The Continued Decline of Employer-Sponsored Health Insurance

Today’s Managing Health Care Cost Indicator is 53.5%

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A report from the National Institute for Health Care Reform this week reports that 53.5% of Americans under 65 were covered by employer-sponsored health insurance in 2010 – a startling 10 point drop over only four years.  This continues a long term trend – almost 70% of Americans were covered by employer-sponsored health insurance in 2001. 

Employer-sponsored health insurance can decline for three reasons

  1.      Fewer people have been employed.
  2.      Fewer employers might offer health insurance.
  3.      More employees might decline employer-sponsored insurance, usually due to high employee premiums.

The Great Recession has reshaped all three elements of the employer health insurance market.  It will take us years (or decades) of growth to get back to employment levels that would have been predicted pre-Recession – and fewer jobs for applicants has meant a labor market where employees have more readily accepted poorer benefits – grateful just to have a job.   

More employees are working as independent contractors rather than full employees – and therefore ineligible for employer benefits.  Further, employers have felt enormous pressure to lower their costs –and with benefits (largely health insurance) often running an additional 30% of payroll, many employers have offered plans with lower benefits and higher employer premiums.  The higher premiums mean that more employees will opt-out –and be uninsured.

Government-sponsored insurance has picked up a substantial portion of the slack. Medicaid has increased from 9.5% of the population to 17.6% from 2001-2010, and even Medicare coverage has increased from 1.6% to 3% of the population (presumably more Americans who qualify for disability).    Still, the uninsured went from 14.1% to 19.5% of the population. (The 15% usually cited includes the elderly, who are nearly universally covered by Medicare).

Employers are advantaged purchasers of health insurance. They have a ready-made and stable group (sothey can spread risk across the population, and  it’s easier for actuaries to estimate future costs.)  They can enroll employees and families easily – lowering transactional costs compared to health plans enrolling individuals and small groups.

But employer-sponsored health insurance also causes “job lock,” where those with serious illness in their family are unwilling to change jobs for fear of insurance interruption.  This decreases labor flexibility – lowering overall growth and productivity. 

The decline in employer-sponsored health insurance illustrates the importance of establishing other ways to obtain health insurance.  These alternative means should have low transactional costs, and should allow substantial spreading of risk over the population.  That’s why we need health insurance exchanges to maintain access to health insurance and health care, and an individual mandate (or something close) to discourage the healthy from opting out.  

The nature of employment in the US has changed substantially, and the ACA allows the insurance market to effectively respond to these changes.  We’ll see what happens this week during Supreme Court arguments over the constitutionality of the Affordable Care Act.