Workers like employer health coverage mandate, but some see problems

While little was said about expansion of employer-based health coverage in recent years, discussion about the prospect has recently resumed, fueled in part by passage of the Health Insurance Act of 2003 in California, the first state-based "play or pay" legislation in almost a decade, and in part by references to employer-based coverage by many of the Democratic presidential candidates during the early primaries.

What CA survey found

A survey commissioned by the California Healthcare Foundation has found that workers both in California and nationally support mandates on employers, while a Commonwealth Fund study indicates employers "strongly support" job-based coverage.

However, a analyst from the Galen Institute in Alexandria, VA, testified before the Health Sub-committee of the House Ways and Means Committee that there are significant negative consequences to relying on employer mandates. The analyst also has questioned the validity of the Commonwealth Fund findings.

In the California Healthcare Foundation survey of workers, researchers found that in both California and the nation as a whole, approximately half of working-age adults indicated they thought all employers should be required to offer health insurance to all employees.

Another 25% opted for a less inclusive mandate that would require employers to offer coverage to certain employees, such as those who are permanent and work full time. Another 10% voiced support for a mandate only for large employers. Just 13% in California and 10% in the country as a whole thought employers should not be required to provide insurance to their employees.

In general, according to the findings published in the March 17 Health Affairs, groups traditionally more likely to be disenfranchised in the health care system are more likely to be in favor of a full mandate on employers (covering all employers and all employees). Blacks were particularly strong supporters of a full mandate nationally (79%). The uninsured were somewhat more likely than those not already covered to support a full mandate, but the difference was not as large as for other groups.

Of those who supported a requirement on employers to provide some level of health insurance, 65% of California residents and 70% of U.S. residents said employers should be required to pay for most of the cost of health insurance premiums for their employees.

Include dependents, too

The vast majority of people who supported some type of employer mandate also thought coverage for dependents should be included. The researchers said support for dependent coverage was uniform across all subgroups except the insured, who voiced stronger support for dependent coverage than did the uninsured. Some 80% of those backing dependent coverage wanted to see employers pay for some of the premium cost for dependents.

When asked what might happen to wages and employment if employer-mandated coverage was implemented, 81% of California residents thought there would be some effect, slightly less than the 86% of respondents nationally who expected an effect. Those with the lowest incomes, blacks, the uninsured, and the least educated were least likely to think that there would be an overall employment or wage impact.

Mandate makeup

The researchers conclude that while strong and widespread support for a mandate is evident from the survey, opinion is varied on the specific provisions that should be part of a mandate. Questions about which employers are subject to the mandate and what types of employees are covered are the most fundamental.

"The disconnect between workers’ views on how a mandate would affect overall wages and employment and how they perceive that it would affect their own situation is of particular interest," the report explained.

"Across all population subgroups, many more workers think that a mandate is more likely to affect others than to affect their own job or pay. Interestingly, subgroups most likely to be affected by wage reductions or layoffs — including the lowest-paid and least educated workers — are least likely to perceive this potential effect. If an employer mandate is implemented and these workers experience adverse labor market effects, their support for the requirement could erode," the report continued.

Meanwhile, the Commonwealth Fund found while many employers said it is "very important" to provide or help workers pay for health coverage, rising premium costs are forcing them to shift more costs to employees or cut back on benefits.

According to this study, the majority of employers who offer coverage (59%) preferred an employer mandate over public program expansion, while 50% of employers who do not now offer coverage prefer a public program expansion over an employer mandate. While majorities of small (51%) and large (64%) employers preferred an employer mandate, small employers expressed more support for public program expansions than did large employers.

Looking at new paradigms

Based on the survey findings, the Commonwealth Fund researchers said, employers appear willing to consider new public-private policies to increase the availability of affordable coverage, measures that would go a long way toward bridging the divide in the quality of U.S. jobs.

Many employers told the researchers they have cut back on their support for health insurance coverage for workers because of increases in premium costs. Many said they were limiting eligibility, perhaps through a waiting period for coverage to kick in or by restricting coverage to full-time employees.

Employers generally expressed a willingness to cooperate with a number of different policy approaches to expanding coverage including tax credits, COBRA, and increasing enrollment in Medicaid and SCHIP.

The report said a majority of employers (59%) say corporations should be responsible for sharing costs of their employees’ health benefits, either by providing coverage or by contributing to a fund that would cover the uninsured.

"The survey findings suggest that many employers are committed to offering health benefits and believe that providing insurance not only helps employees but also yields benefits to companies as a whole," the report said. "Employers who offered health insurance in the survey said that health benefits improve their ability both to recruit and retain employees."

Survey results flawed?

While results of the California Healthcare Foundation and Commonwealth Fund studies might lead policy-makers to conclude that expansion of employer mandates would be a good approach to solving at least some of the problem of the uninsured, Galen Institute Center for Consumer-Driven Health Care director Greg Scandlen advised caution.

Looking at the Commonwealth Fund study, he said the strong showing by employers in favor of workplace coverage comes as a function of the way the question was asked, rather than genuine support for the concept.

"The only way Commonwealth was able to get such a result was by limiting the policy options presented to two," he said, "expand public insurance or require employers to offer benefits or contribute to the cost. No other option was available. This is like giving someone the option of death by hanging or death by drowning and announcing that 50% of all people want to die by drowning."

And in testimony before the House Ways and Means Committee Health Subcommittee he raised the proposition that employer-based coverage is more of a problem than a solution.

He noted that in 1943, the Internal Revenue Service ruled that employer-sponsored benefits would be excluded from income, and Congress codified that ruling in 1954.

At that time, he said, health insurance was not very expensive and relatively few Americans had any coverage at all, so the revenue effect was small.

"The measure was seen as a good way to encourage more coverage," he told the hearing, "and in that, it was very successful. The numbers of Americans with health insurance coverage grew from about 12 million in 1940 to 80 million in 1950 to 132 million by 1960, and the kind of coverage became more generous, moving from basic hospitalization coverage to more comprehensive major medical plans.

But Mr. Scandlen sees two negative consequences to the growth of employer-based coverage:

  1. Tax policy advantaged only those with employer-sponsored health coverage, and not people who bought their own or who paid directly for services.
  2. The large amount of new money in the system raised prices for everyone, including those with no coverage.

People not associated with an employer, especially the aged and the poor but also the self-employed and people whose employers didn’t offer coverage, found it increasingly difficult to pay for health care.

In 1965, Congress addressed part of this problem by creating Medicare for the aged and Medicaid for the poor. But, according to Mr. Scandlen, that infusion of new money into the system led to even greater increases in the cost of care. In 1960, 56% of total national health spending was paid directly out-of-pocket by consumers, and only 21% was paid by state and federal governments.

In just seven years, that had changed to 36% out-of-pocket and 37% from government payers. The total amount of money spent on health care rose dramatically, tripling from 1965 to 1977, and rising from 5.9% of the gross national product to 8.3%. Mr. Scandlen said these "demand-induced cost increases further disadvantaged people remaining outside of the subsidized system."

Subsidies = higher prices?

Since 1965, he said, we have had a system that subsidizes the elderly, the poor, and people who get coverage on the job.

Federal expenditures alone equaled $250 billion for Medicare in 2003, $160 billion for Medicaid and SCHIP, and $180 billion in 2004 for employer-sponsored coverage. "This subsidized spending clearly results in higher prices for everyone, including those who get no subsidies at all," he said. "Someone getting coverage on the job has to earn $4,000 in compensation to get $4,000 in benefits," Mr. Scandlen explained.

"The same person who does not get coverage from an employer may have to earn $8,000 in wages to have enough left over after taxes to pay for a $4,000 insurance policy. Members of Congress, corporate executives, members of labor unions all are well-subsidized. But someone who is laid off from a job, a waitress in a diner, a stock clerk in a small retail store, people whose employers don’t provide coverage get no help with their health premiums at all. Their only choice is to buy individual coverage with after-tax dollars or go uninsured," he added.

Another consequence of the tax subsidy provided solely to employer-sponsored coverage, he said is that anyone who can get an employer-based plan will do so, leaving only those who can’t get such plans in the individual market.

These people may be lower-income workers, people too sick to work or semiretired, people who change jobs frequently, and people with seasonal employment. They are older, sicker, and poorer than people with employer-sponsored coverage. Because they tend to be older, sicker, and financially less stable, the cost of the coverage is higher than it would be for an employer-sponsored pool. There are higher claims costs because they are sicker, and there are higher administrative costs because premium collection, marketing, and retention are difficult. Yet these people get no help from their employers and no tax advantage from the government.

Is ERISA getting in the way?

And while some employers might be willing to contribute to the costs of coverage for these employees, the Employee Retirement Income Security Act (ERISA) can get in the way, from Mr. Scandlen’s perspective, because employers might be willing to contribute money to the cost of an individual policy chosen and owned by the employee but not commit to purchasing a full-scale benefit plan with all the regulatory reports and responsibilities. But the tax code prohibits them from simply contributing money.

Under ERISA an employer’s contribution makes the coverage an "employee welfare benefits plan" subject to the requirements of any other group plan. In addition, he said, ERISA plans that buy coverage from an insurance company indirectly are subject to all the regulations that apply to their insurer. But employers that self-insure their benefits are exempt from state insurance laws. Large employers are able to self-insure and thus are exempt from state law. Smaller employers must buy coverage from insurers and thus are subject to state law.

Mr. Scandlen said this division among employers disrupts state political equilibrium.

Large politically influential employers don’t care what the state legislatures do because they are unaffected by it. "That leaves only small, powerless employers to complain when a new mandate is proposed or new restrictions are placed on their coverage," he said. "As a result, advocates of more regulations and more mandates encounter little effective resistance."

Before ERISA was enacted in 1974, there were very few mandated benefits. But since it became law, more than 1,500 laws have been enacted by state legislatures mandating coverage of someone’s favorite service. States also have passed limits on underwriting, community rating laws, price controls, and a vast number of other laws and regulations that have destroyed the insurance market in some states, in Mr. Scandlen’s view.

"Whatever their seeming merit," he testified, "all of these laws add costs and complications to the process of a small employer providing coverage to its workers," he pointed out.

Mr. Scandlen told the committee that these are the kinds of underlying conditions that make it difficult for the uninsured to access coverage.

But he cautioned that "the American people, the American health care system, and the American economy are entrenched in this system [and] even if we wanted to undo it, it would be enormously disruptive to do it quickly. Change should be made carefully and thoughtfully. Having an understanding of this history and the consequences of well-intentioned policies should make it more feasible to tailor changes that can work."

For more information, go to: www.chcf.org; www.cmwf.org; and www.galen.org.