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November 09, 2007

In (Partial) Defense of Employer-Based Health Insurance

To say a bit more on the subject of the employer link in health care, it's true, as Ramesh says, that an employer-based system is bad. It does not follow, however, that anything that weakens that link is good. The fact that A is bad does not mean not-A is good. So you have to think seriously about why the employer link is a problem, and, somewhat more counter-intuitively, what its benefits are.

The problems with the employer link are, in short, portability, job lock, and insulation. You can't move your insurance around, you're locked into jobs you don't necessarily want to keep, and you can't see the stresses on the health care system because your employer is paying the premiums. These are bad things.

But there are good ones, too: Your employer gives you a risk pool to buy into, so you're no longer ejected for preexisting conditions or poor health. Your employer contracts out with insurers, offering you more choices, at a lower price, and with an administrative buffer -- an HR person to turn to if the going gets rough. Your employer offers an easy, centralized access point to the system. In other words: They organize the system, and give individuals a way to pool their purchasing power for better prices and treatment.

The Republican plans get half of this: They realize the employer-based system is bad, that it distorts employment decisions and insulates from risks. But they don't understand the importance of risk pooling, of administrative buffers, of protections from the whims of your insurers, of easy ways to navigate the system. They want to trade in a poorly organized, heavily fractured, ad hoc social insurance system for a vulnerable, exposed, system in which every individual is on their own. As Ramesh says, it's definitely a more radical plan. But it's a bad one. The problems with the system are that it's heavily fractured and ad hoc. The benefits are that it resembles, for those lucky enough to be with large employers, a social insurance system. The Republicans are trying to magnify the failings and minimize the protections.

November 9, 2007 in Health Care | Permalink


It's just like before the Iraq War. They didn't grok the idea that, although Saddam was pretty damned repugnant, a fractured, lawless Iraq as failed state in the center of the Middle East would be even worse - both for Iraq's own people and as a geopolitical problem for the United States.

Right-wing thinking is so devastatingly simplistic, cartoonish really: if X is bad, then smash X.

Posted by: low-tech cyclist | Nov 9, 2007 3:52:25 PM


Very well-said.

There are relatively easy fixes from a policy standpoint. Take the activities you rightfully point out that employers do today that are helpful, and put them under the auspices of the "insurance exchange" that is being offered by Obama/Clinton. Risk pool, administrative buffer, lower prices, etc. all could be achieved that way.

As you said

The Republican plans get half of this: They realize the employer-based system is bad, that it distorts employment decisions and insulates from risks.

and the Democrats are offering the basic structure of the other half, i.e. insurance exchanges. This is precisely why I'm frustrated with the Dem big three's plans. A few more things like this, and the plans would be much better-- both substantively and politically.

Posted by: wisewon | Nov 9, 2007 3:55:16 PM

In other words-- the big miss by Democrats is to similarly enable people with the choice of delinking health care from employers, but doing it in a way that made sense.

Republicans are offering something in principle (without the substance) that the Dems are not, and its something that will be attractive to a lot of people. Rather than chastising the right on the inadequacy of offering tax breaks for individual coverage, we should be encouraging the Dems to add more of this to their plans (moreso than has been done by HRC) and to offer a plan that clearly makes it possible for people to fully control and choose their health plans in the future.

Posted by: wisewon | Nov 9, 2007 3:59:57 PM

It does not follow, however, that anything that weakens that link is good.

I dunno ... there has been a lot of rhetoric to this effect from all y'all young turks, whether liberal or conservative, about health care.

Anyhoo, this logical falacy as low-tech-cyclist points out, also was involved in (selling) the Iraq war. No coincidence. Many of the neo-cons are former Commies or their descendents. And this sort of reasoning is endemic in Communist thought (and also in Dispensationalist thought ... hmmmm ...).

Posted by: DAS | Nov 9, 2007 4:18:07 PM

One thing about risk pooling: because health care cost can be predicted to considerable degree, the only effective risk pooling is by involuntary groops. Yes, some people stay with an employer because of their health care cost, but luckily, most people have to be employed anyway.

Otherwise there is a spiral of the plan sticking by a hair from the bottom being selected by those with less than stellar health, so its costs has to be higher, so it is selected only by those who KNOW DAMN WELL that their cost have to be higher so the spread in insurance cost becomes enormous, and then we can invent the plan a bit more crappy, and a bit cheaper, than the one at the bottom (for which the price will be preventatively increased).

EMployer-based insurance is bad for self-employed, small companies with small pools etc. But Repuvblican proposals are disaster.

A decent comparison would be a crappy car that someone may need to use. Sending it to the junkyard before we can afford a replacement is not a good idea, especially if it can still run for a number of years. Sure, we have to replace it EVENTUALLY.

Posted by: piotr | Nov 9, 2007 4:23:22 PM

Any discussion of health insurance needs to address what the end-goal is: what people want is what employer-based health insurance gives them: the ability to remain insured in exchange for working and only worry about, at most, modest co-pays associated with health problems, and the knowledge that you won't lose your insurance just because you get sick.

The republican plan seems to be: make employer-based health insurance economically infeasible, then a miracle occurs, then everyone will have access to a health insurance market that will provide coverage as good or better than the coverage they had with their employer.

What killed off the Clinton plan in 1993 was the fear that those who were covered now would end up worse off afterwards. The Republican plans sound vulnerable to this sort of attack.

Posted by: Tyro | Nov 9, 2007 4:43:04 PM

Can someone explain to me how, if I have an individual policy with a health insurer along with 100,000 other individuals, that I'm not in a pool of 100,000 instead of a pool of 1? How is that different from me starting work at a company with 99,999 empolyees and then becoming part of their pool of 100,000? Not conceptually, not in theory, but in how it affects the insurer financially. Seems to me just a way of jacking individual rates up to one degree or another for anyone less than perfectly healthy with no bad history? I just don't get it.

Posted by: BlueStreak | Nov 9, 2007 6:14:41 PM

BlueStreak, I understand your inquiry as I am self-employed and one of those 1/100,000+. The power of the large employer to negotiate with insurance companies to create a choice of plans at an attractive price which provide outstanding coverage and benefits to shrink the risk of catastrophic costs for the employer or the insurance company has very little to do with the individual employees who will also benefit.

How I see it. The insurance company which provides 100,000 individuals with non-group policies (with the current regulations) is able to protect themselves from catastrophic costs by limiting coverage and benefits. For example, a large employer would not likely agree to a plan which had a $1500 cap on prescription medications and would insist that the insurance company come up with a better offer. (or perhaps federal regulations take care of this already?)

But in the individual market, almost anything goes with prescription coverage, leaving the insured individual carrying the catastrophic risk of say...$30,000 annual prescription costs for maintenance meds exceeding insurance limits and not available through assistance programs...just as an example. However, with a group policy, the insurance company would likely be required to pay a greater amount of this annual cost.

So as it is now, insurance companies in the individual market are free to make the rules and free to benefit financially from those rules without the burden of negotiations. This is obviously great for the insurance company. But horrible for the individual.

What I'd like to see is a system where the protections afforded to the employer and the insured within the group market are extended to the individual market. If only all the stakeholders were required to play by the same rulebook (sigh).

Posted by: Lisa Emrich | Nov 9, 2007 6:53:46 PM

Throw 150M new people into the individual market and I think you’ll see some significant change in health insurance. Remember, insurance companies can cherry pick good individual customers only because there’s a fat pipe of business coming through the employer market. Eliminate that channel, and insurance companies would have to look to sign on as many customer’s as possible to create favorable risk pools (for them). In such a situation, insurance companies become a commodity left to compete on price.

There are still going to be those that won’t be able to afford health insurance. In such cases, the government can step in with vouchers or some other tool to help them get insurance.

Posted by: DM | Nov 9, 2007 7:17:04 PM

BlueStreak please allow me to explain why the evil profit greedy insurance company can not treat 1 policy holder in a group of 100,000 like a group of 100,000. When an insurance company sells a policy to group they have eligibility requirements. Generalized they state all employees or a high percentage will be covered by that policy after a waiting period. If they don't sign up by the waiting period they have to wait till open enrollment. This means every person that works for this employer will be paying into the "pool". Young, old, healthy, sick everyone is contributing. Insurance companies know fairly close what 100,000 employees will spend on healthcare so they can set rates and insure the risk. People only come and go based on employment.

Compare this to the individual market. I sell insurance, mostly group but some individual. Most people looking to purchase individual insurance are doing so becuase they are sick and need bills paid. Young healthy people do not buy individual insurance. A number of people will not buy insurance unless they have more in claims then what the premium is.

If any of you can tell me how an insurance company can sell individual policies purchased only by people who have claims greater then their premium and stay in business please do share with us.

The complete lack of understaning of the insurance industry and risk transfer by people proposing changes is scary.

If an insurance company doesn't write policies it won't be in business. Think about that before you come up with these crazy ideas how they are out to screw everyone. I don't see one mention of how individuals try to get over on the insurance company, do you think that doesn't happen? Do you think women don't call up saying they just found out they are pregant and want to buy insurance? All those policies you hate are in place becuase the companies got burned by people doing it. How do you think we got from the liberal no underwriting policies of 15 years ago to the nightmare policies we have today, people abusing the system. Yet not one of you even entertains the possibility of that being an issue or propose how to address it.

Posted by: Nate O | Nov 9, 2007 7:22:42 PM

As a small business owner, delinking health insurance from employment is great for those of us who provide insurance at the expense of my competitors who do not. In many small business sectors there is a race to the bottom in terms of controlling costs to maximize profits or enable you to lower prices to gain market share. I would be thrilled to pay a fee/tax per employee and have all my competitors required to do the same and have all our employees covered. Creates a level playing field without having to screw my employees to get there.

Posted by: Th | Nov 9, 2007 7:42:40 PM

DM, I hope you're posing that scenario as a hypothetical, not seriously thinking it would be a good idea to have the employer-based health insurance system collapse, sending 150M into the individual health insurance market in the hopes that a wondrous new system will arise in its place. Because, as low-tech-cyclist said, that sounds a lot like the Iraq war plan.

If any of you can tell me how an insurance company can sell individual policies purchased only by people who have claims greater then their premium and stay in business please do share with us.

They can't. That's precisely our point. But why should I care? If an insurance company can't make money, it goes out of business and sells its assets to creditors. If I don't have insurance, I go bankrupt, become too sick to work, and perhaps die. Tell me which entity I should be more concerned about.

NateO, your problem is that you assume that all of us have some kind of vested interested in making sure that insurance companies are able to make money. We don't. In fact, we don't really care. We don't care that people might abuse the system. In fact, we know that they will, so we want to construct a scenario where people aren't in a position to try to abuse the system in the first place.

Seriously, I don't care about the health and well-being of insurance companies-- I care that non-dependents and heads-of-households who do not qualify for medicaid can get health coverage. Whether this means that this allows the current business model of health insurance companies to stay in business or not isn't my concern.

Posted by: Tyro | Nov 9, 2007 8:02:52 PM

"This means every person that works for this employer will be paying into the "pool". Young, old, healthy, sick everyone is contributing."

Isn't this what individual mandates would attempt to achieve. Everybody in the pool. Hmm...reminds me of the "Everybody In-Nobody Out" slogan of the "Medicare for All" movement. But I digress.

"Most people looking to purchase individual insurance are doing so becuase they are sick and need bills paid. Young healthy people do not buy individual insurance."

This philosophy is part of the problem as it perpetuates the idea that young, healthy people do not need (or would not choose) to contribute to the pool. I was that young, healthy person once who shopped for insurance after leaving the relative protection of student health insurance and before landing that big job. As far as the job, I chose to be a freelance, self-employed musician in DC.

Now, I'm a smart person with 7 years graduate work under my belt. When shopping, I did NOT immediately go for the cheapest plan. I did my homework, compared policies, asked questions, even considered a plan through the musicians' union. What I chose was an individual plan 'for self-employed' persons with a major carrier in the DC area with BCBS affiliation. It wasn't until 5 years later that I was diagnosed with MS and 'boom!' the true education of health insurance and health policy began.

Nate, I'm just a patient who is being squeezed by the incongruent policies of the insurance company, pharmacy benefits manager, pharmaceutical company, pharmacy, pharmaceutical assistance programs, non-profit programs, local and state government, lack of federal protection, and practically nonexistent safety-net system which would allow an individual to continue to be financially responsible, self-sufficient, and professionally successful without the 'sword of damocles' overhead.

Posted by: Lisa Emrich | Nov 9, 2007 8:13:40 PM

Tyro - I second your comment of 8:02

And NateO, I don't want to wait until "something happens" to get coverage. I want EVERYONE to be chipping in a little bit so that that healthy 25 year old (who all the nuts say doesn't need insurance) IS covered when a drunk blows a red light and broadsides him at 2 in the morning, or when you get cancer (that's surviveable with treatment) when you're 50 and have never smoked, eaten right and excercised your whole life, and so that you can change jobs, or start your own business like all the "conservatives" say you should be able to, without leaving yourself and your family exposed. That'w why we need single payer or something that will accomplish the same thing so that we're all covered (let's leave the "illegal aliens" out of it for just a minute) from the get-go. That's worth something to me.

I don't believe a word out of the Republican's mouths about this, and won't until they demonstrate that they're interested in something other than getting the insurance burden off of businesses simply from and expense standpoint, and want to pay a dime more than they absolutely have to, and will cover EVERYONE. Until then, fuck them. If you want to go live by yourself in the desert (or the mental equivalent) and the hell with everyone else, you can't, so get over it. It's 2007 in case you haven't noticed and we have 300 million people in the most prosperous country in the history of the planet. We can do a hell of a lot better.

Posted by: BlueStreak | Nov 9, 2007 8:20:58 PM


Yeah, I was thinking it could be implemented just as I drew it up in the comment….

Seriously though, I think decoupling work and health insurance is a good thing. I don’t think the individual health insurance market will work as it does today since it will be the primary channel for customer acquisition and insurance companies will need to change strategies to exploit it. A lot would have to be worked through, especially the transitional period – or collapse as you termed it - but at a high-level, I think this can be a completely workable model providing a better system than we have today.

I hope you don’t think the market would behave the exact same way it does today if 150M new customers were added to it.

Posted by: DM | Nov 9, 2007 8:26:23 PM

I hope you don't think the market would behave the exact same way it does today if 150M new customers were added to it.

I don't. I simply want nothing to do with being part of that market when the situation occurs. Hopefully I'll be on medicare by that point. "Step 1, eliminate private health insurance, Step 2 A Miracle Occurs, Step 3 The Market for Individual Health Insurance becomes a wonderful system" is not a plan.

Health insurance is one of those things where I don't want choices, I want guarantees. I'm perfectly willing to "go through the motions" of dealing with "choices" in the individual health insurance market as long as I end up with a guarantee of having insurance that will guarantee covering any health issues I might develop. And I want guarantees that any company I start won't be punished by my insurance company if one of my employees has the misfortune to get sick. And I want the guarantee I won't be punished by an insurance company if I have the misfortune of getting sick.

Posted by: Tyro | Nov 9, 2007 8:36:31 PM


Fair enough. If guarantees are what you seek, I fear you’re going to be sorely disappointed with any healthcare reform. In time, all systems – public, private or somewhere in between – will need to ration given the current rate of cost growth; and in such event, I prefer having a choice.

Posted by: DM | Nov 9, 2007 8:46:10 PM

If you think single payor will solve those problems your mistaken. It's very easy for politicians to promise you the world, it's another thing for them to deliver it. That's the disconnect between liberals and reality. You think just because you can imagine something in your head and it sounds great when you share it with other liberals it will work in reality. How did public housing work out? Welfare? Great ideas, very admirable but they don't work as you envision them. Government is incapable of sustaining large scale programs. Up until 2 years ago Medicare didn't even cover drugs, do you want to be part of a system 20 years behind? I like the idea of cutting edge care if I need it some day. I don't want to be in an antiquated rationed socialist system.

Posted by: Nate O | Nov 9, 2007 8:54:12 PM

Tyro do you have an example of a system where people don't take advantage? Are you implying people never game the government, they historically have been far more suseptable to fraud and corruption then businesses.

We all have a vested interest in insurance companies survieing so they can continue to insure us. Follow your logic do you also not care about food companies, farmers, car manufacturers, or any other sort of corporation? Should we just turn them all over to government control, one large happy communist family?

Posted by: Nate O | Nov 9, 2007 8:58:37 PM

For transportation I can choose a sucession of $500 beaters to get me to work. For food I can choose rice and beans to survive. If I need to be in a full body cast for a year or have my prostate removed I don't have that option. That's why in regards to health care this free-market crap is just that. Crap. I don't want "more health care than I need". I'll spend a couple of hundred or thousand on something small, but if I need to be in a burn unit for 6 months what do I do about that? Let's talk about health care, not deciding on what kind of TV to buy at Best Buy.

Posted by: BlueStreak | Nov 9, 2007 9:05:33 PM

Federal and State government, the same one you want to turn to and give all our money to solve this problem, have made it illegal to sell the policy you are talking about. What your talking about is what all of us should be covered by. A catrostrophic policy to protect us if something unexpected or major happens. It should be up to me to determine how and if I pay for the preventaive care and day to day stuff.

I don't understand why your looking to government when it is they who outlawed the policy you say you want to buy. You say you want to purchase X so your going to give your money to the person that wont let you buy X. Why is free market crap when they are willing to sell you exactly what you ask for but government is great for refusing to let you buy it? DO you just hate free markets so much that everything is their fault even when you can look up the federal and state mandates prohibiting it.

BlueStreak do you want the policy you asked for from the free market or do you want more healthcare then you need from the government?

Posted by: Nate O | Nov 9, 2007 10:04:38 PM

Tyro do you have an example of a system where people don't take advantage?

My point is that we know people would take advantage of the insurance system if they could sign up for insurance "on demand." Thus, it is incumbent upon us to create a system where they would already be covered anyway and not in a position where they would be bankrupted because they couldn't take advantage of the system by avoiding being insured until they needed insurance. I suppose you could worry about someone "overusing" health care in a universal coverage system, but, honestly, the last thing I want to do is see a doctor, whether I have to pay out of my pocket for it or not.

If the problem with private insurance is that people are too willing to "take advantage" of private insurance policies by only signing up for them when they get sick, maybe the problem is the existence of a private, individual insurance market.

I prefer having a choice.

A choice of what? A choice not to be insured? A choice to be rejected by a health insurer? A choice not to have your procedures paid for? We all, I think, want pretty much the same thing-- to know that sicknesses, accidents, etc. are going to be covered if we have to show up in the emergency room or need to see a doctor about a health issue. I think there is a group of people that sees themselves as an investment banker or car buyer who's going to walk in like a big man, sit down at a table and "negotiate a deal" when it comes to their treatment, but those people are few and far between.

Those of us who have a typical insurance plan through our employers are fairly happy with what we have. What we're not happy is that we "can't take it with us" if we switch jobs and we're not happy when the insurance company tries to come up with an excuse not to pay for a procedure, and we're not happy when we come out of the hospital and we end up owing thousands of dollars. Now, if you want the "choice" of having that happen to you, you need to explain why. Because I have no idea why anyone would choose such a thing.

Posted by: Tyro | Nov 9, 2007 10:16:59 PM

The problem here is that when you take away the employer mandate, you don't just, as Ezra suggests, up-end risk pooling (in theory, the "individual market" proponents are right that their risk pool would finally be meaningful... in theory), but what you lose by eliminating the employer mandate is an organizing principle. Everything we've done as a society on the healthcare front for more than fifty years starts with a premise, and that premise is that employers offer insurance. And our other solutions - the VA, Medicare, Medicaid, COBRA - are stopgaps and workarounds for people who can't, or don't, work.

I;m all for changing our system. I think the employer mandate is an outdated, outmoded, and problematic organizing principle (precisely because... some people can't, or don't, work). What I don't see in the alternative proposals... is a new organizing principle (and I don't think you can build the new organizing principle out of a workaround, which is why I don't buy into the "Medicare for All" proposal, either). You can eliminate the employer mandate. If nothing else, Rudy Giuliani, John McCain and others from the right give a pretty good explanation, even if they don't explicitly say so. In their way, so do Clinton and Obama, in a more orderly and thought-through way, but still, in a way that would likely push people into alternatives not offered by employers, and encourage employers to exit. But what they all lack is the idea about how we do it differently, because I don't think a lot of us, really, know how to do this differently - a problem that isn't just about who pays, but also about how we get care, what care we subsidize most, and how best to define care that everyone needs. We know what we know, and we resist change and the bigger the change, the more we resist.

I've said all along, the people who actually oppose single payer - even if they don't say so, or really even know that they're opposing it - are young healthy people who are insured by their employers, the ones who, really, have it best right now. If you want a new system, someone is going to have sell them on it, and selling them on it means giving them an organizing principle. How it works. How it won't leave them in the lurch. How it's cost-effective and no-hassle. Or, you can do what the Republicans are doing, and not tell them. Or, you can do what Democrats are doing and pretend we're "expanding choice and expanding coverage while letting you keep what you like if you like it" when we will likely be doing the same thing the GOP would do, which is pushing employers out of the health insurance business. I just think if we want to make this change, we should say where we want to go first, before heading down a path totally unfamiliar and possibly disastrous. Or better still, we could get more people to understand where we are, and why we can't stay here, since right now, we really barely even do that. Which is why we still have our old organizing principle, and not a new one.

Posted by: weboy | Nov 9, 2007 10:38:17 PM

..wow. A whole bunch of people that want to get something for nothing. That want top notch care, as long as someone else pays for it.

..that can 'eat beans and rice and survive' which for most americans really means fries and twinkies.. then heft your 400 lb bulk into the heart ward for top notch medical care handily prtiovided by the rest of the american public.

Until we deal with cost inflation the idea of public payment is essentially the same as printing money for the docs hospitals and pharm companies.

Posted by: david b | Nov 9, 2007 10:52:35 PM

..although I actually meant to post a comment saying Nice article to ezra before reading all the other comments. ..So Nice article ezra! :)

Posted by: david b | Nov 9, 2007 10:53:36 PM

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