Health insurance is a crucial aspect of healthcare in many countries, including the United States. However, unlike in some other countries, in the US is often tied to employment. This means that individuals typically receive health coverage through their employer. This practice has raised questions and concerns about the reasons behind this system. In this article, we will explore why health insurance is tied to your employer and the implications it has on individuals and the healthcare system.
During World War II, the U.S. government imposed wage controls, making it difficult for employers to attract and retain workers through higher salaries. To work around these wage controls, many employers began offering health insurance as a benefit to attract and retain employees. Insurance was not subject to the same controls and was considered a valuable perk. In 1954, the Internal Revenue Service (IRS) made employer-provided health insurance tax-free for employees, which further incentivized employers to offer health benefits as a way to compete for talent. Insurance benefits are more likely to be provided by larger companies; in fact, an estimated 99 percent of companies with 200 or more workers offer health benefits, according to testimony in Congress.
Economic Incentives for Employer-Based Health Insurance
There were several economic incentives which drove employer-based health benefits. By offering to a group of employees, employers were able to negotiate lower premiums and better coverage with insurance companies, making it more affordable for employees compared to buying individual policies. Also, employer-sponsored health insurance typically involves cost-sharing between the employer and the employee, which helps individuals afford coverage while spreading the risk among a larger group.
Impact on Workers
There are several impacts on workers because of this system.
- People who rely on employer-sponsored insurance may feel "job-locked" and hesitate to change jobs or start their own businesses for fear of losing their healthcare coverage.
- Individuals typically have limited options for plans through their employer, which may not fully align with their specific healthcare needs.
- Not everyone has access to employer-sponsored insurance, especially those in freelancer, part-time or contract positions.
Potential Alternatives for Employer-Based Health Coverage
It's important to note that while employer-sponsored insurance is the primary way many Americans obtain coverage, there are alternatives.
- Government programs like Medicaid and Medicare provide options for low-income persons and seniors/those with a disability respectively. These are income and age-restricted.
- Affordable Care Act state exchanges or marketplaces are public portals where people can compare and shop for health insurance coverage options. The major benefit of a marketplace is that it subsidizes and reduces costs based on your income. Some state-exchange premiums are income-based.
- Individual insurance. Of course, individuals can still purchase health plans from insurance brokers or directly from insurance companies. This is traditionally very expensive.
- Group healthcare. Through platforms like Opolis, individuals can share in the benefits of group purchasing power and access affordable, yet premium benefits.
The tie between health insurance and employment has deep historical roots and is influenced by economic incentives and administrative convenience. While this system has provided coverage for many individuals, it also has limitations and implications for both individuals and the healthcare system. Exploring potential alternatives and reforms is essential to ensure access to affordable and comprehensive healthcare for all.