Employer health insurance: an idea whose time has passed

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Half of all Americans currently receive their health insurance coverage from their employer. That figure has declined from approximately two-thirds back in 2000. For most of U.S. history, health insurance was divorced from work. In fact, health insurance really didn’t exist at all, except for some companies that began selling accident insurance in the mid-19th century. Interestingly, it was Germany under the Iron Chancellor Otto Von Bismarck that was the first modern example of a nation introducing the concept of employer-based medical coverage in the 1880s.

The model only really gained traction in the United States during World War II when government-enforced wage and price controls restricted the ability of businesses to increase employee pay. In a tight labor market, employers began adding a health benefit in order to attract workers. Unions that supported President Harry Truman’s plan for national health care in 1945 but recognized the level of opposition, especially from the American Medical Association, signed on to expanding employer-paid health insurance as the most saleable alternative. Between 1940 and 1960, the number of Americans with some kind of health coverage increased sevenfold, from 20 million to 142 million. By 1958, 75% of people had some kind of insurance.

The federal government provided employers a huge incentive to provide health coverage to their workers. Employer-paid premiums and some employee premiums are exempt from income and payroll taxes. This tax exemption costs federal and state governments over $260 billion per year and tends to benefit middle and upper-income wage-earners.

What has been the results of the employer-based health care system which has its roots in Bismarck’s “blood and iron” socialism in Prussia? Has it increased or decreased costs? Has it enhanced choice and competition or restricted it? Is there a better way to provide affordable care to all Americans?

Since 1953, except for a brief exception in the high-inflation late 1970s, health care costs have almost always outstripped price increases in other sectors of the U.S. economy. These costs really soared after the introduction of Medicare and Medicaid in 1965 which correlated with the rapid decline in the portion of health care expenditures borne by individuals out-of-pocket. Clearly, the shift to employer and government-paid medical care throughout the 1950s, 1960s and 1970s led to the explosion of overall costs. Health care which represented just 5% of the economy when John F. Kennedy was elected in 1960 accounts for almost 20% today.

Isn’t it obvious why this occurred? Once the consumer was divorced from the cost of their own medical care and those costs were shifted to employers or government, consumers became less responsible in making cost-conscious choices about health care and providers became divorced from the normal cost-constraining demands of a competitive free market. When individuals carried the majority of responsibility for their own health care costs, they were wise consumers, shopping around for the best pricing for a medical treatment or procedure and not overutilizing services for nonessential care. Today, Americans covered by employer-paid health insurance often have not a clue as to the true cost of their care. When was the last time someone priced an appendectomy or gall bladder operation?  Many people just shrug when they see insurance statements that indicate an 85% “write-off” on the cost of a medical procedure, not realizing the inflated cost is a result of a system that is no longer working to provide Americans with affordable care.

And, as premiums have soared, fewer and fewer employers are even able to provide coverage and are bailing out of that system. The percentage of people covered by their employers continues to drop.

Would people be better off without this system of health insurance? Wouldn’t it be better if individuals “owned” their health insurance policy, just as they “own” their home and auto policies, and could carry it from job to job? Wouldn’t it be better if individuals could choose a policy from numerous companies instead of being served one choice by their boss? Wouldn’t it be better if individuals didn’t have to take jobs they don’t want or stay in jobs they hate in order to keep health insurance for their families? Wouldn’t it be better if they could take that $260 billion tax deduction, largely for big business and corporations, and give it to individuals as a tax cut to help them pay for medical care or to create a high-risk pool to pay for people with pre-existing conditions rather than dumping that cost on younger, healthy people through unaffordable premiums?

The solution is the direct-payer form of health care known as the direct primary care model, which will make affordable and quality care available to all Americans, regardless of age or income. Direct primary care will permit individuals to contract directly with a physician of their choice for a low monthly fee without the interference or approval of insurance companies or government. No more networks, no more refusal of treatments; just an individual and their doctor, the way it used to be and the way it ought to be again. People should be allowed to use their Health Savings Account to pay for these routine medical expenses, and they should be allowed to purchase an inexpensive catastrophic insurance policy, something “Obamacare” outlawed for people over 30, to cover accidents or life-threatening medical events, like cancer or a heart attack.

Employer-paid health insurance may have made sense to Herr Bismarck in 1883 Germany, but is it perhaps an idea whose time has passed in 2019 America?

Dr. James Veltmeyer is a prominent La Jolla physician voted “Top Doctor” in San Diego County in 2012, 2014, 2016 and 2017. Veltmeyer can be reached at dr.jamesveltmeyer@yahoo.com.