federal officials recently made some discouraging predictions about the future of American health care.
The non-partisan Congressional Budget Office forecast that seven million Americans will lose or drop their employer-provided health insurance by 2022. Families across the country used to getting coverage through work will soon have to find and pay for it on their own.
That’s not a future we should welcome. The employer-based system has reliably and effectively delivered quality health coverage to generations of Americans. As a nation, we need to work to preserve it.
Today, nearly 60 percent of Americans have health coverage through their employers. Under the current system, a company may purchase a group insurance policy and offer coverage to all eligible employees. The average employer contributes about 82 percent of each employee’s monthly premium. For family policies, the average employer contribution is about 72 percent.
It’s no wonder that 63 percent of Americans are satisfied with the coverage they receive through their employer or union, according to a survey conducted last year.
The money an employer spends on health insurance is untaxed. So for every dollar an employer spends on insurance, a worker receives a full dollar’s worth of benefits.
If an employer spent that extra dollar on cash wages, the worker would receive less than a dollar in benefits, because she would have to pay tax on that income. Medicare and Social Security taxes alone grab 15.3 percent of employee wages below $113,700. So a worker can receive a dollar of health benefits — or less than 85 cents of cash wages.
Further, individuals buying insurance on their own don’t get the same tax break as employers. So a person who purchases coverage on the individual market does so with after-tax dollars. These people can’t get nearly as much value for their dollar as those who receive coverage through work.
Employer-based plans also provide an extremely comprehensive level of coverage. A survey conducted last year by my organization, the National Association of Health Underwriters, found that employees receive emergency-room and hospital care under every employer-provided plan. Follow-up care, in-patient rehab, and nursing facility and hospice care are provided in at least 90 percent of small-group plans.
Furthermore, a recent poll by the National Business Group on Health found that more than half of all employees were not confident that they could purchase the same or better-quality insurance by themselves.
There’s a reason businesses get better deals on health insurance. Since companies typically purchase insurance for an entire group —not one individual or family—they have a great deal of negotiating leverage to keep costs down.
On the individual market, a person might be more inclined to purchase insurance if he or she intends to consume a lot of health care, because the cost of coverage is not subsidized by his or her employer. This dynamic results in an individual market pool with a disproportionate number of high-risk patients. That raises the cost of coverage for everyone.
In the employer market, all full-time workers are usually covered, whether they’re healthy or not. They’re offered coverage at a consistent point after they’re hired, and coverage terminates when they’re no longer eligible. This distributes risk more effectively by ensuring that there is a relatively equal mix of good and bad health risks.
This feature, which hinges on continuity of coverage, is one reason why administrative costs tend to be lower for employer-provided plans. A recent paper from the National Bureau of Economic Research notes that the administrative load for employer-based policies “is roughly half that for individually purchased policies: 15 to 20 percent as opposed to 30 to 40 percent.”
Policies can be confusing. Most workers are best served by relying on their companies’ human resources staff— in conjunction with their employers’ health insurance brokers—to find coverage.
The Patient Protection and Affordable Care Act is already changing the landscape of American health care. Lawmakers should take care to ensure that those changes don’t undermine the portions of our health care system that work well and deliver immense value for most Americans — including employer-based health insurance.
Janet Trautwein is CEO of the National Association of Health Underwriters.