Postponing the reckoning

The Obama administration's one-year delay in the requirement that large employers (more than 50 workers) provide health insurance for their workers or pay a penalty continues to generate confused and contradictory responses that ignore the underlying problem—the slow-motion collapse of the employer-based insurance system.

The law is too complex. The paperwork is too burdensome. Giving business a break is unfair, so why not delay the individual mandate, too, newborn populist House Speaker John Boehner wrote in a letter to the president last week.

The media immediately jumped on the bandwagon by chasing down small businesses hovering around the 50-employee mark—usually mom-and-pop run restaurants—that are delaying hiring, cutting back hours and otherwise contemplating ways of circumventing the mandate. Many saw in the delay evidence of the administration's underlying incompetence and darkly warned that the rollout of the rest of the insurance expansion will suffer a similar fate.

Thus was squandered another opportunity to instruct Americans about the illogical and cumbersome nature of the U.S. health insurance system, which has left the U.S.—the richest country on earth—as the only advanced industrial nation without universal or near-universal coverage.

The U.S. is a rarity among countries in its reliance on employers for health coverage. What began as a way to get around WWII wage controls has morphed into a hybrid system where 96% of employers with more than 50 workers offer health coverage to their workers, while 72% of workers in companies with fewer than 25 employees report that their employers do not offer plans.

But this isn't purely a small-business problem. According to an Employee Benefits Research Institute analysis, the 22.9 million adults working in the private sector in 2011 who didn't have health insurance (the remainder of the 48 million Americans who are uninsured are unemployed, self-employed, children or otherwise detached from the employment system) included 5.9 million who worked at firms with more than 1,000 employees. Another 5.4 million worked at firms with more than 50 workers.

In other words, less than a quarter of the uninsured work at small businesses. There are just as many people working at large firms who are uninsured as at small firms.

So what we have are two separate and distinct problems—a big-business problem and a small-business problem.

Larger employers, which traditionally provided comprehensive health coverage as a way of keeping and attracting workers, are rapidly abandoning that mindset. Whatever its cause—high unemployment, declining bargaining power of workers, international competition or stockholder pressure—many large employers no longer feel obligated to offer those benefits.

Many have turned instead to high-deductible and defined-contribution health insurance plans. But others have given up the game entirely. Even as the overall population continues to grow, the number of people with employment-based coverage fell from nearly 170 million at the turn of the century to 156 million in 2011. As a percentage of the population, coverage dropped from 69% at its peak to 58%. That's why the employer mandate was passed in the first place.

Meanwhile, the nation continues to celebrate an entrepreneurial culture where anybody can start a business as long as they aren't burdened by oppressive government regulations—such as requiring them to provide health insurance for their workers. The Patient Protection and Affordable Care Act endorsed this mindset by exempting employers with fewer than 51 workers from its health insurance mandate.

Other countries that use private insurance avoid this mess by treating health insurance like any other social insurance program. Germany, for instance, requires both employers and employees to pay nearly equal shares—about 8% of salary up to a cap—into a “sickness fund,” which then funds the purchase of private health insurance.

Of course, coming up with a universal, comprehensive and logical way of funding health insurance was never on the agenda in 2009-10 when healthcare reform passed. For political reasons, the newly elected President Barack Obama promised Americans they could keep what they had. What he forgot to add is what we have is a mess—as the postponement of the employer mandate once again proves.

Follow Merrill Goozner on Twitter: @MHgoozner