Volume 3, No.1

January 13 , 2009


Employer-Based Health Insurance and Health Care Reform"

“Why Tie Health Insurance to a Job?”

President-elect Obama’s Call for a 'Pay-or-Play' Mandate on Employers

Authored by:  Sean Sullivan, JD

President & CEO

The Wall Street Journal op-ed piece by Senator Ron Wyden categorizes the private employer-based health insurance system in the U.S. as an "historical accident" arising from World War II wage controls.........


Believers in the maintenance of a voluntary employer-based private health insurance system face two very different threats from the health care reform policy debate that lies ahead.  The first of these is represented by a recent Wall Street Journal op-ed piece by Senator Ron Wyden, which asks the question “Why Tie Health Insurance to a Job?” and goes on to categorize the private employer-based health insurance system in the U.S. as an “historical accident” arising from World War II wage controls, which has become a costly anachronism that hurts the global competitiveness of American industry.

There are several problems with Senator Wyden’s analysis.  First, the relevant employer-based system is not the World War II-era Blue Cross-type state plans that he alludes to, but the modern employer plans that followed the passage in 1974 of ERISA (the Employee Retirement and Income Security Act).  These plans have grown to provide good benefits to more than 70 million Americans, or one-quarter of the total population, and are the best managed part of the entire system; after more than a quarter of a century they can hardly be seen as an accident of history.

Second, the argument that foreign companies enjoy a competitive cost advantage over their American counterparts because of our employer-based health benefit system – a favorite argument of Detroit automakers -- does not hold water.  European and Japanese employers pay for their health care through the tax system, which in Germany and France can cost them up to 20% on top of their total payroll expense.  In addition, it’s total labor costs that count, anyway, and these are actually lower in the U. S. – witness the proliferation of new German and Japanese automobile plants in the Southeast.

Third, employers under this “anachronistic “system have led all major improvements in American health care – in the spread of wellness and prevention-focused programs, the management of chronic diseases, and the use  of incentives to medical providers for better performance – these elements are not found in public programs like Medicare and Medicaid, which focus on reducing payments to providers.

And, finally, shifting the basis of health insurance to the consumer would worsen benefits and increase costs for workers  (Senator Wyden admits that only one-sixth of Americans say they want to buy their own health insurance – although he says that state pools would change this, despite their dismal record of doing so to date).

Meanwhile, President-elect Obama’s call for a pay-or-play mandate on employers presents a very different kind of threat – a “federal HMO” financed by business to spread coverage to the working uninsured.   We actually are getting a sneak preview of what this would be like for the nation’s employers in Massachusetts – where the much-touted Romney Plan is an unfolding financial disaster that demonstrates just how expensive “free” health care can be – with huge cost overruns from putting more than half of the newly insured into taxpayer-subsidized plans requiring more federal transfer payment s (i.e., subsidies from taxpayers in other states) and increased “contributions” from businesses remaining in the state.

A federalized Massachusetts model for achieving universal coverage would merely be a stalking horse for government-dominated health care – financed by subsidies from corporate and individual taxpayers, including – through increased deficit spending – future generations as well as foreign purchasers of evermore U.S. Treasury bonds (a unique strategy for getting our foreign competitors to help pay the cost of health care for American workers).  One reason that, according to the reliable Employee Benefit Research Institute,  a surprisingly big majority of larger U.S. employers still believe in employer-sponsored health benefits despite the rising cost is their realization that they would end up paying much of the bill for a single-payer system of health insurance anyway – but without having any say in its design or management.  

In Summary -- The last thing America needs right now is more economic burdens on business, which must be the engine to restart the productive growth of the economy.   The fundamental problem is the premise that health care is a “right” to be guaranteed by government (meaning paid for by taxpayers, including business) rather than a “need” to be met in the most cost-effective manner.   If it becomes an automatic claim on services that others must provide in the high-tech, high-expectations U.S. medical care world, the universal “right” to health care will hasten the day of national bankruptcy – a day already fast approaching for Medicare.  And because these will be recurring expenditures – not one-time outlays like the financial bailouts – they will permanently depress the economy through higher taxes on production.

The nation needs a serious discussion of what the working parts of an optimally functioning  health care system should be – not a first-hundred-days national health plan that could do serious long-term economic damage at the worst possible time in our modern history.


Sean Sullivan, JD

Sean Sullivan is co-founder, President and CEO of the Institute for Health and Productivity Management.  Since its founding in 1997 the Institute has served as the catalyst and champion of an expanding international movement to make health a leading human capital asset for the 21st century.

Mr. Sullivan was the original President and CEO of the National Business Coalition on Health, and a Washington-based health policy analyst – as a fellow at the American Enterprise Institute for Public Policy Research.  He is the author of articles and monographs on health policy and health care market trends, and has testified on these subjects before Congress and state legislatures. 

Mr. Sullivan holds degrees in economics from Harvard, and law from Stanford.



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