Employer-based Health Care Insurance: Not So Exceptional After All

Abstract

For some time, it has been common for policy experts to criticize the U.S. health care system’s reliance on employer-sponsored insurance. For individuals, access to health care coverage before enactment of the Affordable Care Act (ACA) often depended on employment with companies that provided good benefits. For companies, the connection between employment and health care coverage is thought to impose a competitive disadvantage with overseas counterparts, who do not have to provide health care coverage as an employee benefit. But the problems with employer-based coverage have been overstated and misfocused. While the United States may be unusual in its reliance on employer-sponsored insurance, U.S. employers are not exceptional in terms of their role in financing health care spending. Employers in France, Japan, and the Netherlands also shoulder a high percentage of their countries’ health care costs. Moreover, American businesses likely would not see a decrease in their share of health care spending even if the United States overcame political obstacles and adopted a government-operated, single-payer system. Instead of contributing to the cost of their employees’ private health care coverage, employers would have to contribute to the cost of the payroll or other tax that would fund single-payer care. There is less benefit than meets the eye for employers from an elimination of employer-sponsored coverage. The adoption of ACA diminishes even further the incentives to discard employer-sponsored coverage. Experts rightly criticized the effect of employer-sponsored coverage on workplace mobility. But the "job lock" problem largely disappears under ACA. Now, the entrepreneur will be assured of access to federal subsidies for the purchase of affordable, community-rated insurance. If there is an argument for abandoning employer-based coverage, it lies in concerns about cost containment. While U.S. employers may not bear a disproportionate share of health care costs compared to their overseas counterparts, their total employment costs may be driven up because health care spending is so high in the United States. But even if individuals were to purchase their policies directly from insurers or receive their coverage from the government, concerns about costs would exist. What is more important is that governments in other countries play a much bigger role than does the U.S. government in limiting health care spending. In other words, the role the government plays in regulating health care prices — whether paid by private or public insurers — is much more important than whether employers play a major role in the health care system.