Employer Sponsored Healthcare to Disappear

USAToday had a good article about Healthcare this morning on the front page. I think the article makes some key points that many of us would prefer to think won’t come about.

Imagine that healthcare benefits went the way of the pension and basically disappeared. After a transition period, I am sure it would be fine, but the short-term impact, chaos, and safety net issues would be significant.

The article mentions several ideas being discussed in DC, both of which would likely cause employers to lose their ability to write this off as a business expense:

  • A health insurance market in which people buy policies on their own while armed with tax credits or deductions or
  • A market where people are able to buy insurance through group-like “exchanges,” with some government oversight.

A few statistics in the article include:

  • The percentage of all employers offering health insurance in the past eight years peaked in 2000 at 69% and has fallen steadily since, hitting 60% this year, according to an annual survey of employers by the non-partisan Kaiser Family Foundation.
  • Among small firms of three to nine workers, the percentage offering insurance has dropped even more — from 58% in 2001 to 45% this year.
  • From 2001 to 2005, the number of uninsured U.S. workers rose by 3.4 million.
  • Almost 19 million workers — 17% of all employees — were uninsured in 2005, according to the Kaiser Commission on Medicaid and the Uninsured.
  • A household earning $40,000 this year would have to pay 8% of its pretax income to cover the average share paid by workers — $3,281 — for a typical family policy offered by employers, which this year cost $12,106. That doesn’t include deductibles and co-payments that those with coverage must pay.

“People should be nervous,” says Len Nichols, an economist at the Washington think tank New America Foundation. “People aren’t so afraid of losing their jobs as (of) not being able to afford health insurance even with a good job,” he says.

The whole scenario makes me think of a worse case scenario like you get from your cable company or phone company. You are one of millions of customers. Especially if you are not a profitable customer. What is their incentive to serve you and make you happy. What are you going to do – go someplace else?

With the restrictions on pre-existing conditions and without some government oversight, individual insurance would not be a model I would actively embrace. We have seen homeowners insurance companies discriminate against people with claims. It would expose a problematic set of misaligned incentives.

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