The Case against Employer-Sponsored Health Insurance

This article first appeared in the Austin American Statesman on May 23, 2018.

The Patient Protection and Affordable Care Act — known as the ACA or Obamacare — is well-intentioned legislation that has failed to deliver on its promise to provide affordable health insurance to all Americans. In 2017, the uninsured rate of nonelderly individuals (ages 19-64) was over 15 percent. In states that did not expand Medicaid, like Texas, the uninsured rate was almost 22 percent. Between 2014 and 2018, the average annual premium rates for individual silver (midtier) marketplace plans almost doubled. The cost of care is so high that 85 percent of consumers who purchased plans on the exchange in 2017 qualified for a discounted rate. If the plans were truly affordable, they wouldn’t require subsidization.

The ACA is ineffective because the pool of consumers buying market-based plans is too small to absorb the costs and risks associated with the legislation’s regulatory demands. For example, ACA-compliant plans must cover 10 essential benefits. Coverage must include basics like hospital and emergency care, as well as other services such as mental health and rehabilitation. The comprehensive benefits are not essential to everyone buying the plans, but everyone must pay the amplified prices associated with them.

The ACA also prohibits insurers from discriminating against potential enrollees based on their health status. This provision has provided access to insurance for millions of Americans who had previously been denied needed coverage. It also added millions of sicker consumers to the insurance pool, further driving up rates. We need a solution that safeguards protections for the vulnerable, yet also reduces costs in the system.

Last year, over 17 million consumers purchased ACA-regulated plans. One way to reduce risk in this market is to make the pool larger – over 10 times larger. About half of Americans get their health insurance through their employer. In round numbers, the figure equates to about 163 million people. This group is, on average, healthier than the cohort buying ACA plans. If employer-sponsored health insurance were eliminated, risk in the health insurance market would be spread over a broader group of healthier consumers. As a result, rates should come down significantly.

Employees may have concerns about the affordability of plans because they’re not used to paying all the costs for their health care. In 2017, the average annual family premium was $18,764. Employers paid about 70 percent of it, or $13,049. The benefit is difficult for employees to quantify, if they even realize they’re getting it. Further, the benefit is untaxed. The federal government loses an estimated $260 billion a year by excluding the employer-sponsored health insurance benefit from payroll taxes.

Employer-sponsored health care subsidies are just as unwarranted as taxpayer-based subsidies offered to marketplace buyers who can’t afford their insurance. From an equity perspective, either everyone should get a subsidy or no one should.

Ironically, many argue in favor of the ten essential benefits because the coverage mirrors what is already provided through many employer-sponsored plans. This logic is problematic because it assumes that employees would want all the benefits they receive through employer-sponsored insurance if they had to pay for them on their own. The 10 essential benefits requirement should be lifted, allowing insurers to offer a broad array of products. Consumers will self-ration, buying only the services they need. This should bring down the cost of care for tens of millions of Americans.

The Affordable Care Act is just one aspect of the American health care system that must be corrected. Spending on Medicare and Medicaid has reached unsustainable levels, the opioid crisis is ruining the lives of millions of Americans, the obesity epidemic is driving up health care costs — the list goes on. Supporting the elimination of employer-sponsored health insurance is one step that millions of Americans can take to kick-start the much-needed transformation of our health care system.

 

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