Leave health insurance to the professionals

Workers want high-quality health insurance. Their employers are best positioned to provide it — and have been for decades. Efforts to replace this proven model with other approaches will not generate better results for a number of reasons.

It's more challenging than ever for employers to staff their ranks. Nearly three-quarters say they're having trouble attracting new talent. More than six out of 10 say it's difficult to retain the talent they have. Offering quality health benefits can help them overcome these challenges. 

Employers first began providing health insurance in the 1940s. They did so in response to wage controls that the federal government imposed during World War II. They still needed to attract workers, so they began offering ever-more generous health benefits to get around the wage controls. The Internal Revenue Service gave the scheme a boost by exempting employer-sponsored insurance from tax.

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That basic structure persists today. Employers generally cover the bulk of workers' premiums, and employees pay their share with pretax dollars. So a dollar of employer-sponsored coverage is actually worth more than a dollar of cash wages. People who shop for coverage on the individual market, by contrast, must pay their premiums with after-tax dollars.

The upshot is that people with employer-sponsored coverage generally enjoy thousands of dollars in additional tax-free compensation relative to their peers who purchase insurance on their own.

The outsized value that employer-sponsored insurance delivers is incredibly appealing to workers. A 2018 survey found that employer-sponsored health insurance was either the "deciding factor" or a strong "positive influence" in taking a job for nearly half of Americans. And according to recent polling from the Kaiser Family Foundation, nearly seven in 10 people with employer-sponsored insurance rate it as excellent or good.

Yet some policymakers want to tear down the employer-sponsored system. Some Democrats have called for the creation of a government-run insurance option to compete against private health plans. Progressives have pressed for the abolition of private insurance — and for the federal government to become the sole healthcare payer in the United States. 

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Both policy paths would be enormously expensive and deprive the more than 54% of the population that gets insurance through work of coverage they generally like. A public option would do so slowly, while single-payer would do so quickly.

Others in the health policy community see expanded use of health reimbursement arrangements as a way to nudge more workers into the individual market. The idea is to change employer-sponsored health insurance from the defined benefit status quo to a defined contribution model.

Here's how it would work: Employers would contribute untaxed money to an HRA controlled by an employee — perhaps what they would've spent on that employee's insurance premium. The employee can use those untaxed dollars to pay for insurance through the individual market and cover out-of-pocket healthcare expenses, if there's anything left over.

Perhaps he'll choose a low-premium policy that costs less than the amount he receives in an HRA from his employer. In this scenario, he's essentially declaring that he doesn't find the employer-sponsored insurance status quo sufficiently valuable. Or perhaps he'll select a pricier policy and add some of his own money to meet that higher premium. Here, he's signaling that he didn't find his employer-sponsored coverage comprehensive enough. Some employees may appreciate that kind of control over their healthcare dollars. But many will not.

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Health insurance is complicated. People shopping for coverage on their own may struggle to evaluate the benefits and drawbacks of potentially dozens of health plans on the individual market. Which one best suits their medical needs and budget? Are they better off with a high deductible and low premium, or the reverse? Does the policy they're considering cover their doctor, or the best hospitals and providers in their area? Answering any of those questions wrong could cost them thousands of dollars — or result in a medical catastrophe.

Further, most Americans don't have the knowledge to answer those questions. According to a 2018 survey, only 4% of Americans could correctly define deductible, co-insurance, co-pay and out-of-pocket maximum. Nearly two-thirds of millennials couldn't define any of those health insurance terms. Under the employer-sponsored system, they don't need to master this lexicon. They can rely on an expert benefits team to do so for them.

Finally, individuals will lose the bulk purchasing power they enjoy under the employer-sponsored status quo if they're forced to seek out coverage with HRA funds on their own.

There's strength in numbers. Employers representing a sizable pool of beneficiaries — employees and their families — can wrest much better deals out of insurers and providers than individuals can.

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The administrative costs associated with servicing individual policies also tend to be higher than those for employer-sponsored plans. So in the employer market, more of every premium dollar can go toward providing benefits than processing paperwork.

The employer-sponsored system delivers high-quality health benefits to the majority of the U.S. population: nearly 180 million Americans. We should be looking for ways to get more people employer-sponsored coverage, not fewer.