October 11, 2015

The Case for Employer Provided Health Benefits

Although the health insurance legislation will not immediately attack employer-provided health benefits, I feel that there are many threats to their continuation. Accordingly, I feel compelled to respond to ill-informed points of view of influential and otherwise justifiably highly-respected people. In a column entltled ”In the Wilsonian Tradition,” columnist George Will refers to the need to “transition from the irrationality of employer-provided health insurance.”

There are a handful of arguments usually made against employer-provided health insurance, some coming from the political right and some coming from the political left.

Argument 1: Employer-provided health benefits are a vestige of political and economic conditions that no longer exist.

Opponents of employer-provided health benefits argue that, because such benefits began during World War II because employers were subject to wage controls, they must serve no useful purpose.

There are two flaws with this argument:

  • If health benefits did not make business sense, employers would not have chosen to offer it at any time, or would have stopped offering it as soon as they were no longer subject to wage controls. There were many other benefits they could have offered. Both the Conference Board and the Human Resources Policy Association, which have a majority of large businesses in their membership, have found in private surveys that the vast majority of their members want to offer health benefits. They see it as a business imperative, not something they would prefer not to offer.
  • The argument is irrelevant. The merits of employer-provided health benefits need to be debated based on today’s conditions, not what triggered the decision by employers to offer them 65 years ago.

Argument 2: Employers do not belong as an intermediary between patients and doctors. Patients do not trust their employers to provide health benefits, and would prefer to deal directly with the health care providers.

While I am sure that some employees distrust employers, the confidential surveys Pitney Bowes and other companies have done over a long period of time indicate that employees are highly satisfied with the way a first-rate health benefit is administered.

Employers who offer a stingy health benefit or who administer their health benefit program poorly or offer no choices among insurers, providers, or health plans will be rated poorly by employees. However, judging health plans by the poorest offerings is liking saying that all elected officials should resign because some of them are crooks. The best employer health benefit programs are far better in addressing patient needs than either Medicare or any private insurance program.

Argument 3: We are competitively disadvantaged because our employers absorb health benefits costs and our foreign competitors do not.

The comparison between GM and Toyota relative to the cost of health benefits, usually quoted at a $1,500 per car disadvantage for GM, is flawed at many levels:

  • GM has a poorly designed health benefit largely because it made no effort to use the health benefit to drive healthy behaviors by its employees. The Japanese have lower health care costs because they eat less, pay a lot more attention to infectious disease control, and are far more controlling than is the U.S. on health-related behaviors. They also tightly control health care costs.
  • The cost of health benefits is built into the Japanese tax system. Everyone pays for health benefits, not just the employer and employee. The real meaningful comparison is the portion of Japan’s corporate income taxes allocable to health care versus GM’s cost of health benefits. It’s on the income statement, but as part of a corporate tax payment.

Argument 4: Employers have no reason to be delivering health benefits.

This argument is the most flawed. Large self-insured employers can aggregate more economic and non-economic benefits when they invest in improving employee health than any kind of payer. Besides reducing health care costs, employers investing in improved employee health get reduced absenteeism, disability, and workers compensation costs, improved productivity at work, improved quality of work, and increased loyalty and retention.

Some people who say that the VA system is a great health care system and want that to be the model for everyone. If our goal was to produce the best broad-based health care system, they might be right, although employers have a significant advantage in being able to offer care on worksites, which produces much better use of the health care system. However, if our goal is to maximize population health and give businesses incentives to invest in creating healthy environments, that would not be right. The VA does nothing to make the environment in which people live every day healthier, whereas employers can make environments healthier.

In the UK and Canada, it has been difficult for national governments to get employers to invest in workplace health because employers gain no benefit from reducing health care costs. The other benefits, standing alone or in aggregate, are insufficient to trigger investments in health benefits. Put them together as the U.S. has done and some very good investments get made.

Another reason employers get big economic leverage from offering health benefits is that they alone, by controlling the work environment in which employees spend a majority of their waking hours, can provide an environment in which people eat nutritious foods, get sufficient exercise, do not smoke or drink alcohol on the job, and are safe from being victims of violence, accidents or injuries.

Finally, through a quirk of the 1974 Employee Retirement and Income Security Act (ERISA), self-insured employers have more freedom to innovate and to correct mistakes than either government payers or state-regulated private insurance plans. The best self-insured employer plans have lower costs, provide better health care, create a more productive environment, are more innovative in embracing good new treatments, and are faster to avoid popular, but bad, treatments like the high-dose chemotherapy that government mandated in the early 1990’s.

Argument 5: Employer provided health benefits only work for large self insured employers with stable populations, not for high-turnover large businesses or for small businesses.

This argument, which sounds superficially persuasive, is not borne out by experience. Companies like Costco, Safeway, WalMart, Wegmans and Starbucks, all operating in businesses with traditionally high employee turnover, have managed to build strong business cases and to achieve success with employer provided health benefits. They have reduced unwanted voluntary turnover because of their cultures of health and have improved work productivity.

The issue with small businesses is not their inherent inability to implement health benefit programs, but the rigid and misguided state insurance regulations that prohibit insurers from offering wellness incentives to the small business marketplace. That is starting to change, and I am pleased that Connecticut now allows its insurers to offer wellness incentives. Moreover, Quad Med and other large employers now offer health care to small businesses that share industrial and offer park space with them. The UNITE Here Health Center in New York City offers a walk-in clinic for members of five labor unions in the Garment District.

I will continue to fight for employer-provided health benefits because they integrate health, health care, and insurance in the most productive way, and recognize that we have to create healthy environments for people to maximize their potential.