What happens when a public health crisis and an economic crisis occur at the same time? Many people get sick, many people lose jobs. But what happens in a country where health insurance is largely tied to our employers? Many people become uninsured at precisely the worst time — a time when they may need costly treatment for a serious sickness.
This is what is happening now in the United States.
Some mistakenly suggest that this is a problem with private insurance, but our problem is not private insurance, but job-based insurance. About half of the country gets its health insurance through their employer, its spouse’s employer, or its parents’ employer. This represents the strong majority of private health insurance. Only about 6% of the country buys insurance on its own.
Our employer-centric system is an accident of history. World War II wage controls limited employers’ ability to raise wages, so they began offering health insurance as a way to compete for workers. Soon after this, Congress excluded employer-sponsored health insurance from taxation.
This approach made more sense when more people worked in traditional 9-to-5 careers and rarely changed jobs or moved. Today’s workforce is much more mobile. People now change jobs an average of 12 times, and increasingly people are working in nontraditional “gig” or independent contracting jobs that often don’t come with a full plate of benefits.
The coronavirus pandemic is exposing the problem of employer-centric insurance more than ever. The Congressional Budget Office expects unemployment to exceed 10% due to the pandemic. This represents millions of newly jobless workers. Many of those people and their families will also lose job-based health insurance.
These workers may go uninsured (during a pandemic!), pay extremely costly COBRA premiums that average about $1,700 monthly for family coverage (without an income!), buy insurance on their own, perhaps with the help of an Obamacare subsidy, or enroll in Medicaid, the safety net program, if eligible.
None of these options are very good. Reform is needed. But importantly, reform was needed before COVID-19. It’s been widely recognized that the tax exclusion is regressive and distorts the insurance market. It limits consumer choice: About 80% of employers offer only one choice in plan. Employees can only choose to opt in or out. And it contributes to “job lock,” the phenomenon where people don’t want to leave a job because they don’t want to lose health insurance.
This system was particularly problematic for people with serious medical conditions prior to Obamacare, because if they faced a significant gap in coverage due to losing a job (or other reasons), this often exposed them to insurance denial, high markups on premiums, or exclusions for coverage for treatment related to their condition. Obamacare mandated an end to these practices. But Obamacare also brought higher premiums, fewer carriers, and narrower networks. It harmed the market for individually purchased health insurance plans while doubling down on the employer-centric model (with an employer mandate).
One place the law deserves credit: It did attempt to correct for the inequitable tax treatment of nonemployer plans with its complex system of tax credits and subsidies. But this wasn’t effective and didn’t provide the transformational change our insurance system needs. A better approach would be to replace the tax exclusion with another more equitable, flexible form of tax relief for healthcare expenses. The best way to do this would be to dramatically reform and expand Health Savings Accounts.
In lieu of health insurance, employers could contribute to workers’ HSAs, and employees could use that money to choose a plan. Our safety net, including Medicaid and the Obamacare subsidies for individual insurance, could also be reformed to entrust resources directly to patients through HSAs, rather than sending money to insurers and hospitals, as they do now. This would help people keep the same plan even if they lose a job. It would also infuse our health insurance and healthcare markets with greater competition (meaning lower prices) and accountability, as patients (not employers, not bureaucrats) would be in control of resources.
A pandemic is a terrible thing to live through. Many people will lose their lives. Many will lose jobs. Many will lose health insurance. But we must work to minimize all of the above losses. One way to do this is to finally address the key structural flaw in our healthcare system, namely that it centers on employers, not patients. Let’s change that.