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07/10/2014

Time to Divorce Health Insurance & Employment

by Craig Klugman, Ph.D.

In my last blog, I talked about ideologically-backed corporate control of health care choices as a result of the U.S. Supreme Court’s Hobby Lobby decision. That piece has led to several conversations this past week, many of which have revolved around the question of how to fix the problem of employer theology limiting or curtailing choices, because nearly half of all people in the U.S. have health insurance through their employer.

The result of these conversations is a consensus that there are two health policy moves that can be made: Changing a law and changing a system.

RELIGIOUS FREEDOM RESTORATION ACT
First, Congress should rollback the 1993 Religious Freedom Restoration Act (RFRA). This Act was created in response to another Supreme Court decision, Employment Division of Oregon v. Smith where the Court ruled that Oregon was in its right to fire someone for use of peyote even if that use was in a religious context. In response, Congress passed the RFRA that stated “Government shall not substantially burden a person’s exercise of religion even if the burden results from a rule of general applicability, except if…[the burden] is in furtherance of a compelling governmental interest; and is the least restrictive means of furthering that compelling governmental interest.” In a 1997 decision, however, the Court ruled in Boerne v. Flores that Congress exceeded its power in creating the RFRA and ruled the ACT unconstitutional when applied to state or local laws.  The RFRA was cited by the Supreme Court in the Hobby Lobby decision because that case dealt with a federal law and thus technically did not contradict the earlier ruling.

DISCONNECT EMPLOYMENT AND INSURANCE
My second suggestion is to uncouple employment from health insurance. It’s a strange accident of history that even created this connection in the first place. This matrimony occurred as a result of 4 steps.

1. The first health insurance program in the U.S. started in the 1920s with Baylor University Hospital in Dallas. Like most hospitals, Baylor had a lot of empty beds and wanted to fill them. Thus, Baylor offered local public school teachers the option to pay 50 cents a month and their hospital visits would be covered. The notion of hospitals partnering with groups of workers gained ground and the system became known as Blue Cross.

2. In 1942, the Stabilization Act froze wages and benefits to prevent wage wars over skilled labor. With most skilled workers overseas in World War II, such labor was at a premium. Then in 1943, the War Labor Board ruled that the Act did not apply to benefits such as health insurance. Suddenly businesses could compete for workers by offering health insurance plans.

3. In 1948 and 1949, the National Labor Relations Board ruled that health insurance was part of collective bargaining. Thus unions and workers could negotiate for health insurance as part of their compensation package.

4. In 1954, the Internal Revenue Service determined that benefits such as health insurance were not subject to income tax.  Thus, businesses would receive a tax deduction on any money used to pay for employee health insurance.

There have always been disadvantages to having health insurance controlled by employers. First and foremost, it’s a big cost. In 1954, the cost of health insurance for employees was relatively low ($134 per employee), but today that cost is substantial ($8,953 in 2012) and rising every year as the population ages. Interestingly, even as early as 1962, the government was concerned with the dramatic inflation of health care costs. Second, the nature of work has changed. In the 20th century, the expectation was that a person would work for a single company for his/her entire career. It was to the company’s benefit to treat workers well and ensure loyalty. Today, the expectation is that people will work at an employer for a short time and then move on. In many industries this job changing is the only way to earn promotions or get increases in salary. Third, workers may find themselves stuck in jobs they no longer want because they are beholden to the health plan. Before the Affordable Care Act, one could be denied benefits for pre-existing conditions. That meant if you or a loved one had a serious disease, you couldn’t change jobs or you would lose needed coverage.  While the ACA has dealt with this issue to an extent, a person can still only choose among the plans offered by his/her employer. Fourth, one could choose to purchase individual insurance but the cost for such plans is usually prohibitive. The larger the group, the better the rates it could negotiate because there were people in the group to share the risk. The ACA has set up the Health Insurance Marketplace (i.e. “exchanges”), which enables individuals to buy affordable health insurance: This may create an opportunity for uncoupling insurance from employment because there is a viable alternative.  Fifth, in more recent years, employers have mandated enrollment and participation in wellness programs. They may also give premium or deductible discounts for completing surveys, attending seminars, or enrolling in health classes. These programs are meant to be coercive as well as giving your employer a great deal of say in your health activities, and also gives your employer access to some of your private health information.

The coupling of health insurance with employment means that the employer calls the shots on what procedures and diseases are covered, what plans are offered, and even what insurance company’s products are reviewed. Taking insurance out of the employer’s hands means that individuals would have more choices and then can choose plans that meet their needs and follow their philosophies. This would obviate the problem of an employer not offering contraceptive coverage because of his/her personal beliefs. By putting more people in the exchanges, prices would drop (again, more shared risk) and a wider variety of products could be offered. For example, for people who wanted faith-based insurance plans, insurance companies could offer products to meet that need. Other products could focus on evidence-based care, or even a greater preventive care focus.

The other obvious solution is a single payer system, where health insurance and/or medical care are controlled by a single authority. As this is politically unfeasible in the U.S., the divorce discussed above may be the second best answer. The U.S. is the only developed nation that has this strange marriage of employment and insurance. Separating the two would benefit the public, individual patients, and employers.

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