For all those Americans faced with higher health insurance premiums or less coverage (that’s most of us), the temptation is to blame the Affordable Care Act. Maybe instead we should be blaming the one thing the ACA didn’t significantly change: employer sponsored insurance—the norm for most working Americans.
Although the ACA imposed some new standards for coverage, ESI employers remain free to dictate most insurance details, the tax-exclusion of ESI benefits is largely unchanged, ESI premiums are still generally independent of income, and small employers can still offer ESI or not.
Unfortunately for millions of workers, it’s a model that’s increasingly neither affordable nor equitable. What seemed a reasonable approach fifty or sixty years ago when healthcare costs were far lower is now one of the most regressive health insurance systems in the industrialized world.
The Kaiser Family Foundation’s most recent employee benefits report demonstrates the problem.
Average ESI premiums are now $6,250 for an individual and $17,500 for a family. Most workers must pay part of the premium, with contributions averaging rather more than $1,000 for individuals and around $5,000 for family coverage. Most employees are also faced when they need care with substantial deductibles, averaging $1,300 for an individual and two or three times that for a family. (These figures are averages; in many cases, especially for smaller firms, the numbers are much higher.)
The out-of-pocket costs for premium contributions and deductibles may be tolerable for a manager earning $200,000 annually but can be a catastrophe for a$55,000 median income worker with a family. A look at the numbers for two typical employees shows just how unfair ESI has become.
The $200,000 manager with a family receives a tax-free benefit worth $22,400 in after-tax dollars, while the $55,000 worker gets only a $20,100 benefit. While both pay a $5,000premium contribution, it’s just2.5 percent of the manager’s salary,but almost four times this percentage of the worker’s pay. An even biggerinequity comes with the deductibles: incurring a typical $4,000 family deductible may be unwelcome for the manager, but it’s a crisis for the worker facing a choice between forgoing urgently needed care and financial disaster.
And it’s getting worse.
Each annual rise in healthcare costs requires employers to decide between increasing their share of premium costs and passing more of the burden onto their workers. Arecent survey of projected 2016 employer benefits illustrates what’s occurring. Faced with average 6 percent premium increases over 2015 levels (assuming no change in coverage), the typical employer is choosing to bear just a third of the increase, while dealing with the other two-thirds by simultaneously raising employee contributions and reducing coverage (usually by increasing deductibles).
Based oncurrent trends,in ten years’ time ESI premiums will average around $10,000for individuals, with employees paying close to $2,000, and some $30,000 for family coverage, with employee contributions near $9,000. Deductibles are expected to rise even more steeply, as employers try to control costs andalso avoid the Affordable Care Act’s delayed “Cadillac tax,” intended to curb overly generous coverage, but now likely to hit many more workers than originally expected.
If recent years’ pattern of close-to-inflation wage increases continues over the next decade, the well-paid manager (at $250,000 a year by 2025) will be able to afford the $9,000 family premium contribution and a potential deductible of $5,000 or more, but the average worker (at a projected $69,000) may find these costs impossible to bear. Two comparisons shows the unfairness.The manager will receive a benefit worth $38,500 and the worker one worth $4,000 less. Meanwhile, the manager will pay 3.6 percent of income as premium contribution and the average worker a big13 percent. (For lower-paid workers, the percentage will be even greater.)
Simple arithmetic shows thatby 2025, the combination of premium contributions and deductibles is likely to result inmany workers having to spend up to a quarter of their income to get any care at all.
The Affordable Care Act may have made healthcare available to more Americans, but in its attempt to minimize disruption for the majority of employees, it perpetuated a system that is increasingly unfair and unaffordable for those same workers and their families. (It’s also a system that healthcare economists have criticized for hurting smaller employers, reducing employment flexibility, damaging the overall economy, and doing far too little to encourage insurer competition.)
A fundamental re-think is needed. If we want employee health insurance to be fair and affordable, we must abandon the ESI system’s one-size-fits-all approach to premiums and deductibles. As in virtually every other industrialized nation, the cost of health insurance should be tied in some way to income.
Better yet, we should eliminate the employer role entirely. Replacing ESI and its unfair tax subsidies with coverage selected by individuals – not employers — would have several advantages. Insurance would no longer be tied to employment or be dependent on employer decisions, the true costs of healthcare would be more apparent, the bias against small businesses would be eliminated, employees would have more choices, insurer competition would be enhanced, and – most important of all – coverage costs could fairly reflect family income.
Roger Collier is the founder of the Campaign for a Rational Healthcare System (www.rational-healthcare.com). He was formerly CEO of a national healthcare consulting firm.