Caution Urged Before Abandoning Employer Health Coverage in Favor of Individual Coverage

Health AffairsArticle Examines Strengthening the Individual Health Insurance Market Before Jettisoning Employment-Based Health Coverage

Media Advisory
May 13, 2008

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON, DC—In an article published in the May/June Health Affairs, economist Paul B. Ginsburg, Ph.D., of the Center for Studying Health System Change (HSC), discusses the advantages and shortcomings of employer-based health coverage, how individual health insurance could be a viable alternative to employer-based coverage, and why care should be taken not to undermine employers’ role in providing coverage.

Ginsburg notes that a slow decline in the proportion of Americans with employer-based health coverage has fueled concerns about the future role of employers in providing coverage-Census data show that 59.7 percent of the U.S. population had employer coverage in 2006, compared with 62.8 percent in 1999, a year at a similar stage in the economic cycle.

At the same time, "most recognize that today’s individual market is not an attractive alternative to employer-sponsored coverage. The presence of underwriting based on medical history and age would make insurance unaffordable for many who now obtain coverage through employment," Ginsburg writes in the article, titled "Employment-Based Health Benefits Under Universal Coverage."

Regional insurance exchanges—marketplaces managed by government or a private entity operating under government—established rules where individuals choose coverage offered by competing carriers-potentially could create pooling mechanisms similar to those available to people with employer coverage, according to the article.

But for an insurance exchange to succeed and pool people with different risks of having high medical expenses, "it needs a mechanism to ensure that both sick and healthy people enroll. As part of a universal coverage program, the federal government could accomplish this by offering the extensive tax benefits of purchasing health insurance only to those purchasing through the designated exchange for their region. Without such incentives, the healthiest people are likely to obtain coverage outside of the exchange, threatening it with an adverse-selection spiral. To date, I have seen little public understanding of this issue on the part of political leaders advocating a larger role for individual insurance," Ginsburg writes.

While insurance exchanges have promise, Ginsburg writes, "…that it is premature to abandon employer-based coverage with a strategy that is so untested in the real world. At this point, insurance exchanges are, for the most part, an attractive concept developed by thought leaders. Many design issues will have to be thrashed out in the policy process, and many operational problems are likely to be encountered and will need to be worked through. It would be better to do this learning with the tens of millions of people without access to employer-based coverage than with the entire privately insured population."

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by the Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.