Employer-based health insurance plans no longer work

It seems clear that change is coming to the U.S. healthcare system. President-elect Barack Obama wants it. Congress wants it. Even the insurance industry says the time is ripe to do things differently.

But not too differently. The idea of doing away with the employer-based insurance system -- which has become increasingly unsustainable for businesses and has resulted in 47 million Americans going without coverage -- seems to be off the table.

"There are very few economists who say that if they were king, the employer-based system is the one they would pick," said Henry Aaron, a senior fellow at the Brookings Institution who specializes in healthcare.
Uninsured: David Lazarus' column in Business on Wednesday, about the idea of doing away with the employer-based insurance system, reported that 47 million Americans lacked health insurance. As of last year, the total number of uninsured was 45.7 million, which includes both citizens and noncitizens. —

"The problem is that it's not possible to just walk away from the employer-based system. The 180 million people who currently receive coverage from employers would go ballistic."

In other words, the crappy insurance system you know is better than the newfangled system you don't.

This seems like a lame reason to remain wedded to a system that, by and large, fails to serve the interests of both the American people and U.S. businesses.

According to the Organization for Economic Cooperation and Development, the $6,102 spent per person on healthcare in the United States in 2004 was nearly twice the amount than in most other industrialized democracies and well beyond the average $2,660 of the organization's 30 member nations.

At the same time, the average life expectancy in the United States was shorter (77.5 years) and the infant mortality rate higher (6.9 deaths per 1,000 births) than elsewhere in the developed world.

Clearly we're not getting a lot of bang for our healthcare bucks.

Employer-based health coverage is a historical accident. Businesses began offering it during World War II to attract workers during a government-imposed wage freeze, and the benefit gradually became the primary form of health insurance.

Many large employers now bellyache about healthcare costs. During recent bailout hearings, the Big Three automakers said their Japanese counterparts enjoyed a competitive advantage because workers' health insurance was provided by the government.

Yet U.S. businesses have been reluctant to call for radical change in the insurance system.

"Our membership is overwhelmingly in favor of retaining the current employer-based healthcare system," said Anthony Wisniewski, executive director of healthcare policy for the U.S. Chamber of Commerce. "By having an employer-based system, employers can make offerings that allow them to attract the most talented people to their organizations."

That sounds nice in theory. In practice, employers are increasingly opting for cheaper insurance plans with higher deductibles and co-pays, thus saddling workers with a greater share of costs.

According to the Kaiser Family Foundation, 18% of all covered workers now face annual deductibles of at least $1,000, up from 12% in 2007. Among smaller businesses with up to 200 employees, more than a third of workers have deductibles of at least $1,000, up from 21% last year.

I've long believed that something along the lines of expanding Medicare to cover all Americans, not just the elderly and disabled, would be the most effective way of providing insurance to everyone and controlling healthcare costs.

But that's not going to happen any time soon, not if the insurance industry has anything to say about it.

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