Employer-Provided Insurance Is Not As Good As You Think

(This image is from the Tufts University School of Medicine website.)

For a long time now many Americans have been deluded into believing employer-provided insurance is a good deal for them. They look at it as though it was something their employer is giving them for free. That is simply not true. The truth is that the insurance is just part of the compensation provided for the work the employee does for the company -- and if that insurance was not provided by the employer, then that part of the compensation would be earned as ordinary wages.

In other words, the employee is actually the one paying for that "employer-provided" insurance. But even though the employee pays for it, they have no say in what that insurance covers (or what insurance company it is purchased from). Some companies provide a good insurance package, and others provide an inadequate one (where the employee still has high out-of-pocket expenses for health care). It was hoped that Obamacare would set minimum standards for these employer-provided policies -- but unfortunately, the Supreme Court decision last week in the Hobby Lobby case showed that was not true. Employers, by claiming a religious exemption, can refuse to provide insurance covering medical care they don't like (or don't want to pay for).

If the ridiculous Supreme Court decision has any upside, it may be to wake Americans up to the fact that employer-provided insurance is not the great deal they have been told it is (by the employers). Maybe we can now get past this delusion, and re-examine the entire question of how health insurance and health care is provided in this country.

Uwe E. Reinhardt has written a very good article about this in the New York Times, and while I recommend you read the entire article, I bring you part of it here.

The ruling raises the question of why, uniquely in the industrialized world, Americans have for so long favored an arrangement in health insurance that endows their employers with the quasi-parental power to choose the options that employees may be granted in the market for health insurance. For many smaller firms, that choice is narrowed to one or two alternatives – not much more choice than that afforded citizens under a single-payer health insurance system.

Furthermore, the arrangement induces employers to intervene in many other ways in their employees’ personal life – for example, in wellness programs that can range from the benign to annoyingly intrusive, depending upon the employers’ wishes.

And what kind of health “insurance” have Americans gotten under this strange arrangement? Once again, uniquely in the industrialized world, it has been ephemeral coverage that is lost with the job or changed at the employer’s whim. Citizens in any other industrialized country have permanent, portable insurance not tied to a particular job in a particular country.

Nor has this coverage been cheap by international standards. American employers can be said to have played a major role in driving up health spending per capita in the United States measured in internationally comparable purchasing power parity dollars, to roughly twice the level found in other industrialized populations. As a recent article in the health policy journal Health Affairs reported, a decade of health care cost growth wiped out real income gains for the average American family during the period from 1999 to 2009.

The Supreme Court’s ruling may prompt Americans to re-examine whether the traditional, employment-based health insurance that they have become accustomed to is really the ideal platform for health insurance coverage in the 21st century. The public health insurance exchanges established under the Affordable Care Act are likely to nibble away at this system for small and medium-size business firms, especially those with a mainly low-wage work force.

In the meantime, the case should help puncture the illusion that employer-provided health insurance is an unearned gift bestowed on them by the owners and paid with the owners’ money, giving those owners the moral right to dictate the nature of that gift.

The fact is that there is a better way. A way to provide quality health insurance for all Americans, do it at a lower cost, and take employers and private insurance companies out of the medical decision-making process. We need to go to a government-run single-payer health insurance system (something like Medicare for all). Other developed nations do it, and it works well for them. There is no reason why it wouldn't work in the United States.