December 16, 2003 Is The Collapse Of Employment-Based Health Insurance Inevitable? By Jeffrey R. Lewis and Cliff Shannon The political spotlight focused on the alarming rise in the number of Americans with no health insurance has obscured a more important problem. The very foundation of the U.S. health care system -- employment-based coverage -- is collapsing. The U.S. Bureau of Labor Statistics has noted a "dramatic" decline in the percentage of private-sector workers receiving employer-sponsored health insurance coverage, down from 63% in 1992-3 to 45% in March 2003. Private sector coverage costs have doubled in the past six years; double-digit percentage increases in coverage costs are predicted through the end of this decade. The average annual premium for family health insurance, which now exceeds $9,000, will exceed $25,000 by 2010. In other words, in only a few years, average family health insurance costs will approach workers' average annual earnings. Not only are more private employers dropping employee health insurance coverage, those still offering coverage are trimming benefits and passing costs onto employees. In turn, more employees are opting out, unable or unwilling to pay a share of higher premiums. SMC's 2003 survey of local small and mid-size companies found a substantial decline in 100% employer-paid coverage -- from 40% of employers in 2001 to 5% this year. In all, 85% of participating companies said they had increased employee premium contributions, boosted co-pays and deductibles, and/or reduced benefits. And virtually all said they would have no choice but to respond to higher 2004 premiums with more of the same. Employer-sponsored coverage in southwestern Pennsylvania still exceeds the national average, largely due to our region's strong manufacturing sector, which traditionally offers its employees generous fringe benefits. But manufacturing is being battered by intense global industrial competition. One in six American manufacturing jobs was lost in the last two years, and several hundred thousand more jobs, including thousands in our area, are in jeopardy. What should government do? One politically expedient solution -- requiring all employers to pay for employee coverage -- will backfire. California's recently enacted employer mandate is causing thousands of business owners to plan for reduced employment or moving to other states. A similar federal mandate would send thousands of companies and millions of jobs overseas. For now, budget issues dominate the agenda in Harrisburg and other state capitals. In Washington, enactment of a Medicare prescription drug program sapped available political energy; serious debate about the future of employment-based health insurance will wait until after the next year's presidential and congressional elections. Dr. Ken Melani, CEO of Highmark, may prove to be prescient in predicting that national health insurance coverage is inevitable. In the meantime, however, Highmark and other insurers need to put their clout and money behind steps that will at least slow the erosion of privately sponsored coverage and restrain the growth of our uninsured population. First, the costs of health-care services for the uninsured are, directly and indirectly, embedded in what hospitals and doctors charge patients who have health insurance. State and federal officials must stretch the fabric of existing public health insurance programs over more uninsured children and adults. Also, individual states should leverage the buying power of state employee health-care benefits plans to guarantee discounted prescription drug pricing for the unemployed (as Ohio, for one, has done recently). Second, employers need greater flexibility. Large, self-insured employers are exempt from state coverage mandates, but the costs of mandated health-care benefits are a significant and growing financial burden for all other employers. Although each mandate has a constituency, the totality of them creates a Catch-22 situation in which all-encompassing health insurance benefits cost so much that no one can afford them. Repealing individual mandates may be politically impossible. But Pennsylvania could follow the lead of states that are experimenting with so-called "value plans," which allow smaller employers to choose lower-priced (i.e., affordable) health insurance, minus some or all mandated benefits. Third, medical/demographic underwriting needs closer scrutiny. By inaction, the General Assembly and Congress have, to date, signaled approval for health insurance rates to be set according to age and medical status. A business owner who employs several older and actuarially unattractive workers commonly encounters a doubling of his health insurance rates. This has a predictable effect on whether and how coverage is offered. If health insurance is to be regulated and priced like automobile insurance, a tax-subsidized assigned-risk pool for health insurance should be established. Fourth, outdated medical malpractice laws are the silent killer. Lobbyists for trial lawyers, hospitals, etc. argue endlessly, but what really matters is: (a) medical malpractice liability adds about 6% to health insurance premiums; (b) defensive medicine is a major factor when experts calculate that 40% of all health-care expenditures are inappropriate, unnecessary, or harmful to patients; and (3) current medical malpractice law actually impedes health-care improvement by punishing those who acknowledge mistakes. Change the focus of debate from legal liability to how to save the tens of thousands of patient lives lost each year due to medical errors, how to spare hundreds of thousands of hospital patients from injury and suffering due to preventable mistakes, and how to preserve jobs and benefits for (millions of workers) and their families for whom out-of-control health-care costs pose an immediate threat. Finally, health-care waste is 6-7% of national GNP! It doesn't matter whether health-care is privately or publicly financed -- the status quo in health-care delivery is ultimately unaffordable. The current financing system not only doesn't incent high-quality health care, it often rewards poor care. The only practical way to eliminate the colossal waste is to pay -- and pay more -- for health care of the highest quality (only). Higher incremental payments to doctors and hospitals for perfect patient care in every setting will reduce total costs. Jeffrey R. Lewis is president of the Heinz Family Philanthropies (jlewis@heinzoffice.org) and Cliff Shannon is president of SMC Business Councils (cliff@smc.org), an organization representing the interests of smaller businesses. Back to Top