Is Workplace Health Coverage Dying?

Rising Costs Threaten the Future of This Traditional Employee Benefit

Medically Reviewed by Louise Chang, MD on June 16, 2006

June 16, 2006 -- For decades, most Americans have gotten their health coverage at work, and 175 million still do. But with skyrocketing costs placing a drag on both families and companies, some experts say it's time to take health coverage out of the workplace.

The White House is leading the charge to decrease employers' role in medical insurance. The only problem, according to analysts, is this: If employers don't offer coverage, who will?

There are already signs that workplace medical coverage is on the decline. About 60% of Americans get their health coverage through an employer, 5% less than did five years ago, according to the Kaiser Family Foundation. At the same time, companies that do offer coverage are contributing less and less to premiums and other costs.

The system's worked well since World War II. But now, total health premiums for the typical family of four are nearly $11,000 per year -- a number that's expected to top $17,000 by 2010. More and more big companies are complaining that workers' health costs are hurting competitiveness, while a rising number of small businesses simply don't offer coverage at all.

With no major changes on the horizon in Washington to rein in costs, some experts are saying that the end of the employer-sponsored health system has arrived.

"It's collapsing in front of our eyes," says Andrew Stern, president of the Services Employees International Union. "We have to recognize that employer-based health care is ending. It's dying. It will not return," he said Friday at a forum sponsored by the Brookings Institution, a Washington think tank.

Declining Contributions

Stern points to President Bush's promotion of health savings accounts as a sign. Employers typically pay for a set amount of insurance, even if the cost goes up.

But health savings accounts let firms contribute a set amount of money to workers, not a set amount of benefits. As premiums go up, the employer contribution stays the same. And workers can be on the hook for the rest.

Stern is also critical of big companies like General Motors for not leading the charge to end employer-sponsored coverage and move to a new system.

The question is, what system could take its place? A government-run national health plan is about as popular as a sore throatsore throat in Washington. Lawmakers have failed for years to find a way to do anything about the 46 million people who already lack coverage.

Individual Solution?

A law enacted recently in Massachusetts treats health coverage more or less like car insurance. That is, all individuals are required to have it.

The plan is a complicated mix of employer subsidies and individual tax breaks for spreading insurance costs that may not work in every state. But Todd McCracken, president of the National Small Business Association, likes the idea.

He says requiring individuals to carry a basic level of insurance would give businesses the flexibility to offer more complete coverage as a way to attract workers. Businesses could woo younger and healthier workers who don't need as much coverage by offering more cash instead.

"I think the small business community has really had it with the health care system," he says.

Basic Coverage Only?

But some big businesses are not ready to give up yet on health insurance. John Matthews, chief of benefits for Costco, says companies can save by shifting their coverage to basic health care, where it's really needed.

Rising costs recently led the company to shrink the amount it contributes to workers' coverage. Costco employees now pay 10% of their total health costs, while the company picks up the rest. But 87% of all employees are covered, and the company focuses on prevention, says Matthews.

"We think it's sustainable, and we think it can be a force."

Matthews thinks the erosion of workplace insurance could be stopped if employers focused more on lower-cost, basic coverage.

"Mandate that every employer provide primary care for every employee and all of their kids," he says.

The so-called employer mandate was tried once before -- in 1993, by President Bill Clinton and Sen. Hillary Rodham Clinton, D-N.Y., then the first lady. Politicians of both parties rebelled and nothing got done. Sen. Clinton has since disavowed the attempted overhaul as naïve.

The analysts who spoke Friday agreed that the 2008 presidential election will be a critical time for candidates to focus the country on the struggling health system, and what to do about it.

"Let's just stop studying the problem and think about the politics," says Stern.

Show Sources

SOURCES: Andrew Stern, president, Service Employees International Union. Employer Health Benefits 2005 Annual Survey, Henry J. Kaiser Family Foundation, September, 2005. Todd McCracken, president, National Small Business Association. John Matthews, senior vice president, Costco.

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