There’s a common delusion making the rounds of Congress and The New York Times that says we must force employers to pay more of their employees’ health insurance costs in order to reduce the workers’ financial burdens. The problem is that employer insurance payments are simply one component of total employee compensation. Arbitrarily increasing this part will necessarily cut the funds available for wages and salaries. Mandating such behavior would constitute nothing less than an enforced reduction in worker pay for a government-favored use, i.e., to support a wasteful, inflationary, mediocre-quality medical system. Any way you cut it, the employer mandate burden would be borne squarely by America’s workers under the disingenuous guise of employer responsibility. Every reputable economist knows this. So do our cynical, dissembling members of Congress.
They would have us believe that the modern philosopher’s stone called legislation will magically make one plus one equal three. That’s the essence of the two Senate health reform bills and the House’s own 2000-page orgy of excess (HR-3962) that would exact penalties from employers that don’t provide enough health insurance.
What is so remarkable is that these drafters are simultaneously proposing a health insurance exchange to allow all uninsured individuals to buy their own insurance. If the exchange idea is so good, why not allow employers to get out of providing insurance altogether and just pay all that money to their employees, so that they can buy their own coverage through the exchange? Instead, the proposed bills would actually penalize employers that do this by making them pay government fines for such rational behavior. This raises the obvious question: what’s so special about employer-based insurance that it must be so desperately preserved? The answer? Nothing.
You see, despite its longstanding dominance, employer health insurance is a disaster. Consider the following:
- Cost Control: Employer insurance has never been capable of controlling health care spending. Indeed, it has long fanned medicine’s inflationary flames by promoting moral hazard, insulating employees from any concern about price or medical necessity, and by providing doctors and hospitals a blank check for excessive, low-quality care at ever-increasing prices.
- Small Employers: Employer insurance is enormously biased in favor of large employers. Small companies can easily pay twice as much for identical coverage. Just a few sick employees can raise rates to unaffordable levels for everyone.
- Employee Choice: Less than half of all employers allow even minimal employee choice of insurers, benefits, medical networks, or how much they pay. All such decisions are made by human resource managers who aren’t even allowed to know the individual health needs of their employees.
- Moral Hazard: Employers rarely allocate higher insurance rates to employees who smoke, abuse alcohol, or are obese—even though such personally controllable health risk factors account for 75% of all health care costs.
- Accountability: Because employees can’t take their business elsewhere, insurance companies aren’t accountable to them. That allows them to unilaterally delay and deny valid claims, drop providers, and hide behind impenetrable bureaucracies.
- Fairness: Most employers charge younger employees the same insurance contributions as older workers who normally consume five times as much care. Those refusing to take it must forfeit the employer’s “share” and thus relinquish a significant portion of their own compensation to the employer’s bottom line.
- Efficiency: McKinsey has estimated that all these separate employer insurance arrangements waste $75 billion in non-value-added administrative costs that are ultimately borne by employees.
Employer-based group insurance is inherently unsustainable. Every CEO I’ve spoken to has said he would gladly get out of the health insurance business and give the money to his employees to buy their own insurance if a market existed that offered equal or better value—something the insurance exchange’s proponents claim they will deliver.
Thus, the question remains why health care reform proponents are so intent on preserving employer-based health insurance. The answer lies in two factors. First, the proposed insurance exchange, being utterly unworkable, is hardly an acceptable alternative to employer coverage. It is guaranteed to lessen competition (with or without the public option), exacerbate already out-of-control medical costs, require massive government bailouts, and accelerate the looming health care train wreck. Second, a proposed middle-class entitlement will pay direct subsidies to insurance exchange participants making up to $88,000 per year. Can you imagine the cost to taxpayers if we let employers drop their insurance coverage en masse, pay the money to their workers, and flood the exchange with 177 million employees, many of them now eligible for further government support?
The tragedy in all this is that a well-crafted individual insurance market is a necessary part of true health reform that can solve all the major problems to provide high quality care for half the cost of today’s broken system—and without requiring middle-class welfare. But the nonsensical health reform bills currently making their way through Congress will produce no such outcome. They really need to be stopped.