I am at one moment baffled and at another annoyed by all the noise being made about employer-sponsored health insurance in this country.
There are those who would seek to end the widespread system of employer-paid health insurance and shift to a Medicare-for-everyone format.
(Related: A Health Care Way Forward)
As I see it, the employer-paid health insurance program is one of the best forms of profit-sharing going. The people screaming that employer-paid health insurance is bad should instead be out in the streets demanding higher quality benefits.
Coverage to Covet
As a self employed individual for most of my insurance career, I find myself both proud and envious of my son the accountant, my daughter the teacher, and my wife the teacher because of the excellent health insurance plans they are provided at work. The plans also offer dental coverage and disability income coverage and other benefits beside. While my family members pay a small portion of the cost (and I would argue that the only reason that their payment is a good thing is because everyone should have some “skin in the game”) the overall effect of their employer-paid coverage is to give my family members quality health insurance which they… (given their lack of familiarity with the insurance market place), were not forced to purchase on their own but rather were guided into by an employer representative capable of making a good choice based on quality and cost of the product.
I do a lot of work in the Medicare supplement and Medicare Advantage space, and much of this happens because people are about to retire. I can tell you that these folks are absolutely shocked to find out how much health insurance actually costs and how much of that cost was absorbed by their soon to be ex-employer.
Why are employers motivated to pay for the cost of their employee’s health insurance? The answer is…because the costs born by the employer are tax deductible. For employees with quality plans, this seeming generosity on the part of the employer is, in fact, a very nice form of profit-sharing.
To pay for health insurance, a company needs to generate enough profits to cover the premium cost.
Obamacare’s Little Problem
So, who is generating the noise against employer-sponsored health insurance, and why are they doing it?
While many people are under the misconception that a Universal Healthcare program would solve a lot of problems, the fact is, that many more problems would be created.
Ever since the Clintons (Bill and Hillary) decided that a massive reform of the health insurance marketplace was needed, the phrase “health care” has started to subtly replace the older phrase of ”health insurance.”
This change was pushed for by the forces that objected to any form of insurance underwriting and who felt that pre-existing condition conditions should be entirely eliminated as a way of denying health insurance to someone.
As a person with pre-existing conditions of my own, I found that this argument resonated with me. Then I started to think (and Obamacare has given me the answer): Once you eliminate the notion of underwriting from health insurance, do people have any reason to maintain healthy habits? The answer is: Look around you. Does everyone look robust and healthy? I think not.
Americans eat too much; smoke too much, use alcohol and illegal substances; and spend too much time sitting.
Employer Plans: The History
The original factor that made employer-sponsored health insurance tax-deductible was the existence of wage and price controls in effect when World War II ended. Employers looking for ways to attract and reward employees were given a break by Congress. It was decided that heath insurance premiums paid by an employer were considered a necessary and proper expense of the business and therefore deductible.
It’s this simple fact that allowed our free enterprise system to go wild.
On the one hand, scientists, doctors, and device manufacturers now had a motivation to create a universe of medical innovation, knowing that, if they created something worthwhile, there was a health insurance apparatus in place to reward their creativity and effort.
Students, realizing the potential for significant income, were motivated to study medicine. Competition for limited spots in schools of medicine used market forces to guide only the best and the brightest to careers in medicine.
How could this system have been improved? Two ways I think. Employers taking a tax deduction for health insurance should have been given a tax dividend for encouraging employee health and wellness. A “no fat” dividend, if you will. The better the overall health score of the employee population, the larger tax dividend would be. This could be assessed by looking at claims history for each employer. Many employers would thus be encouraged to offer a high-quality employee wellness program, which would be a win for everyone.
Secondly, for those who lost or did not have employer health insurance and had qualifying pre-existing conditions, a plan modeled on Medicare Parts A,B, and D could be offered. For people with no preexisiting conditions, medically underwritten plans could be made available that, because of full disclosure, could be made very low cost.
The “noise” demanding a shift from health insurance to “healthcare” is coming from several sources whose agendas do not necessarily mesh.
I believe that our federal government, which is stretched for cash, is looking for every way it can raise revenue. It is, therefore, looking to kill the very generous employer health insurance tax deduction.
(Related: Kleinbard to Congress: The Cows Must Die)
Individual special interest groups not understanding the benefit of the employer profit-sharing aspects of health insurance give voice to the politicians looking to close what they see as a tax hole that would otherwise raise millions in new tax revenue.
Many of the vocal crowd are claiming that plans for individuals are not nearly as affordable as the Affordable Care Act suggested they would be. Throw in high deductibles and oinsurance, along with very flimsy networks, and many now covered under individual plans are unhappy, while survey after survey shows employees are generally satisfied with their health insurance.
As a new government takes control in Washington very soon it will be interesting to see what measures that government proposes to deal with our national budget deficit. I hope it doesn’t decide to go after the tax deductibility of health insurance and employee benefits, as it once considered going after the tax-free build up of cash in a life insurance policy.
Jerry Cohen is a broker in the life, health and Medicare supplement insurance markets. His office is in Port Jefferson Station, New York.