Abstract: We try to understand why current healthcare system threatens to crush the employer based insurance in the context of the changes in the industry. The brief gives the pros and cons and some suggestion as to what can be done to put it back on course.
I. Background
Modern employer based insurance emerged as a fringe benefit during the Second World War when the government implemented wage and price controls in private industries. It went on to become a dominant model of US mode of healthcare finance when the government allowed companies to get tax deductions for the expense of paying for insurance premium (IRS provision). The government did not tax the employees for receiving the benefit but the taxpayers were not allowed to deduct the cost of insurance if they got it on their own. The largest decline in the employer based health insurance was seen since the 2000s. However, even today, when employer based healthcare is under criticism, a high percent of the working individuals in the private sector are offered some form of health insurance financing through their employers (around 160 million people, 60% of the under-65 population).
II. Milestone legislation
Some key laws passed in the pass that were relevant to the employer based healthcare
· ERISA (Employee Retirement and Income Security Act) which did not mandate an employer to offer health insurance but instead regulated their plan only if the employer chose to provide one. A provision of this law allowed employers to escape state regulations and allowed them to directly pay for health benefits through self insurance. Self funding reduced employer overhead. It however undermined the broad risk pooling (A practice of pooling large number of people for health insurance plans which facilitated inclusive, inexpensive coverage). Smaller employers looked at the notion of consortium using MEWA (Multiple Employer Welfare Arrangements). This had the inherent risk of employees leaving the cooperative and causing an adverse selection bias.
· The proposed Health Security Act was perceived to be extremely complicated and government intrusive and was not passed. However, it gave rise to the idea Medical Savings Account. Along with variants like Health Reimbursement Account and Flexible Spending Account, these allowed for the employees to manage their own insurance accounts with some restrictions.
III. Employer Challenges
Healthcare has changed in terms of how much the medicines cost and how much it can do.
· Rate of rise in healthcare spending has outpaced the rate of rise of income, productivity and inflation.
· Advances in medical technology and drugs have given the ability to combat diseases and conditions (especially heart disease, cancer and stroke). This along with decline in tobacco use and increased cholesterol awareness has led to higher longevity.
· An aging population with higher episodes of care result in higher healthcare spending
· The insurance cost that was about 2 % in 1960 is now more than 10% of the compensation and the employers have to grapple with that reality.
· The healthy and young, working age population is opting to not have insurance reducing risk spread.
· Group premium is based on the claims experience – that is, the health history — of just that small group of employees. This is a nightmare for small companies.
IV. Employer Response
The employers had relied on managed care to keep the cost of healthcare down. Later they pulled back from it and shifted their efforts on imposing more cost sharing on individuals and creating plans that involve more management of disease and conditions. This included higher deductible, higher copayment, payment incentives to insurers for preventive care and disease management. Clearly these strategies have failed and the system is badly bruised.
V. Pros and Cons
· CONS of employer based insurance
o Can't move your insurance around. Locked into jobs that people may not necessarily want to keep.
o Employees can't see the stresses on the health care system because the employer is paying the premiums.
· PROS of employer based insurance
o Employer gives you a risk pool to buy into. Not rejected for pre-existing conditions or poor health.
o Employer contracts out with insurers, offering more choices, at a lower price, and with an administrative buffer - an HR person to turn to if the going gets rough.
o Employer offers an easy, centralized access point to the system. and give individuals a way to pool their purchasing power for better prices and treatment
o Lead the spread of wellness and prevention-focused programs, the management of chronic diseases, and the use of incentives to medical providers for better performance – these elements are not found in public programs like Medicare and Medicaid, which focus on reducing payments to providers
VI. Alternatives and Conclusion
We need not create a new world order but an intelligent restructuring and realignment of employer provided insurance.
· Health insurance “connector/exchange” that will match buyers and sellers, collect premiums and bill employers.
· Promote consumer directed portable health savings or reimbursement accounts. This allows employees to be informed about the cost of the healthcare. Alter the perception that health care costs only $10, (Copayment).
· Mandate employer based healthcare. Companies stand to benefit from a healthy workforce. Mandate preventive care programs via employers.
· Mandate health insurance for all citizens and legal immigrants to broaden the risk pool and bring the cost of healthcare down. Healthcare cost must be shared reasonably between employer and employees
· Have equitable insurance premiums based on ability to pay and demographics.
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