Outdated Employer-Based Health Care

Part of the “My Prescription” series.

There was a day when a typical employee was loyal to a company for the length of a career. Or maybe there was a time when the company was loyal to the employee. I don’t know, but there was a day when an employee stayed with an employer for many years and often decades. Increasingly today’s workforce is mobile. Today a quarter of the workforce changes jobs every year. In 1983 two-thirds of men in their fifties had been with their current employer for ten or more years. In 2004 that number dropped to 50% (Department of Labor). I’m willing to speculate that this number will continue to drop as my generation approaches their fifties.

Further, the workforce is becoming increasingly independent meaning independent contractors, freelancers, etc. Over the past ten years people with these work arrangements have increased by 20% to about 11% of the workforce today.

So the workforce is mobile and mobility is good. It means entrepreneurship. It leads to creativity, advances, and growth. But I would argue that we do a poor job of supporting this independent spirit by making health insurance practically immobile. If you change jobs you change your insurance. Maybe you have to change your doctor? Maybe your prescriptions?

Let’s role-play. A talented MBA grad working for a large fortune five hundred company who feels stifled by the corporate world. He has ideas, but is scared to go out on his own. He is scared to be without insurance, and until he gets up an running he cannot afford to pay his own. What would you do? What if you have kids? Tough choice.

Another problem. Small businesses do a poor job of providing health care. Companies with a 1,000 employees provide health care to 80% of their employees. Companies with 10 or fewer employees offer insurance to less than 50% of their employees. It all has to do with increasing risk when pooling small number of people, and as long as health insurance is strictly based on ones employer, this scenario will continue.

I think it pretty clear that the employer-sponsored insurance system that we have today is eroding and is no longer capable of being the foundation of our health insurance system.

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2 responses to “Outdated Employer-Based Health Care

  1. Market forces could bring down the cost of health insurance if individuals were allowed to shop for their own insurance. Only then will the true cost-benefit ratios of group plans be exposed and insurance companies will have to compete for every dollar they ask for.

  2. I agree that market forces could bring down insurance prices, but allowing individuals to shop for health insurance (which we already do) alone will not suffice. There are too many market failures in health care for that to work. Any policy that says we just need to open up insurance to market forces (I’m talking politicians here) is over simplifying the situation and demonstrates a poor understanding of the issues. The inherent market failures (asymmetric information being possibly the largest) must be addressed in any attempt to apply market pressure to the system.

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