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.