Proposals Would Change Employer Role in Health Insurance

​As the cacophony of arguments over how to overhaul the nation's health system gets louder, employers are left wondering how proposed changes would affect their bottom line, their ability to attract talent and the quality of care their workers receive.

Employer-sponsored health insurance is the nation's largest source of insurance, covering 181 million people, according to the U.S. Census Bureau.

During the last century, medical advances made better health care available but out of reach for many, spurring the creation of health insurance plans. During World War II, companies had a hard time distinguishing themselves and luring workers while under government wage freezes, so many turned to generous health benefits to attract talent in a tight labor market. Employer-based insurance became the heart of the U.S. health delivery system, especially after the IRS determined that health benefits were tax-deductible.

Most other developed countries opted for different paths, such as the government health insurance programs of England and Canada.

In recent years, political debate has centered on 2010's Affordable Care Act (ACA), which opened up insurance marketplaces for the uninsured and got rid of limits on coverage for pre-existing medical problems. Republicans have tried unsuccessfully to repeal the ACA.

And now Democrats, in the midst of a spirited contest to choose a presidential candidate, are offering an avalanche of comprehensive proposals to overhaul how health care is delivered, including "Medicare for all," a national health plan run by the government that would replace employer-sponsored insurance. Any significant changes would have a major impact on employers, workers and the U.S. economy.

Less Than Perfect

The current system of employer-provided coverage makes it hard to implement cost-saving measures because there are so many different companies and layers involved, says Ed Dolan, senior fellow at the Niskanen Center, a nonpartisan think tank that promotes social change.

It can also lock employees into jobs they don't want because they can't afford to lose coverage. Additionally, the current system provides more benefit to middle- and high-income workers than those with moderate incomes, he says. That is because companies with more professional workers and higher-paid employees are more likely to offer coverage than those with minimum-wage and part-time employees, he explains, so the benefit is skewed toward the wealthier.

But employers and others are dubious of government-run programs because of the potential costs, possible delays in medical care if too many patients flood the system and lack of any ability to tailor insurance coverage to their particular workers' needs.

"We are change-averse as it comes to health benefits and skeptical any new plan from the left or right is going to be better than what we have," says Neil Trautwein, vice president of health care policy for the National Retail Federation. "We don't want to cast our employees into the unknown."

Not to mention polls show people say they like their coverage now. One reason they're satisfied is because they don't use it much, Dolan says. The healthiest half of the population accounts for just 3 percent of health care spending, he says. And, he adds, "people are afraid of change."

But some employers favor a single-payer national health program. Richard Master, CEO of MCS Industries Inc. in Easton, Pa., figures it would save his picture frame manufacturing firm money while reducing the amount the country spends overall on health care. Employers have faced huge increases in their health insurance costs for 20 years.

"We are being eaten alive by our own health care system," says Master, who founded an advocacy group of business leaders called Business for Medicare for All. "We cannot have a vital consumer-based society if we don't address the quantity of money going into health care."

'We are being eaten alive by our own health care system.'
Richard Master

Prescriptions for Reform

Vermont Sen. Bernie Sanders, during his 2016 bid to become the Democratic presidential nominee, drew attention to changing the nation's health system. Now overhaul plans are growing like weeds in the legislative vineyard. They differ in scope and tactics, and therefore also in how they would affect employers. Here are some of the major categories and examples of proposals.

Single Payer/Medicare for All

A single national health care system, like Sanders' plan (through Medicare or some new option), would offer coverage for all U.S. residents while eliminating private insurance. Consumers wouldn't need to pay premiums or deductibles. Supporters say it would lead to huge savings through economies of scale while eliminating layers of paperwork. Critics worry about the cost to the country's treasury and about whether patients would flood the system if they didn't have out-of-pocket costs holding them back from seeking care.

"Free, of course, costs an enormous amount of money," says Joseph Antos, health policy expert at think tank American Enterprise Institute. "If something looks like it's free, there will be an explosion of overutilization."

That could mean long waits for medical care, he says.

But Master says national systems in Taiwan and Japan don't have lines, and although there is some waiting in Canada, people there are happier with their health plan than in the U.S.

Impact on employers: Companies, especially smaller businesses, would benefit from this plan, according to Dolan, because they would not pay to cover employees and administer the insurance plan.

"Medicare for all would end employer coverage with a big bang, but that doesn't seem politically realistic," he says.

The proposal's financial impact on employers won't be known until it's clear what sorts of taxes, such as payroll and corporate rates, would be raised to pay for the benefit. The price tag could be high. "I'm afraid what we gain in the right pocket goes out the left pocket in taxes," Trautwein says.

Master calculates that he'd pay less than the 22 percent of payroll he spends now on employee health coverage. Currently, a family insurance plan costs $28,000 a year, of which his company pays more than three-quarters of the cost and the employee picks up the rest.

Many big companies don't trust government to reduce overall health costs and are wary of Sanders and others who promise to tax the wealthy. "Who's going to be on the chopping block? They think they are," Antos says.

Workers likely would pay less than they do now when payroll taxes are weighed against their current premiums and other health care costs, Dolan says.

In theory, employers will pass their savings on health benefits along to workers in the form of higher wages. The reality, however, could be much different. Some of the windfall could get diverted to shareholders instead, says Jennifer Tolbert, director of state health reform at Kaiser Family Foundation, a nonpartisan think tank that focuses on health.

'We are … skeptical any new plan from the left or right is going to be better than what we have.'
Neil Trautwein

Public Option/Medicare for America/Medicare X

Under these proposals, employer-sponsored insurance would compete against a federal insurance program. Consumers with incomes under a certain threshold wouldn't have to pay premiums or other costs. If companies dropped their coverage or their employees switched to the public insurance option, the companies would be required to pay an 8 percent payroll tax on those workers, under one of the more detailed plans.

Impact on employers: Companies' medical costs could go up as doctors and hospitals shift costs onto them, Antos says. Medicare currently pays doctors about 75 percent of the rates they get from private insurance payers and reimburses hospitals at about 60 percent of commercial rates. If more people flood into the federal program, providers will have to charge more for private insurance to make up for it. "Employers would fairly quickly see their insurance rates go up," Antos says. They "will look at this and say, 'We can't live with this.' There will be pressure to drop the [insurance] program."

Many lower-paid workers would opt for the public plan because it could offer better coverage and lower premiums, Dolan predicts. The estimated 8 percent payroll tax that employers would have to pony up for workers who choose the public plan could end up costing less than companies are paying now to offer insurance.

But many businesses don't like the idea of paying for insurance they have no control over for those workers who opt for the public plan, Trautwein says. And if their younger, healthier employees opt for a cheaper public plan, it could leave companies insuring just the sicker employees and drive up plan costs. Plus, figuring out which workers chose a public option and then paying into the public program for them would create a paperwork nightmare, he says.

The vast buying power of a national system, Tolbert says, could mean lower costs and a broader range of doctors to choose from in public plans than what an employer can offer, but it's too early to know the bottom-line cost for employers.

Medicare Buy-In/Medicare at 50

Americans closer to retirement (ages 50-64 in some proposals and 55-64 in others) but not yet eligible for Medicare would be able to buy into a government insurance program under these proposals. Some analysts believe this approach has the best chance of becoming law.

Impact on employers: Even skeptics of a health care overhaul see some merit in this idea because older Americans have a harder time finding coverage. If older, less healthy workers gravitated to a public plan, it would raise costs for the national plan and could leave employers with workers in their employer plan who are actually less expensive to insure. But it does lessen the tie between older workers and companies that want to retain them through generous benefits.

State Public Option/Medicaid Expansion

Unlike Medicare's status as a federal program, Medicaid is a hybrid state and federal system, which covers low-income residents and those with disabilities. One option is to give people the chance to buy coverage through Medicaid. But the quality of coverage varies greatly by state and reimbursement rates for medical providers are low, which could make it harder for patients to find doctors. States could choose whether to offer the option.

Impact on employers: The effect would be less extensive than other options, Tolbert says, because only some states likely would enact the change.

State Reforms/Surprise Billings

Some states aren't waiting for the federal government to act and are changing health care laws on their own, especially in areas experiencing opioid addiction and fighting for lower prescription drug costs, Antos says.

New York state set up an arbitration system for surprise billing claims to give patients options when they're hit with large bills. That process will urge providers to lower their bills and employers to increase what they cover, he says.

Several other states have moved to protect patients from surprise bills, such as for emergency care received outside their health insurance plans' network of providers.

Impact on employers: Many large companies are self-funded, so they could end up with higher costs under these laws. And if many states opt for different health systems, multistate employers will have a lot more to keep track of, Trautwein says.

But proposals to let people in certain groups set up their own association health plans, as some states are considering, aren't likely to have a big effect on employers. And Washington state's public option, which begins next year, is aimed at individuals who need coverage, so it won't have much impact on employers either, Tolbert says.

Prospects Depend on Election Results

After the 2020 elections, a Republican president, Senate or House would likely block any major health care overhaul. If Republicans are in charge, they're likely to focus more on efforts to reduce health care costs, Antos says, such as through promoting more coordinated care among providers, bundled payments for care and other incentives to reduce spending.

But if Democrats win the White House and both houses of Congress in 2020, reform will be on the agenda. Will it be broad reform like Medicare for all, or something smaller like offering a public option? "It's a lot easier to tinker, even if it's not the best way to go," Dolan says.

If private insurance coverage remains available, it could serve as a check on a large public insurance program, Dolan says. In the current Medicare system, for instance, private Medicare Advantage plans give patients an additional insurance option. Even the United Kingdom, well-known for its public health care, has a private option that wealthier patients turn to when there are problems with the government system, Dolan says.

So, in the event Democrats control Congress and the White House, it will still be extremely difficult for them to agree to scrap the current system and replace it with a national health plan. "It's a heavy lift," Tolbert says.

Allowing just older Americans or maybe even a broader group to buy into a federal program is more likely, Antos says.

All the political gridlock is just fine with some employers, because it means that they keep their plans.

"We're not in any hurry to give up that coverage," says Trautwein of the retailers trade group. "It has worked very well for both employers and employees. It's an integral part of employee compensation."

Tamara Lytle is a freelance writer in the Washington, D.C., area.