Employment-based Health Insurance. What’s the Present and What’s its Future?
Employment-based health insurance covers about half of all working age Californians. It has been steadily declining in relative importance for the past 40 years. During that time, many more Californians became uninsured, and the Medi-Cal program enrollment grew. Recently under the ACA, mid sized and large employers were required to offer coverage of the ten essential health benefits to their full time employees. Low, moderate and middle income uninsured employees were offered coverage through Medicaid (MediCal) and the Exchanges (Covered California) respectively depending on their income. Uninsurance rates were cut in half in California.
Employment-based health insurance is supported by federal and state tax subsidies – i.e. it’s not a taxable income benefit to the employees, and it’s a deduction for the employer. This subsidizes roughly 1/3rd of the cost of health insurance through employment. The subsidy is highly regressive, in other words the highest paid employees get the largest subsidies for their coverage and the lowest paid get the least. And it’s invisible to all but the initiated.
The Affordable Care Act requires all employers of 50 or more full time equivalent employees or more to offer coverage. For the most part, they already did so. The bar was set very low; employers were required to pay 60% of the lowest cost bronze plan (covers 60% of expected medical expenses). To put it simply under the ACA, employers were required to pay for 36% of expected medical bills, and the employee was on the hook for the remainder. In real life, employers pay on average about 75% of the premiums for a gold level plan (80% of expected medical expenses); some offer more extensive coverage and pay a higher percentage of the premium.
Small employers are not required by the ACA to offer any coverage although many do so. The offer rates increase steadily with employer size; very few of the really small businesses offer coverage. The small businesses with higher wages are far more likely to offer coverage, and those with relatively low wages are far less likely to offer coverage.
Employees in agriculture or arts and entertainment are far less likely to be offered employment-based coverage than those in finance, health care, insurance, manufacturing or public administration. Full time employees are twice as likely as part timers, the self employed and the unemployed to have employment-based coverage. Unionized workers are far more likely to have generous benefits, and public sector employees have the highest rates of employment-based coverage.
The results of all this are that low wage employees with less education are not very likely to have employment based coverage while high wage employees with lots of education are far more likely to have employment based coverage. Medi-Cal and premium assistance through Covered California are far more important for lower wage and less educated workforces than is employment-based coverage.
Where are we going? Under the Trump approach, the lower wage workers with expanded Medicaid and premium assistance lose their coverage and become uninsured. Under the Sanders/Warren “Medicare for All” plan, all workers shift from their existing coverage into an expanded Medicare coverage. Under the Biden plan, premium assistance is expanded to more middle-income workers who get their coverage through the Exchanges (our Covered California); uninsured low income in the “hold out” states like Texas and Florida get Medicare coverage, and more employers and employees, at their option, can buy into Medicare (the public option).
Where should we be going, and how do we get there? If we are to keep employment based coverage and get to truly universal coverage, we should follow the successful models in Germany and the state of Hawaii. In other words all workers of all types (and all immigration status) are covered through employment-based coverage. The low income and the unemployed would have coverage through Medicaid (or Medicare in the hold out states). This is a tough go, as many in the employer community will be adamantly opposed.
If we are to move to Canadian style single payer, we are going to have to convince middle and upper income Americans to give up their employment-based coverage and pay higher taxes for Medicare coverage. This is an even tougher go as the medical industry, the insurance industry, the employer community, and many higher income workers with good employment-based coverage will be adamantly opposed.
The first and highest priority is to keep from going backward under a second Trump term. The second priority is to allow states (or regional consortiums of states) the flexibility and federal financing to test out the German and Canadian models and see what health coverage system works best for their residents.
Prepared by: Lucien Wulsin