Historical Accidents and New Ideas: Revisiting Employer-sponsored Health Insurance

By Nathan Rothwell

As the remaining provisions of the Affordable Care Act are phased in over the next several years, the American health care system may be forced to rethink how health insurance is written and delivered in this country.

The United States is unique among industrialized Western nations in that most of its citizens obtain coverage from the private market, primarily from their employers. According to recent statistics, 58% of working Americans under the age of 65 get their health insurance through their employers. While this percentage has steadily decreased over the past several years, a majority of working-age Americans still rely on their employers for insurance, a trend that has persisted for decades.

A quick lesson in history can explain why this is the case. While health insurance policies first made their appearance in the United States during the early 20^th century, World War II saw a dramatic rise in employer-sponsored health care plans. This is because wage and price freezes were put in place to tightly regulate the American wartime economy, making it difficult for businesses to attract new workers to replace those who had gone off to war. However, fringe benefits (such as sick leave and employer-sponsored health insurance) were not subject to wage freezing, allowing employers to offer these additional benefits in lieu of additional pay.

This system allowed for 75% of Americans to have some form of health insurance by 1958. For better or worse, the trend of obtaining health insurance as an employment benefit has persisted to present day. While this system is often lauded as a motivator for Americans to find and keep employment, it does nothing to address the needs of those who are unable to work – namely, the sick and elderly. Even poor Americans who are able to work either cannot obtain insurance through an employer, or are required to contribute toward group insurance premiums (which can be quite high for those with chronic health conditions).

Healthcare exchanges put GOP at crossroads: placate Tea Party, or abandon core principles

By Nathan Rothwell

What the new web-based health insurance exchange might look like.
Image courtesy of www.Medhealth.com

After President Obama won his re-election bid weeks ago, the future of the Patient Protection and Affordable Care Act (PPACA) became more certain. This legislation, which is widely considered to be the Obama Administration’s most significant accomplishment to date, faced possible repeal if Obama did not win a second term. Now that he has, it seems all but certain that the remaining components of the PPACA will be phased in over the next several years.

One noteworthy component is a mandate for the creation of state-wide health insurance exchanges. By January 1, 2014, all 50 states are required to establish such an exchange, which is essentially a web-based marketplace where consumers can compare and purchase private health insurance plans. Certain eligible individuals can purchase these plans with federal subsidies, or enroll in Medicaid.

Early versions of the PPACA called for health insurance exchanges to also include a public option, where consumers could purchase health care provided by the federal government. Significant Republican opposition led to the removal of the public option, but political debate over these exchanges remains. Much of this debate is over who will run them, and how they will be operated.

Each state was permitted the option of running the newly-mandated exchange on its own, with no involvement from the federal government. The Department of Health and Human Services (HHS) recently established a Dec. 14 deadline for states to inform HHS if they wanted to run their own exchanges. Thus far, only 13 states (and the District of Columbia) have indicated that they will.

A number of other states, however, have indicated that they will not set up their own exchanges. Not surprisingly, most of these states (such as Texas, Kansas, and South Carolina) went for Mitt Romney on Election Day, due in no small part to their hope that Romney would deliver on his promise to repeal the PPACA and effectively kill the health insurance exchange mandate. Even in the wake of the Supreme Court ruling on the PPACA and President Obama’s re-election, these states remain entrenched in their decision not to run their own exchanges.

There is a certain irony here that appears to be lost in these states, which are almost overwhelmingly run by Republican governors (only Missouri comes to mind as a state that has a Democratic governor and remarkable opposition to ObamaCare, although not from Gov. Nixon’s office). Many of them oppose the idea of health care exchanges solely because it violates their preference for small government; however, by not electing to run the exchange itself or at least in partnership with HHS, these “small-government warriors” are allowing the much larger federal government to move in and run everything on their own.