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Why employers won’t cut and run when individuals own health insurance

Americans agree: Our health-care system needs a serious overhaul. A number of recent surveys, including one by Harris Interactive and another by the Commonwealth Fund, show that over 80 percent of Americans believe the system needs either “fundamental change” or “a complete rebuild.”

Most of us rely on an employer for health coverage. Unless you’re retired, your employer in all likelihood picks, pays and actually owns your health coverage.

If the status-quo system relies on employers, and if the system needs fundamental change, then it stands to reason that we should take a hard look at revamping the employer’s role.

Serious health-care reforms do just that. The Mayo Clinic Health Policy Center’s current reform principles focus on moving from employer ownership to individual ownership of health coverage. 

Leveling the field
Most reforms that promote individual ownership would eliminate the current tax preference for employer-paid coverage and, instead, level the field so that all Americans get the same health-care tax advantages. Sen. John McCain’s plan does this by creating a $2,500 health-care tax credit for individuals and a $5,000 tax credit for families. (Contrary to Barack Obama’s charge that McCain’s plan taxes health benefits for the first time ever, the McCain plan offers a far more generous tax benefit for low- and middle-income America than the current employer-based tax exemption.)

Individually owned coverage would fix big, systemic flaws. When individuals own their coverage, it’s portable from job to job. Portability makes health coverage more secure at a time when jobs are less stable. Moreover, according to the Mayo Clinic, individual ownership “gives patients more control and choice,” and because insurers would now compete for the individual, the insurer would offer more competitive rates and improved service. This is intuitively true.  You don’t need a degree in economics to understand that when a family pays for something from its own budget, the family will look for the best deal that best meets its needs. 

Nonetheless, many people find it tough to believe that they would be better off taking ownership over their health coverage.

The trouble is that too many people mistakenly believe they will be left entirely on their own to wander the wilderness of coverage choices where the cost of whatever they choose comes entirely out of their own pocket.  

It’s not hard to see why. 

It’s not an either/or scenario
Surveys and news stories tend to oversimplify policy choices to either/or scenarios — either you’re on your own or your employer takes complete care of you.  For instance, to gauge the public mood over the McCain plan, the Kaiser Family Foundation asked people how difficult it would be to manage coverage on their own as if the automatic implication of the McCain plan was to fend for yourself.

The public needs to understand this is not an either/or scenario. 

Individually owned coverage does not mean removing employers from the health-care system entirely. Employers can still be an instrumental resource for navigating the system. Moreover, employers can retain a strong funding role even when they transfer buying decisions to workers.

While I hesitate to bring up 401(k) retirement saving plans at a time when so many Americans lament unparalleled financial losses, the analogy is just too perfect to demonstrate how employers might maintain a vital role even when coverage is individually owned. So I ask that you momentarily suspend your disgruntlement or despair or whatever your present emotion might be toward your 401(k) and focus wholly on its mechanics. 

The reality is, employers could take a hands-off approach to individually owned 401(k)s if they chose, yet they remain intimately involved, which should allay a number of worries over individually owned health coverage.

• People worry that employers will stop offering health plans altogether.  Employers offer 401(k)s because it’s a vital recruitment tool; a health plan is no different.

• People worry that employers will no longer fund individual health coverage.  Nothing forces employers to match their employees’ 401(k) contributions, but most employers do offer a match. Again, recruitment matters.

• People worry that choosing health care will be too confusing. Not only do 401(k) plan designs simplify investment choices, but they increasingly offer sophisticated tools that help workers automatically buy and sell funds in order to remain diversified against the sort of financial crisis we’re currently in.

• People worry that individuals will drop coverage.  Employers recently increased enrollment in 401(k)s through automatic enrollment.  Employers could similarly auto enroll workers in individually owned health plans.

Unlike 401(k)s, health coverage carries an added benefit for employers: Good health care aids employee productivity by reducing sick days and keeping workers more focused. So when the system moves toward individually owned health coverage, don’t expect your employer to abandon you.  It’s just not good business. 

Peter J. Nelson is a lawyer and a policy fellow with the Center of the American Experiment.


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Comments (9)

  1. Submitted by Khalid Rehman on 10/29/2008 - 08:50 am.

    In supporting the claim that individually owned health insurance as proposed by Senator McCain, you have conveniently ignored few other issues. An important problem of deregulating the system would be “cherry picking” where the health insurance companies would select and offer insurance only to those who are healthier and of less risk. Currently, an insurance company that contracts with my employer must take all the employees regardless of their health status. On my own, I may run the risk of being denied the coverage. Secondly, by removing the State regulations (allowing the purchase of health insurance across the State lines, the regulatory controls will be lost and we will eventually run the risk very similar to the sub-prime loan mess.

    A better option, that none of the candidates is offering would be a single payer plan which would if nothing else, reduce hundreds of administrative layers and costs. I joined an institution as a staff physician 18 moths ago. The office sent out my credentialing documents to dozens of health plans. Some of them have yet not processed my application.

    Khalid R. (Physician and fellow of American college of physicians).

  2. Submitted by donald maxwell on 10/29/2008 - 12:32 pm.

    One has to laugh as the author of this piece asks one to suspend your judgment on 401K’s, just as it is becoming obvious how unreliable they are. Then the writer goes further and asks one to believe that letting a circus of private, for-profit, health insurance hucksters will really be the best way to fund health care benefits for all. Is he serious? This must be satire.

    Then things clarify: the writer is paid by Center for the American Experiment, the right-wing propaganda mill that also brought us Katherine Kersten.

  3. Submitted by Tom Kelley on 10/29/2008 - 07:58 pm.

    RE: Dr. Rehman’s comments
    Privately owned health insurance does not equal de-regulation.

    Cherry picking by insurance companies goes on whether health-care policies are privately owned or employer provided. Employers have their coverage rates raised across the board when enough employees consume too many medical services. Older, less healthy employees are let go to keep the employer’s health insurance rates lower.

    Please inform us how putting individuals in control of their health care costs and insurance equates to the sub-prime mess where government intervention forced banks to loan money to unworthy borrowers.

    To be certain, a single-payer system will reduce a physician’s paperwork load, but in the long run, it also reduces a physician’s income. Talk to some of your colleagues in Canada.

    RE: Donald Maxwell’s comments
    Properly diversified 401K’s, IRA’s, etc, are doing just fine, thank you. Lopsided investments sold at a short-term bottom of the market, not so much.

    I went from stock to cash at about DJIA 11,000 a few years back. I wasn’t fool enough to buy in at 13,000 thinking it would go to 20,000. I’ve been waiting a few years for a drop like the current one to go ahead and buy back in. I will continue to beat inflation and most market indexes by just using common sense. The union/employer pension plans and social security haven’t been doing nearly as well.

    If it’s all the same to those on the far, far left, I’d just as soon manage my own health care insurance and 401K.

    As for the “circus of private, for-profit, health insurance hucksters,” who exactly do you think sells employer-provided health insurance policies?

  4. Submitted by Michael Friedman on 10/30/2008 - 02:52 pm.

    Within the long post of Mr. Kelley, I have learned two things:

    1) He values physician income over the human right of access to health care.

    2) He does not object to age discrimination in the workplace — or health insurers providing substantial incentive to employers to avoid hiring employees who may have greater risk for health conditions.

  5. Submitted by Tom Kelley on 10/30/2008 - 06:08 pm.

    Yet another leap by the left.

    I have no affinity for higher (or lower) pay for physician’s, I was merely bringing a bit of reality to Dr. Rehman’s view that single-payer is a panacea.

    It is certainly not a panacea, not for him and not for his patients. This is not a matter of opinion, it is an observable fact in place right next door in Canada.

    I learned all I needed to know about government health care when my young, liberal, Canadian friend got sick while visiting Dallas a few months back. In an unprompted remark, he expressed how easy it was to visit a quickie-med across from the hotel, compared to the BS he would have gone through to see a doctor back at home in Toronto.

    In social medicine, the health care that some believe is a human right gets rationed just like physician pay gets rationed. This is happening in virtually every social medicine program on the planet, including right next door in Canada.

    As for age discrimination in the workplace, for me it’s not an academic debate over a latte or a memorized political talking point, I have real first-hand experience with it.

    So again, stating the fact that it does exist to refute the myth that cherry-picking would only happen with privately owned insurance is in no way condoning the widespread reality of age discrimination (based in large part on the cost of insuring older employees).

    Short version = Hell yes I object to age discrimination.

    Is that short enough?

    While in the most hyper-technical sense it may be accurate to say that social medicine schemes don’t discriminate, the rationing that inevitably occurs is de facto discrimination because it limits access to services.

    Where does someone else’s human right to receive health care stop and my human right to keep at least a portion of the fruits of my labor begin?

    I don’t have a plasma screen TV, should I be required to pay for the health care of those who purchased a $7,000.00 TV instead of buying health insurance?

    The McCain proposal is really pretty simple. Get a job, get paid, buy your own health insurance policy, get a tax credit that mostly/completely offsets the cost of said policy, take that policy with you when you change jobs or move across state lines, no problems, no cradle-to-grave attachment to an employer or to politicians.

    Okay, I’ll concede that the first step, “getting a job,” might be a stumbling block for some folks.

  6. Submitted by Bernice Vetsch on 10/31/2008 - 09:15 am.

    Our problem lies in our definition of health care as a commodity to be bought and sold instead of as a component of the common good. We all benefit when health care is a right for all of us — as are access to police and fire protection, for instance.

    We have allowed the for-profit insurance industry to become the “decider” in all health care matters and it will, of course, decide all such matters to its own benefit. Hence the two million or so employees whose job it is to find plausible reasons to deny payment.

    Single-payer universal health care, Medicare-for-All, would save about a third of our national health care bill. Private insurance’s administrative costs are about 30% while Medicare’s are 2 to 3%. We could pass John Conyers’ bill, HR 676, and begin saving billions per year even during our 10-15 year changeover period.
    We do NOT have to duplicate the weaknesses in other systems (like Canada’s, whose waiting times are greatly exaggerated by opponents).

    Business could forget altogether the burden that providing insurance for employees has become. And 47 million Americans could let go of the fear that comes with being uninsured.

    See, for instance, Physicians for a National Health Plan (www.pnhp.org), Minnesota Universal Heath Care Coalition (www.muhcc.org), and, for an analysis of the McCain plan and how it would harm ordinary Americans, FamiliesUSA (www.familiesusa.org).

  7. Submitted by Tom Kelley on 10/31/2008 - 10:23 pm.

    For a slightly more objective view of how typical Americans would be affected under each candidate’s plan, visit this link:
    http://www.pbs.org/pov/pov2008/criticalcondition/special_presidential.html
    found on the http://www.familiesusa.org website.

    The site contrasts the liberal take of FamiliesUSA against the conservative take of the Heritage Foundation, alongside a reportedly neutral viewpoint from academia.

    (Strange, I never thought I’d see the day where I’d refer anybody to the far-left PBS for an objective view.)

    Reading the entire comparison, not just the liberal side, one sees how the plans effect four people in real-life worst-case scenarios. From the care perspective, neither plan has a clear advantage over the other.

    The key difference is individual control vs. government control. Time and time again, large-scale government control of anything has proven unsustainable.

    A major portion of the currently uninsured have made a deliberate choice to be so, fully capable of funding their own insurance, but choosing to spend on items other than basics like food or shelter.

    I’ve no problem with government providing a means-tested safety net for the truly poor, but funding health care for the infamous sCHIP poster boy so his father can maintain an expensive woodworking hobby, rather than having a real job, is government-enabled robbery of taxpayers.

  8. Submitted by John Olson on 11/06/2008 - 07:33 am.

    Current and anticipated future costs of medical care drive insurance rates. Professional fees (and most other fees) reflect a sizable portion that ends up going back to the insurance company as well in the form of malpractice insurance. Why do you think obstetricians, anesthesiologists and neurosurgeons have among the highest malpractice insurance rates out there?

    Yes, technology has increased costs as well, but even there the manufacturer has to have adequate liability insurance to cover potential product defects that may arise. Throw in workers compensation insurance, property/casualty, etc. for their practice (office) and one common denominator emerges: insurers.

    It is no panacea by any means, but one way of at least arresting the growth of health care costs is to limit the amount of damages that can be collected. Should patients be prohibited from suing in legitimate cases of negligence, malpractice, etc.? Of course not. But any award that is made through the courts is immediately sliced by a significant percentage by the lawyers for the plaintiff.

    Once “reasonable” limits are established on damages (the definition of “reasonable” is open for discussion as well), then and only then will we see cost containment. Even in a single-payer setup, lawsuits will still be filed, awards or settlements will still be made, and plaintiffs will see a major chunk of that award evaporate in attorney fees and taxes.

  9. Submitted by Tom Kelley on 11/13/2008 - 02:02 pm.

    #6 “We do NOT have to duplicate the weaknesses in other systems (like Canada’s. . . ).”

    Ah, the grand liberal fantasy – take a policy which has demonstrably failed, over and over again, and assume that “hope” will somehow produce a different outcome.

    http://ca.news.yahoo.com/s/capress/081113/health/health_health_care_comparisons

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