Health insurance shouldn’t be tied to employment

If my car insurance isn’t linked to my employer, should my health insurance? A recent projection by S&P Capital IQ, a research firm in the financial industry, estimated that 90% of Americans will receive health insurance from government exchanges by 2020. If this estimate were to come to fruition, it would represent a monumental shift in the structure of the American health care system. For over half a century, employer-sponsored health insurance (ESI) has been the unquestioned norm. Instead of retreating from the unknown, however, we should embrace the delinking of health insurance from our jobs. Health insurance, after all, is a product like any other and deserves no special treatment.

If given the opportunity to construct a health care system from scratch, almost no one would adopt ESI as its central feature. How, then, did it become so ingrained?

Like many policies, it was an accident of history. During World War II, President Roosevelt signed Executive Order 9328, which froze prices on anything that affected cost-of-living, including wages, to control wartime inflation. The War Labor Board, however, subsequently ruled that the wage freeze did not apply to fringe benefits like health insurance. Thus, in order to recruit and retain employees, employers could no longer offer increased income but could use these so-called fringe benefits, like health insurance, to attract talent.

Finally, the Revenue Act of 1954 formally excluded employer contributions to health insurance from taxation, further increasing the interest of employers to offer tax-free health benefits rather than taxable wages to recruit employees, solidifying the link between employment and health insurance. While this may have been good policy in the mid-20th century, the test of time has yielded at least four negative, and unintended, consequences.

First, amid the constant controversy of loop holes and tax breaks for Wall Street, farmers, and oil companies, health insurance remains the single largest tax break in the U.S., costing the government nearly $300 billion each year. Because employees with greater rank and earnings tend to have more generous health insurance plans, they benefit from this tax break more than the less well-compensated. Health insurance, therefore, serves as a regressive, rather than progressive, tax break disproportionally and perversely benefiting the wealthy.

Second, because employers can offer this “tax-exempt” benefit instead of taxable wages to recruit and retain their employees, income stagnates.

Third, businesses generate leverage to negotiate with insurance companies by merit of having a group of employees. Without the benefit of this large negotiating group, unemployed individuals, self-employed individuals, and employed individuals without ESI have historically faced almost unattainable prices on the individual health insurance market. If you, therefore, wanted to leave your job, switch jobs, or start your own business, you had to risk not only your income but effectively forfeit health insurance for yourself and your family. With the advent of more affordable coverage in the new health exchanges, where insurers must compete for the business of a large group of individuals, people are no longer locked to their jobs solely to retain their coverage.

Fourth, in the traditional ESI model, employers negotiate and contract with insurers on employees’ behalf, effectively limiting consumer choice to just a few plans. Since employees have little say in the coverage they purchase, they are not able to pick a plan that best suits their individual needs and minimizes their cost.

If ESI does, indeed, evolve into a broadly used health insurance marketplace, several benefits would ensue. Wages would rise as employers would have to compensate for the reduced benefits to recruit and retain talent. This income, as opposed to health insurance, would be taxable, phasing out the largest tax break in the U.S. generating hundreds of billions of dollar annually. People would be free to switch jobs, work part-time, or try their hand at starting a business without fear of losing health insurance for themselves and their families. Consumer choice would increase as individuals would not be limited to their employers’ insurance contracts, and since individuals would be able to shop for health insurance like they can for car or life insurance (or a laptop or cellphone), competition among insurers would increase and costs would decrease. Perhaps a lizard promising 15% off in 15 minutes for health insurance will be born.

This alone will not fix our health care system, which is riddled with patchwork policies and remnants of political history now ingrained. But delinking health insurance from employment is a step in the right direction. Now, more than ever, we need dramatic changes to our health care system. Rather than fear changes to the status quo, let’s welcome them.

Simon Basseyn is a medical student.

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  • John C. Key MD

    One of the Great Unanswered Questions, to me, is why has their been such reluctance to allow a nationwide health insurance marketplace; or, with the wildly popular Federal Employees Health Benefit Program, why was that program not used to “model” national healthcare rather than the ugly mongrel that is Obamacare?

    Politically the answer is more simple–no time was taken to adequately assess and assemble a realistic health care program; rather it was cobbled together mostly in secret and rammed through as quickly as possible. Now we have years or decades of pain ahead to unravel, delete, and reconstruct.

    As Mr. Basseyn’s thoughtful post shows, this is a debate that is not “settled” and a conundrum that is not solved.

  • RenegadeRN

    I have always thought health insurance and employment should be “unbundled” – to steal a phrase from the cable company.

    Many people do not work for employers who offer health insurance. I have a friend who hasn’t had any healthcare in many years for this very reason. Wages too low to afford private insurance. Personal reasons keep her from simply moving on to better employment.

    My husband and I are wanting to start our own individual business’ and decent insurance is a huge consideration. The healthcare marketplace has helped, but the prices are still not comparable to ESI.

  • ninguem

    What I would like to see, is health insurance treated like Whole life Insurance.

    Get the policy at an early age.

    Noncancellable and guaranteed renewable.

    Perhaps even paying more into the policy at a younger age, building a cash value that can be used against health expenses in older age, sort of like whole life.

    And it’s your policy.

    I thought it was just my harebrained idea, but some insurance professionals say the idea has been kicked around over the years.

    Well……..maybe it is a harebrained idea, just not uniquely my harebrained idea.

    • querywoman

      What I would like to see is no health insurance at all! Then fees will really drop, and the bizarre practice of charging different fees to different classes of people disappear!
      Nobody needs health insurance; some people need health care.

      • Patient Kit

        Two areas of healthcare that many people don’t have insurance coverage for are psychiatry and dentistry. Fees for those services may be lower for those who can afford it but way too many people cannot afford those lower fees and the result is a huge portion of the population with little or no access to psychiatric and dental care. Inaccessible unaffordable care as a result of the direct pay model in those two areas of healthcare are one reason that I’m so skeptical about how things would go if all or the majority of primary care was direct pay/cash only. Dental and psychiatry — two bright red flags about how direct pay may work for many people for primary care.

        • querywoman

          Insurance covers some psychiatry.
          The dental max reimbursement has been $1000 annually for years!
          I absolutely could not find any low cost dental for adults in Texas when I needed my teeth pulled and dentures.
          I think the so-called “charity” clinics hold onto any grant money they get as long as they are getting enough children through CHIPS and Medicaid.
          I don’t know how to prove it. Governor Perry doesn’t care. Maybe a new governor.
          Grants usually come from the feds. Perhaps I could file a FOIA request if I could find the right way to do it.

  • QQQ

    The non-healthcare related consequences may be the most devastating of
    these “consequences”. Our economy has yet to be impacted by PPACA but it
    will. Many businesses will have to significantly alter their business
    models over the next 7 months, myself included. These changes will
    affect everything from future forecasts, capital expenditures, hiring
    policies, and how they value their goods and services(pricing). This
    will impact the strength of the economy. Many small and medium sized
    businesses will experience layoffs and many will have to change to a
    part time workforce. Others still, will have to decide whether they can
    even remain in business under these new pressures.

    Most of us have remained quiet because as soon as we open our mouths,
    many of us have been targeted. But it won’t be much longer before many
    of us will have no choice but to voice our concerns. The immediate
    assumption of everyone on the left is to assume that the only reason we
    voice our discontent is because we are afraid of losing our stacks of
    “ill gotten gains”. But this couldn’t be further from the truth.

    In my case, I currently offer a healthcare plan to which I contribute,

    as well as a benefits package. But the unprecedented rise in healthcare
    plan premiums puts these in jeopardy. Granted, the benefits plan I
    currently offer is not without benefit to me, as it does help me retain a
    quality workforce, but that certainly is not the only reason I offered
    it. Believe it or not, I do have a genuine concern for the lives and
    welfare of my employees, and want nothing more than to see them prosper.

    But PPACA may threaten all that. I hope it won’t, but no matter what,

    it will force me and many others like myself, to make some rather

    distasteful decisions in the months to come

  • Paul

    So the linkage between employment and health insurance is a result of government interference in the marketplace. What a shock. And now, having created a tax free way for employees to be compensated for labor, there are complaints that the taxes are not being collected. Again, what a shock. It is almost as amusing as watching the government mandate increased fuel economy vehicles and then complain that they are not collecting enough in fuel taxes. I prefer to think of the $300 billion as not lost revenue to the government, but instead saved revenue by the people.

    I have a suggestion: allow people to purchase health insurance on the open market, across state lines, or not at all. The young would not have to pay as much, since they are healthier. The elderly and religious would not have to pay for birth control they don’t need or want. If the government wishes to encourage the purchase of health insurance, they can make it tax deductible or tax free, or even have an offsetting tax credit. But then they can shut up about the lost revenue. Of course, this would mean a lessening of control by the government, and it is actually all about control.

  • Robert Luedecke

    As a physician who has been very involved in healthcare reform since
    2007, I am very disappointed that the President did not keep his promise
    of “if you like your insurance, you can keep it.” I never signed on to
    helping change the entire US healthcare system and the increase in
    prices is one of the side-effects of doing so. Some now have health
    insurance through the government websites, but the deductible is very
    high and the network is very narrow to help decrease the cost of
    including so many new services. If you must leave your long-term
    physician because they are not included in the narrow network and you
    still cannot afford the first dollar costs you must pay if you get sick
    (high-deductible plans), have we made changes in the best way?

    As a physician, my patients need changes to our new health plan now.
    Since we are stuck with Obamacare until at least 2017 (Pres. Obama would never agree to repeal), I believe politicians who wake up and work to improve it will win elections. Currently, neither political party is
    introducing needed changes because Democrats are busy celebrating the
    Obamacare win and Republicans are still stuck in “repeal and replace.”

    I am a pragmatist. Some changes were really good. I personally benefit
    from the end of pre-existing condition exclusions. My children were
    able to stay on my health plan after graduating from college until they
    could afford their own insurance. Now we must work to decrease the cost of health insurance, by decreasing administrative costs and decreasing health costs directly. We must also decide if need to roll back some of the increased services to increase affordability.

    • querywoman

      Many members of Congress have pre-existing conditions that would have disqualified them from private insurance benefits.

  • Robert Luedecke

    Mr. Basseyn, as a medical student, is wise beyond his years and I applaud this excellent work! While definitely not all positive, Obamacare has given employers more options for helping their employees get insurance. For those with less than 50 employees, many employers have not been able to afford providing insurance or had to drop their insurance because of rising costs. I know of one small employer who is able to save significant money by dropping his coverage and letting employees get insurance from the insurance exchanges. Because he has relatively low-paid workers, his employees could actually pay less money for their own policy (with the government subsidy) than he had to charge them for group health insurance. There are many advantages of decoupling health insurance from employment.

  • querywoman

    Health care, not health insurance, should have been untied from employment decades ago.
    Health insurance was conceived as an incentive and reward for keeping certain jobs a while.
    Regrettably, it mushroomed to the the point that it supports massive corporate insurance companies, which I say are the modern Teapot Dome.
    Government insurance, meaning Medicaid and Medicare, also burgeoned.
    It’s been at the point for years that when a patient goes to a government clinic or hospital, the medical authorities want to know if the patient has private insurance that can be billed.
    Yet, the government has not chosen to mandate affordable employment-related health insurance to us all.
    The ACA is not affordable!

    • Robert Luedecke

      I understand your angst. Much more needs to be done to decrease the cost of healthcare in the US.

  • Patient Kit

    There are three routes to access to health insurance and, hopefully, health care: (1) employer-sponsored, (2) government and (3) paying for it yourself. Currently, in the US, we have a combination of those three ways.

    To those who advocate both de-linking health insurance from employers and keeping the government out of healthcare, are you advocating a system in which every American pays for their own healthcare, presumably whatever they can afford, not what they actually need?

    In a country in which 60% of low-wage workers are adults age 25-64 (not teens working for sneaker money), how exactly do you see the “everybody buys their own” plan working without any government involvement? These stats define low-wage as $10 and under an hour, so minimum wage to a couple of bucks above minimum wage.

    Have any of you adults advocating the elimination of both employers and government tried living lately on $8, $9 or $10 an hour? How about even $12 an hour? If so, how much money did you have in your budget for healthcare on that income?

    Personally, I’m in favor of de-linking health insurance from employers. But only if that system is replaced by a single payer, tax-funded government system. Not if it’s replaced by every man for himself and survival of the wealthiest.

    • Robert Luedecke

      I agree with you 100% that low-wage workers deserve to have access to healthcare just like everyone else. A single payer system would decrease administrative cost for health insurance, but I think this is very unlikely to happen politically in the US. A method to go in this direction is to push for lower administrative costs with health insurance. This combined with the Affordable Care Act may be the closest we can get to your idea of single payer and can be almost as good at providing healthcare to the poor.

      • Patient Kit

        I agree that a single payer system in the US is a long shot, though you’d never know that by the disproportionate intensity of some people’s fear that it will happen. Long shot or not, to me, it is still worth shooting for or, at least, keeping the idea on the table as a way of forcing us to think of other ways to make our system better. If fear of a single payer system motivates people to think of other solutions, that’s fine with me.

        At heart, what I care about passionately is this: that ALL Americans have access to good, affordable medical care. That’s my bottom line. Any way that we can achieve that will be fine with me. Right now, there are far too many utterly heartbreaking personal stories going on in this country as a direct result of very real people not having access to the care they need. That has to change, one way or the other.