The State of Employer-Sponsored Health Coverage

BRIAN KLEPPER

First published on THCB.

New data make it clear that America's employer-based health coverage system is increasingly in shambles, providing adequate coverage to a rapidly diminishing percentage of the population. We can fix it or replace it but, for the good of the nation, we need to do one or the other. To let it languish causes enormous unnecessary suffering and cost.

A detailed new study from the Economics Policy Institute confirms what many of us suspect but haven't had the data to easily nail down. This weightily titled report by Jared Bernstein and Heidi Shierholz - A Decade of Decline: The Erosion of Employer-Provided Health Care in the United States and California, 1995-2006 - provides more granular information about the enrollment dynamics over time in employer-sponsored health coverage than we've seen in a while. Based on an analysis of the March 2007 Current Population Survey, the numbers reported here are mostly in sync with (but deeper than) similar studies that have attempted to size the enrollment and erosion characteristics of the employer-sponsored coverage market. Strap yourself in; this isn't pretty.

There are two important points here. The first is that, in the six years between 2000-2006, the percentage of American workers with employer-sponsored coverage fell from 51.1 to 48.8 percent, a 2.3 percent absolute or 4.5 percent relative drop. 6.4 million workers (and presumably, another 7.6 million of their family members) lost their health coverage in the process. These losses exceeded gains made between 1995-2000, when the percentage of workers with coverage rose from 49.6 to 51.1 percent.

It might be tempting to interpret the last few years' coverage erosion as cyclical. But it occurred during a period of relative economic prosperity. As Bernstein and Shierholz point out, this suggests a structural change in employer-sponsored coverage that is almost certainly related to unrelenting health care cost growth. In other words, even though employers as a group were doing relatively well financially, the explosion in health cost - about five times general inflation and four times workers earnings from 2000-2006 - encouraged employers to move away from coverage.

Second, the erosion of coverage hasn't just occurred to those at the edges of the workforce, but across the board, eating into high paying, stable employees as much as low-income workers whom we might expect to be marginalized. The report provides extensive tables that break out the findings by industry sector, educational level, corporate role/position. The results are consistent. Here's the authors' comment:

The burden of these employer cuts is not carried by part-time or marginal workers. Rather, the most dramatic loss is among workers with the strongest connection to the labor force.

To me, these points have bigger messages.

Employers Cover Only Half Of Workers
Let's take the smaller one first. These numbers - remember they're from reputable surveys conducted for years by the Feds - say that only half (or less) of all US workers have health coverage. This is not a new or unique finding. Here's a quote from a Bureau of Labor Statistics report, Employee Benefits in Private Industry 2007, issued last August 22:

Seventy-one percent of workers had access to medical care benefits, and 52 percent participated in a medical care plan.

(I should acknowledge that these two sources are at odds with the Kaiser Family Foundation/Health Research and Educational Trust (KFF/HRET) data - see Figure 3.6 in their Employer Health Benefits 2007 Annual Survey report - which estimates that 65% of American workers currently have coverage from their employers.)

I have always found it difficult to reconcile the fact that, while a large portion of American workers apparently don't receive health coverage through their employer, we "only" have 50 million uninsureds. In the 20 years I've worked on or around this issue, this has made no sense to me, and I've never been able to get anyone to explain the discrepancy satisfactorily. So while I nod at the official uninsurance numbers, I suspect they're actually much bigger.

Over the last several decades, we have come to understand a great deal about the relationship between health and productivity. If the employer-based system is now only capable of delivering coverage to half its workers, then that has immense implications for our national ability to be productive and competitive in the global marketplace.
 
Focus On Fixing The System, Not The Problems Of The Uninsured
More importantly, while, yes, our uninsurance problem looms large, in the end, it pales in comparison with this fact: Mainstream Americans, who historically have had coverage over the last 40 years, are now losing it. So it is a mistake to frame health care reform against the context of the uninsured, at least as we have traditionally understood that population. That approach suggests that health care's problems are isolated to a currently disenfranchised minority rather than directly affecting all of us. Worse, it distracts us from the more pernicious problem, which is the severe operational dysfunction that pervades the whole of the American health care enterprise, one-seventh of the current US economy, one-eleventh of its jobs, as well as quality-of-life and financial impacts for virtually all the American people.

One deficit in the study is a description of the uninsurance problem. While many workers and families have lost coverage, those who still possess it have much skinnier benefits and higher out-of-pocket requirements than in the past. (Which means that when health coverage premium inflation is understood in the context of cost per unit of benefit, the actual cost growth rate is MUCH higher than the 5 times general inflation number I cited earlier.) A recent Watson Wyatt study showed that nearly half (47%) of all employers now offer a High Deductible Health Plan (HDHP), with or without Health Savings Accounts (HSAs). Now consider a recent EBRI/Commonwealth study that found a lower penetration of HDHPs in the market, but also learned that employers were 5.5 times as likely to provide HDHPs WITHOUT HSAs as they were to provide a HDHP and fund an HSA. In other words, most of us are paying a lot more for much less coverage than in the past, and that gradual degrading of benefits makes it increasingly difficult to come financially intact out of any significant health event.

So if the news is that rank and file Americans now face losing health coverage or going personally bankrupt if they get sick or are hurt, then our focus now should NOT be on the uninsured, but on reconstituting the adequacy and availability of coverage. It should emphasize the balance between what care should cost in a rational marketplace, and what most of us are able to pay on our own or through some collective mechanism. In the process of making coverage whole and available again, any moral society that is also devoted to its own self-interest would re-enfranchise those who had been disenfranchised by the failings of the previous system.

Despite the most fervent hopes of the American people, it is extremely unlikely that, when a new Administration takes office next year, health care policy reforms can be brought to fruition that make care in this country more affordable and accessible. Achieving that would require overwhelming the special interests who, as a new study from the Center for Responsive Politics again makes clear, now bring the cash to bear - $445 million in 2007 - to dominate Congressional health policy, and to continue the spectacular unwarranted variation and waste - half of all health care dollars - that lies at the heart of the crisis.

Even so, as progress in the market continues to accelerate, many of health care's cost issues could begin to subside and resolve. We're seeing tremendous movement toward transparency, decision-support and accountability throughout the continuum in the rapidly evolving Health 2.0 market. Access to better and ever-cheaper tools is facilitating information exchange and ultimately, more effective population and personalized health management. New attention to the medical home is revitalizing primary care and promises to curtail unnecessary downstream services.

The market can make care and coverage less expensive and more available. But getting to a system that assures appropriate care to everyone within our borders must be facilitated through policy. It will require political will, backed by a national understanding already firmly in place within our largest corporations, that without secure access to health care, our people cannot be highly productive or continue to lead on the global stage.

I doubt this important new, cautionary study about the character of America's employer-sponsored coverage system will get much visibility or traction within health care reform circles. But it should. Building the will to address what's actually wrong with the system - rather than developing a patch-quilt of half-measures built on ideology - demands looking at and thinking hard about the realities of how our health system functions.

Employer-sponsored coverage has many positive attributes. While it may have emerged out of less-than-perfect circumstances, over time it has come to correctly link the value of health with productivity and competitiveness, giving the employer a clear (though not the only) stake in ensuring that workers and their families are secure.

That system is increasingly in shambles. It can be fixed or replaced. But we must do one or the other. The status quo isn't working or good for Americans, our employers, or the future of the nation.

Deep thanks to Synthia "Hawkeye" Molina of health care technology intelligence firm Central IQ, for sending the Bernstein/Shierholz article my way.