How America’s Unique Insurance Model Keeps People Healthy and Costs Down
In the years after World War II, countries around the world faced a big challenge: how to help everyone whose lives had been disrupted by war find reasons to trust big social institutions again. While European societies relied on government to fund a social safety net, the United States allowed the private sector to come up with solutions. Employer-sponsored health insurance was one of them.
Because companies were constrained by strict wage controls put in place during the war, one way they attracted top talent was by offering better health benefits. Employer-based coverage soon spread, and this quirk of wartime economics soon evolved into the dominant way Americans accessed health insurance.
Though it’s unique in the world, employer-sponsored insurance covers more than 174 million Americans. Decades of experience have shown that the system is popular, efficient and adaptable.
Spreading Risk, Increasing Efficiency
Employers act as natural risk pools, enticing healthy and not-so-healthy workers to sign up because of the relatively affordable, pre-tax price tag. There is considerable evidence, in part from recent experience with the Affordable Care Act, that if employers stopped sponsoring insurance, many healthy people would sit on the sidelines while those with serious health problems would continue to sign up. This would create a risk pool with too many sick people that would face eventual collapse or require government intervention to shore up.
“Employer-sponsored insurance covers more than 174 million Americans.”
In addition to spreading risk, employer-sponsored insurance offers opportunities for efficiencies the individual market cannot. For example, companies can achieve economies of scale when purchasing group health plans for employees that are unavailable to individuals. Human resources departments have also become quite skilled at choosing plans that provide appropriate coverage for their particular set of employees, and employees benefit from their expertise when it comes time to choose a health plan.
Employers are also an important factor in holding down the growth of health care costs, as health care accounts for almost 8 percent of the total compensation private companies provide their workers.
One way employers have worked to curb costs is by popularizing new types of insurance plans. For example, the proportion of companies that offer either a consumer-directed plan or a high-deductible plan with a health savings account has risen significantly in recent years. In 2006, only 4 percent of workers were enrolled in a high-deductible plan. By 2015 nearly a quarter of employees were enrolled in high-deductible plans.
A Bargain That’s Still Binding
The unofficial contract that keeps companies and their employees close, cemented by health care, is still in effect.
When the consulting firm Accenture asked people who received health insurance through an employer how they felt about their coverage, 82 percent said they were satisfied. More telling is that three-quarters of those surveyed said health coverage was an important reason for staying in their current jobs. If their employer stopped sponsoring health benefits, 15 percent of those surveyed said they would quit on the spot and 36 percent of full-time employees surveyed said they would leave within 12 months.
And employees specifically prefer employer-based coverage to individual coverage. A recent survey conducted by the Kaiser Family Foundation showed that 82 percent of people with employer-sponsored insurance gave their health coverage a favorable rating, compared to 68 percent of people who purchased insurance on an exchange.
While the United States’ employer-based health care model may be unique in the world, it continues to work for citizens, employers and the country as a whole nearly four generations after becoming the way most Americans access health insurance.