employer-sponsored health insurance importance, options, and issues jeanne m. lambrew, phd associate...
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Employer-Sponsored Health Insurance
Importance, Options, and Issues
Jeanne M. Lambrew, PhD Associate Professor
LBJ School of Public Affairs, University of TexasSenior Fellow, Center for American Progress
September 26, 2008
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IMPORTANCEAs a Source of Insurance
• Spreads Out Risk– Job choices are rarely about health benefits– Most with job-based insurance are in large firms
• Leverages Demand– Greater negotiation power with strong providers– Innovates in delivery system organization
• Keeps Administrative Costs Low– Economies of scale– No underwriting, marketing – Easy collection of premiums
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Effects of Firm SizeFirm Size Adults
CoveredAdministrative
Costs
<10 8% 48%
10-24 8% 25%
25-99 12% 20%
100-499 13% 16%
500-999 5% 13%
1000+ 34% 10%
Public Employees 19% --
3Sources: EBRI analysis of 2008 CPS; JCT analysis of Bush health insurance tax deduction plan
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As an Agent for Workers• Reflects workers’ preferences
– Part of attracting and retaining labor– Balance cost with sought-after benefits
• Employers care about cost, insurers about risk• Benefits have changed to reflect what people want
• Makes enrollment easy– Lowers time for workers to find health plans
• Most employers are trusted – Payroll deduction simplifies premium payment
• Employer contribution excluded from taxes– Worker benefits from pre-tax employer payments
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As a Source of Financing• Tax break leverages employer contribution
– $200 billion in tax breaks contribute to:• Over $500 billion in employer contributions• Around $200 in employee contributions
• Employer contribution acts like a payroll assessment : Most people unaware of it– May decrease awareness of premiums– May increase insurance coverage compared to
paying out of pocket
• System facilitates premium collection– Administrative costs would climb if insurers had
to collect premiums directly from workers5
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OPTIONS Strengthening Employer
Coverage• Employer requirement
• Employer pay or play– “Pay”: Typically a payroll tax, could be a
percent of premiums– “Play”: What constitute minimums
• Individual requirement– Increases take-up of employer coverage,
according to Massachusetts experience
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Preserving Elements of Employer Coverage
• Financing– Corporate tax– Payroll tax
• Pooling– Workers access pool options via employers
• Facilitating coverage– Employers deduct health premiums from wages– Employers arrange for health plan choices
without sponsoring them
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ISSUES• Small businesses face special challenges
• Alternatives to employer system needed– Many have loose labor-force attachment– Employment patterns changing
• Alternatives matter– Eligibility rules– Generosity of benefits, premium affordability
• Reminder that large firm coverage functions:– Better than small group and non-group coverage– Similar to large public programs
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