« Assorted links | Main | Broken Buildings, Busted Budgets »
A defense of employer-linked health insurance
The employer-based system provides a tremendous service to workers by providing a buffer between the plan administrator or insurer and the workers and their families. The employer helps the employee navigate the system, is an advocate for the worker and frequently assists with claim appeals and disputes, not to mention assuring that premiums are efficiently collected. Employers are also leading the charge on the health and wellness front. Employers who seek to abandon this system out of hand should consider the consequences of having thousands of workers taking the time (on the job) to resolve the many issues and problems that will continue to occur under any insured scheme, but now with individuals left to navigate the system on their own.
I have been an employee-benefits professional for nearly 46 years and have worked with thousands of employees on every kind of health-care issue imaginable under every type of health-care plan. Most of the problems are created by the patients and the health-care providers, not the dreaded insurance company. That is unlikely to change.
That is Richard Quinn, of Verona, New Jersey, in a letter to The Wall Street Journal, Sept. 15, p.A7. On net, I do not agree with this opinion, but this perspective is too often neglected in health care debates.
Posted by Tyler Cowen on September 20, 2007 at 04:49 AM in Medicine | Permalink
Comments
Why would employers offer this service? If it is to keep employees from leaving, then Quinn's theory doesn't make a lot of sense. If employers are competing on this dimensions, independent health care plans would be forced to compete along this dimension since the switching costs are lower. Switching jobs is a big deal, switching health insurance providers less so. So, this doesn't strike me as a vote in favor of employer-linked health insurance. Unless it has something to do with an independent interest the employer has in the employee's health, but that doesn't sound like Quinn's point.
Posted by: Archit at Sep 20, 2007 6:55:22 AM
A defense of employer-linked health insurance from someone whose job -- and entire job category -- depend on a continuation of that paradigm. Pffft.
Posted by: Barry Campbell at Sep 20, 2007 7:05:46 AM
Barry, do note that he's pretty much done with his work life.
It's an interesting point. But the present system a direct consequence of the incentives insurance companies faced. Faced with optimizing comlexity, cost ,coverage,etc. they chose to ignore complexity knowing precisely that employers would sort through the complexity for their employees. In the future, insurance comapnies might focus on minimizing complexity if they have to deal with more individual customers.
Posted by: sa at Sep 20, 2007 7:24:31 AM
"The employer helps the employee navigate the system, is an advocate for the worker and frequently assists with claim appeals and disputes, not to mention assuring that premiums are efficiently collected."
I much prefer having my employer negotiate rates and services on my behalf. Certainly large employers have a stronger bargaining position. Unfair to the small guys? Let them form partnerships or unions.
I also depend heavily on my coworkers who help me "navigate the system".
IMO, the biggest defense against socialized health care is the popularity of employer-based health insurance. Its benefits are intimately familiar to the average American.
From what I've heard and read, health insurance is far and away the most important benefit - after pay - to prospective employees. Neither you guys nor Hillary is likely to change that.
Posted by: John Dewey at Sep 20, 2007 7:32:32 AM
He's telling a truth though, that insurance companies are more responsive to "group policies" than individual, because a group represents much more income than an individual. Yes, he no doubt has skills, but he also has greater bargaining power, financial leverage.
"treat this person right, or 200 people are leaving."
Posted by: odograph at Sep 20, 2007 7:57:44 AM
BTW, does a "nonprofit" HMO like Kaiser serve to "regroup" individuals? I hope so ...
Posted by: odograph at Sep 20, 2007 8:03:23 AM
In the present heatlh care finance system it is difficult to argue against the utility of large employers providing this "ombudsman" service for their employees as there is no incentive for the insurance companies to be responsive to any but the largest employers, the largest purchasers of insurance. However, in a truly open insurance market where the sellers of health insurance must compete for business on a national scale they will be able to sell a product that has a much higher profit marging if they provide customer service that replaces this employer "ombusdman" service. Not unlike the service contracts one can purchase at Best Buy on your IPod, the insurance companies will rapidly discover that the profitablility in these "premium policies" is high. The market will fill in for what the employers now provide; this is not a reason to prolong the employer-provided health insurance system.
For what is's worth, in the second paragraph the writer lays the majority of blame for the "problems" on the patients and the doctors. This is balderdash. The original disease is the onerous and purposefully confusing and inconsitent set of insurance company regulations and rules, as well as their equally irrational and inconsistent application by the insurance company. The difficulty that patients and doctors have in navigating these issues is simply the symptom CAUSED BY the disease, the equivalent of "blaming the victim" in an assault trial. That second paragraph is quite offensive.
Posted by: bingo at Sep 20, 2007 9:04:16 AM
This service does not need to be linked to an employee. Groups of private individuals could pool resources and hire a full-time administrator if they choose. Churches, social groups, lodges, etc. These are all suitable forums for group insurance to persist.
From my perspective these plan administrators are acting to limit my choices due to the budget concerns of my employer. I am still presented with a single option for coverage. I can participate or not. If I choose to purchase my own plan the company will not reimburse me for the premiums they no longer subsidize. In short, if I have a bad insurer, I can not seek coverage elsewhere. I am effectively locked into both employer and insurer.
Would more actors in the market create more competition, or would the pooling of resources reduce transaction costs? Is there a way to keep transaction costs at current levels while still transitioning to a system of individual choice?
Posted by: Sean at Sep 20, 2007 9:34:26 AM
bingo,
How are you ever going to get the 246 million people who have insurance coverage - private and public combined - to change the system they now enjoy? They are not going to believe any individual policy system - the experiment you suggest we try - will be better than what they now have. I've got much more economic sense than the typical American and I don't believe it.
Would any serious national politician even propose eliminating either employer linked health insurance or medicare?
Posted by: John Dewey at Sep 20, 2007 9:35:57 AM
I've heard a lot of anectodal evidence that employers are cutting way back on providing this go-between service. There are 2 reasons that come up:
1. We are not your health-care company.
2. HIPPA (?) does not allow us to get or give that information for you.
# 2 may just be an excuse for not wanting to spend man-hours.
Posted by: krat at Sep 20, 2007 9:41:15 AM
sean: "This service does not need to be linked to an employee. Groups of private individuals could pool resources and hire a full-time administrator if they choose."
They could, but they haven't been very successful so far. If that's what consumers wanted, they would demand it.
sean: "From my perspective these plan administrators are acting to limit my choices due to the budget concerns of my employer."
Perhaps, but by and large employees know they get a better deal through their employer. I've talked with human resources recruiters about this. Just about every prospective employee wants to know about the company's health insurance benefit. That's a major factor for them.
Posted by: john Dewey at Sep 20, 2007 9:42:17 AM
Bingo has it right, especially with "their equally irrational and inconsistent application by the insurance company." My personal experience with insurance has always been that the companies always simply cheat. This is presumably illegal, by some definition of illegal, but the US class action lawsuit system seems to do a terrible job at suppressing systematic low-grade fraud and contract violation by large corporations. I suspect that the stress of dealing with this is a significant reducer of life expectancy for less wealthy Americans as well.
Posted by: michael vassar at Sep 20, 2007 9:48:42 AM
"I've heard a lot of anectodal evidence that employers are cutting way back on providing this go-between service."
What go between service do you mean?
Helping employees navigate the system? The internet sites of health insurance providers now provide effective navigation tools. My experience has always been that coworkers informally provide the best advice about working the system.
Negotiating rates? Employers haven't stopped doing that.
Collection of premiums? Nope, still being done through payroll deductions.
Assisting with claim disputes? I wouldn't know. I wasn't aware that employers ever did this on an individual level. At two of my employers - in pre-internet days - the insurance company provided on-site, face-to-face assistance with claims disputes.
Posted by: john dewey at Sep 20, 2007 9:52:58 AM
What if the link between employment and insurance was severed, and folks like Mr. Quinn became independent contractors or even formed health-care advisor firms? In this rolw Mr. Quinn could provide a valuable service in several ways:
* advising individuals and families of their best insurance options, taking everyone's unique circumstances into account
* acting as a broker between clients and insurance companies
* providing the ombudsman role to settle disputes and help clients understand the finer points of their insurance contracts
This would be similar to the role that financial advisors play in helping millions of Americans manage their savings and investments.
Such firms would almost surely be more efficient service providers than the other firms' HR departments, as the would leverage specialization and economies of scale better than a small group within a larger firm. Besides, why would a company in a completely unrelated industry have the expertise to evaluate and hire Mr. Quinn and his peers?
Posted by: mobile at Sep 20, 2007 10:03:38 AM
mobile: "What if the link between employment and insurance was severed"
Not going to happen any time soon. With a few exceptions, employees are satisfied with their insurance coverage today. A recent national survey found that over 90% of those insured by employer-linked insurance are either "highly satisfied" or "satisfied" with their health insurance.
It is true that VA and medicare enrollees have slightly higher ratings than employees of large firms. But the difference is slight, and may have much to do with the populations being covered. VA and Medicare do not cover children. My experience has been that parents are much more concerned about their children's health benefirts than about their own.
Posted by: John Dewey at Sep 20, 2007 10:18:54 AM
Shorter John Dewey: it is more important that salarymen at large companies be less stressed than for sole proprietors and the people at small companies with less than ten employees to have decent health care, or even any affordable health care at all.
This is pure myopia.
Posted by: Russell L. Carter at Sep 20, 2007 10:36:44 AM
John Dewey: "How are you ever going to get the 246 million people who have health insurance...?"
Employers and their employees will always have the option of maintaining the present system, but haven't we heard from quite a few large employers that they simply cannot afford to continue to fund the cost of health care for their employees? Isn't this a discussion about how the system of health care finance in the U.S. can change or evolve so that we can enable each citizen and legal alien to purchase necessary health care without bankrupting either the national economy or large groups of businesses or individuals? Retaining the option of continuing uder a plan similar to what exists now will allow some part of that 246 million to ease into whatever system arises. That system will involve either more open contribution by patients or more difficulty gaining access to care or both (but not neither). It has to happen.
And John, have you really discussed happiness with large groups of individuals who are covered by public programs? Some of the most unhappy people in the U.S. are people covered by Medicare, even though this program is available to all and imposes no limit on participation or access to care. People covered by Medicaid simply live in a totally separate medical world, isolated and apart from those who are covered by private insurance or Medicare. THEY are not answering surveys with 90+% satisfaction rates I'm afraid.
Jump in, float an idea, a solution. Propose a way out of the financial spiral in health care. Or if you prefer to simply sit on the sidelines and armchair quarterback other people's ideas state clearly WHY you disagree and then support your position.
Posted by: bingo at Sep 20, 2007 11:09:45 AM
russell carter: " it is more important that salarymen at large companies be less stressed than for sole proprietors and the people at small companies with less than ten employees to have decent health care, or even any affordable health care at all."
Mr. Carter, I am the owner of a small company. I do provide my full time employees with health care insurance. It has a much higher deductible than the plan of my very large employer. My employees are free to seek employment at large companies if they wish.
The issue isn't about what's more important. It's about the freedom of all employers to provide the service they wish, and the freedom of employees to seek the level of coverage they desire.
Are you arguing that the deck is stacked in favor of large corporations? Well, of course that's true with respect to most of their costs. Would you somehow eliminate - through government action - economies of scale?
Posted by: John Dewey at Sep 20, 2007 11:24:32 AM
bingo: "but haven't we heard from quite a few large employers that they simply cannot afford to continue to fund the cost of health care for their employees? "
Been hearing that for a couple of decades. Yet the number of insured persons in the U.S. has increased, according to the U.S. Census Bureau:
Persons with health insurance coverage
1990 - 216,177
1995 - 223,733
2000 - 237,824
2005 - 246,369
bingo: "Some of the most unhappy people in the U.S. are people covered by Medicare ... THEY are not answering surveys with 90+% satisfaction rates I'm afraid."
Do you have a source for your assertion that Medicare enrollees are unhappy?
If you had followed the link I provided, you would see that 94% of those covered by Medicare are either "Highly Satisfied" or "Satisfied".
Posted by: John Dewey at Sep 20, 2007 11:36:52 AM
I don't know enough about health insurance to know if employers do a good job of picking health insurance but judging from the way they run 401K plans I doubt they do a very good job.
If you asked independent financial and economic experts what the ideal 401K plan is 95% would agree that the lowest cost index funds were the best choice. But that's not what the majority of companies offer. In fact, most companies offer lots of high cost index funds and managed funds with high fees.
If these companies do such a bad job in area where there is near unanamity amoung independent experts about the best choice, imagine what kind of job they do in an area like insurance where what constitutes a good plan is not so clear cut.
Personally I can do without the corporate paternalism. I'd rather make my own decisions.
Posted by: dobedo at Sep 20, 2007 11:53:02 AM
Sean and John_Dewey: The problem with making an arbitrary group to get health ins., or using an arbitrary
existing group, is that the insurer then has the leverage to put stringent "pre-existing condition" constraints
on new additions to the policy. In contrast, an employer has a genuine outside constraint on who he hires
(namely, who is qualfied to do the job), and that makes his insured pool "random enough" that he can negotiate
policies for people who might otherwise be rejected for a pre-existing condition.
In other words, to get this employer advantage, not just any large association will do.
Posted by: Person at Sep 20, 2007 12:20:57 PM
The fundamental problem with reforming employer-provided health insurance is that we're trapped in a local maximum. I'm confident that switching to individual coverage would be a significant improvement, but that's a large change which understandably makes people nervous, and I have no idea how to get there in a series of small steps.
Posted by: Brian at Sep 20, 2007 12:50:57 PM
Brian: "I'm confident that switching to individual coverage would be a significant improvement"
It may be an improvement for those who enjoy execllent health. It will be a disaster for those with costly health problems. I'm not sure a 60 year old with Type II diabetes could get individual coverage at any cost.
Posted by: John Dewey at Sep 20, 2007 1:02:49 PM
The basic premise becomes purely academic unless one can explain why the free markets won't reach an efficient solution. In other words, if the author is correct and the employer can efficiently provide a valuable service,it will behoove companies to continue to offer this service. The implications of public policy questions seem out of place.
Posted by: Ken Hirsh at Sep 20, 2007 2:55:32 PM
"The basic premise becomes purely academic unless one can explain why the free markets won't reach an efficient solution."
I agree, Ken. And I would offer this suggestion: perhaps free markets have already arrived at the desired solution. 246 million Americans have health insurance coverage. According to a national survey, about 93% of them are satisfied with their insurance program. It's entirely possible the other 50 million do not value health insurance enough to obtain it. Of course, that's not true for the children whose decision is made for them.
Posted by: John Dewey at Sep 20, 2007 3:08:21 PM
