Why An Employer-Based Health Insurance System is Bad for Both Employers & Their People

Recently New York Times health care writer Margot Sanger-Katz argued that the company-based health insurance system in the U.S., "an artifact of history" that is frequently inefficient and maddening, does promote innovation as companies struggle to contain health care costs. But it seems to me that the current system actually serves the interests neither of employers or their employees. As I argue in a chapter on health insurance in my forthcoming book, Dying for a Paycheck, here's why our employer-based health insurance system is bad for almost everyone--well, maybe not the health insurers or benefits consultants, but everyone else.

Employers have to grapple with figuring out what to offer their employees and how to cope with the administrative snafus that arise with regularity. I have seen both these problems first-hand, having served for years on Stanford's Committee on Faculty and Staff Human Resources, a very talented group of experts that mostly struggles to provide guidance to university human resources on what to do about health insurance. The university hires people to work in human resources and administer our benefits plans. Most of their time and effort goes into sorting out health insurance issues. The benefits team in turn hires actuarial consultants like Towers Watson or Mercer to provide analysis, benchmarking and advice. So there are the direct costs of staffing and hiring outside expertise, and of course, the close to $200 million a year the university pays for health insurance premiums.

Then, when things go wrong--claims are denied, drugs fall off of formularies, people can't get authorizations for procedures--employees, naturally enough, contact the benefits people in HR. So, there goes more time and effort sorting things out. Moreover, as the "point people" for health care issues, it is far from clear that university HR staff and Stanford get much "love" from having to cope with the many service and eligibility issues that they don't cause but nonetheless have to try to fix. As Stanford raises its health insurance rates paid by employees--and copayments--each year, people complain.

Moreover, labor economists have documented a phenomenon called "job lock" that inhibits employees from moving to better jobs and achieving a more desirable match between employers' skill demands and employees' work abilities. As noted in Chapter 4 of Dying for a Paycheck, studies estimate a reduction of job mobility in excess of 30 percent because of health insurance concerns. But "labor markets work best when employers can freely select workers and workers can freely move to employers who offer...the best setting for their talents and abilities."

Employees also suffer under the current arrangements. To understand why, we need to begin with three facts:

• There are literally hundreds of studies that document the relationship between health insurance and health. For instance, one review noted that "uninsured adults have less access to recommended care, receive poorer quality of care, and experience worse health outcomes than insured adults do."
• As the Kaiser Family Foundation documents each year in its reports on insurance coverage, employers have steadily shifted costs to employees and also the percentage of employers offering health care coverage has declined over time.
• The Gallup organization in 2015 noted that "nearly one in three Americans delay health care because of cost" and that this proportion had not changed, even after the passage of the Affordable Care Act. Gallup summarized its own poll results and numerous other articles that noted "patients' struggles to access care and medications prescribed by their physicians."

It does not seem right that people's health depends on the whims and beneficence of their employers. CEO's come and go, economic conditions change, and the priorities placed on employee well-being shift. Because of the strong connections between health insurance, health care costs born by employees, and health outcomes, people's lives are literally at risk as employers drop coverage, raise deductibles and co-payments, and make other changes that affect access to care.

Finally, as more and more people work in the so-called "gig economy" without having employers at all, employer-based benefits such as health insurance seem to be ever more of an oxymoron.

Job lock, employer burdens, and employees at risk for bankruptcy and ill-health are all real, empirically-demonstrated effects of an employer-based health care system. Maybe that is one reason why the U.S. is unique among industrialized countries in having an arrangement in which access to health insurance--and therefore health care--depends on someone's employer and that employer's choices.