Advocacy for universal healthcare in America has stirred up the debate over the government’s role in society. Should the government require that all Americans are medically insured? If so, those who cannot afford it will get their insurance paid by the government. It won’t take long for the collective chorus to start chanting, “Entitlement!”So-called entitlement programs are the hot buttons of political debate. Medicaid, Medicare, Social Security. Bold, visionary programs when they were introduced, now subject to massive financial crises. Interestingly, anyone who takes issue with government-sponsored entitlement programs might turn the lens to what is, basically, a private-sector entitlement program: employee-based healthcare. It’s a movement with a fascinating history, now mired in bloated contractual arrangements and, importantly, a disproportionate distribution of benefits to its participants.
Ironically, the employee-based healthcare movement got its impetus from the federal government. In 1942, Congress passed the Stabilization Act. Through this legislative event, the government limited the use of salary increases as a means to attract workers during the tight labor market of World War II. Instead of wage increases, employee-based health plans were encouraged as an alternative mechanism for compensation.
In 2011, almost 45% of Americans were covered by employee-based health plans. (Twenty-five per cent were under Medicaid, Medicare or military/veterans’ plans, while 17% had other sources of insurance and 11% had none.) When applying for work today, individuals expect that their future employer will offer health insurance as a benefit. This expectation creates challenges for all the stakeholders in the process: the small employers, the large employers and the employee.
Employers must negotiate rates with insurers for their companies. Large employers will generally get better rates and options than smaller employees because they can negotiate on volume. And this volume enables them to neutralize spikes in their claims, due to catastrophic events which may strike their employees. To a small company, one employee with brain cancer could ostensibly negatively impact coverage in future years. Insurers will renegotiate with higher rates in future years in an attempt to re-coup lost income and/or to mitigate future losses with a “high risk” employer.
Of critical concern to most small companies is the pending requirement that they offer health insurance for their employees. This component of the Affordable Care Act was held constitutional by the Supreme Court in July, 2012. Granted, there will be governmental subsidies available to support this requirement. But the incentive for small companies will be to find the cheapest, most minimal healthcare plan out there that will allow them to qualify for subsidies, and not break the law.
Large employers have different concerns. As the cost of healthcare has increased, a larger component of an employers’ expenses have become allocated to healthcare. These expenses, in turn, drive up the cost of American goods sold. When American companies compete with other foreign companies who do not offer healthcare to their employees, US companies are at a distinct disadvantage. That is a problem not just for large employers and their employees, but for every American.
Regardless of the size of the company, employee-based healthcare, this employee “benefit,” is almost impossible to quantify for an individual. A 2012 Kaiser Family Foundation survey showed that, for an average family plan, employers contribute an average of $11,429 and workers contributed $4,316 to the premium. For a single plan, employers contribute $4,664 and the individual contributes $951. But few employers disclose these numbers; employees typically just compare the amount they are paying for the options they are receiving.
Why does this matter? Because any employee who opts out of an employer-based health plan is being penalized, as they are losing the benefit the company would have ordinarily made in them. What’s worse is the fact that employees whose entire families are covered are reaping a disproportionate share of an employer’s healthcare investment in their staff. So, from an employer-based insurance perspective, a married man with five children is being compensated more favorably than a single man.
This lack of transparency puts employees at a disadvantage during employment negotiations. Individuals typically negotiate on salaries and bonuses, not insurance coverage. But then again, not too many people are negotiating aggressively on benefits these days. With an unemployment rate still hovering around 8%, most individuals are just happy to find a job.
This is exactly why employee-based health insurance is obsolete. It started during a labor shortage. Now we have a labor surplus. Employers offered healthcare coverage as a competitive offering. Now it’s practically an entitlement.
No wonder there’s pressure for the government to pay for healthcare. When someone loses their job, who else is going to pay for it?