Essays on Reform: Address employment-linked health insurance

Employment-linked health insurance is ineffective. Some argue, perhaps because employment-linked health insurance has been around for so long, that the relationship “works” and is a good one, others argue that employers have an “obligation” to provide those benefits. But employment-linked health insurance introduces its own set of perverse consequences.

Implemented during wartime as a means of attracting workers during a period of wage freezes, employment-linked health insurance has become a hindrance to universal healthcare. Employers still use healthcare benefits rather than wages to attract employees. Employees often favor employment-linked insurance because they receive a tax benefit.

Once health insurance benefits are universally available, however, both employers and employees will be as well off, or perhaps better off, if employers provide additional wages rather than health benefits to attract and retain employees. Employees and their families will still have health insurance and in many cases, better coverage.

Employment-linked health insurance is ineffective for several reasons. First, it is inequitable. Employment-linked health insurance provides a tax benefit to employees of large businesses, but no tax benefit for the self-insured. This places an inequitable financial burden on families and individuals who must buy their own health insurance.

Second, employment-linked health insurance promotes “job lock.” Employees cannot move to more productive or interesting opportunities because they cannot afford the cost of purchasing health insurance for themselves, or they cannot risk being without health insurance for their families. This affects individual as well as corporate productivity, and ultimately the national gross domestic product.

Third, employment-linked health insurance promotes price and product differentiation with expensive consequences. Price and product differentiation increase insurers’ overhead in the form of increased underwriting expenses. Price and product differentiation further translate to inflated premiums for smaller groups, for people with limited negotiating power, and especially for small businesses, or businesses with even one or two high-risk employees.

(The costly effects of both price and product differentiation could be mitigated by implementing a uniform minimum basic benefits package. When insurers must deal with individual corporations, as they do in response to employment-linked insurance, they are expected to customize coverage plans for each corporation separately; risk must be calculated differently for each group or corporation. This process produces inequitable insurance costs and inequitable coverage.)

Fourth, employment-linked health insurance leaves some employees underinsured. Because large corporations’ human resources departments often do the negotiating for health insurance for their employees, the negotiators determine what health benefits their employees receive. In order to get a good price on a coverage plan an employer may strip certain health benefits from the plan.

This may leave certain employees without appropriate coverage—underinsured. Or the negotiators may go so far as to negotiate low deductibles for low-risk employees, but higher deductibles for high-risk employees. In this manner, employers may actually increase healthcare costs for those who most need healthcare benefits.

Fifth, employment-linked health insurance perpetuates cost-shifting. Underinsurance produces similar economic effects as uninsurance, only on a smaller scale. When a low-income person is persuaded, usually because of cost, to accept or select a benefits package with fewer benefits, but the person or their family later needs those trimmed-away benefits, the same kind of cost-shifting occurs as if that person were uninsured.

When people with trimmed benefits need emergency medical care, they still present at the emergency room. They do so under the false belief that because they have health insurance, their policy will at least pay something toward medical costs. The emergency room staff will be under the same moral and legal obligation to provide treatment.

Then when the patients return home, the financial troubles begin, meaning collections, cost-shifting and the possibility of bankruptcy. For all intents and purposes, a health insurance policy with trimmed benefits is a form of uninsurance; it is merely a matter of degree. These scenes may occur less frequently if “trimmed benefits” replace “no benefits,” but the effects will be as devastating as ever for the individuals who have been persuaded to acquire inadequate coverage.

The solution to the inefficiencies of employment-linked health insurance requires three straightforward steps. The first is a uniform minimum benefits package. This would ensure that no one is underinsured. The second is equitable tax benefits for either employment-linked insurance or insurance purchased in the individual health insurance market. The third is the promotion of individual responsibility to enroll in a healthcare coverage plan. This may be accomplished either by the individual accepting default enrollment in a public plan or by optional enrollment in a private plan. Private coverage could still be obtained through employers, but employers could not trim away benefits.

Employment-linked health insurance is an expensive proposition. Employment-linked health insurance is no longer just an inefficient nuisance; it is, in reality, a hindrance to reducing the cost of health insurance for everyone. Insurers cannot of their own accord adopt a minimum basic benefits package as long as employment-linked health insurance continues.

Until the inefficiencies of employment-linked health insurance are eliminated, insurers have no choice except to continue the expensive practice of customizing coverage packages, trimming benefits, and charging higher rates to those who most need medical care. The issue of employment-linked health insurance must, therefore, be addressed by a comprehensive national healthcare policy.

Selvoy Fillerup

MemberBoard of directorsCenter for Health Care Policy Research and AnalysisMerrick, N.Y.

What do you think? Post a comment on this article and share your opinion with other readers. Submit your comments to Modern Healthcare Online at [email protected]. Please be sure to include your hometown and state, along with your organization and title.