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Why Employers Like to Control Your Health Insurance

Matt Miller is confused:

When the post-mortems on the health-care reform debate are written, the biggest mystery will be why big business fought so hard to stay in the health-care business even as soaring health costs surpassed corporate profits and diverted executive time better devoted to actually running companies.

It's baffling. Take, for instance, the oft-heard defense of the centrality of employers in providing health-care coverage. "It's crucial to attracting talent," they say. In a world where employers provide health care, that's somewhat true. In a world where employers don't provide health care, it isn't true. In that world, employers would just offer higher wages, which would be similarly effective in attracting talent.

Health-care benefits are, after all, just a form of compensation. In fact, they are a confusing form of compensation. If I'm choosing between a job at Baucus Corp. and Conrad Inc., and Baucus Corp. promises me $65,000 and full health-care coverage, and Conrad Inc. promises me $68,000 plus full health-care coverage, I'll probably choose Conrad Inc. But I have no way of knowing if Conrad Inc. got that slight lift in wages by offering me a crummier plan. Most people, after all, don't really understand the differences between various types of insurance. They do understand the difference between various salary levels. If this was really about competing for talent, businesses would want health care out of the equation so they could compete more directly.

It seems more likely that this is about control. Control, on the one hand, of health-care benefits. Business owners aren't notoriously pro-government types, and they may not trust the government to run this better than it's already being run. It's hard to imagine it being run worse, but they probably don't see it that way. And control, on the other hand, of employees, who are a lot less likely to leave the company when they don't have other options for health-care insurance, and when they don't want to have to switch providers and find a new doctor and deal with all that disruption.

By Ezra Klein  |  October 2, 2009; 3:03 PM ET
Categories:  Health Reform  
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Comments

Whatever the plan, employer based health insurance helps retention.

However, it might not sound as nice if employers are saying that they like employer-based health care because it allows them to pick and choose who stays when they "downsize", rather than employees seeing a wave of layoffs coming and looking for somewhere else to go.

So "attract talent" makes a good filler for that.

Another degree of freedom for corporate management is that if fill time benefits are 1/3 or more of total compensation, then that erases the overtime penalty.

Posted by: BruceMcF | October 2, 2009 3:13 PM | Report abuse

Health insurance premiums are a convenient excuse to not pay raises. On a $40,000 salary with $12,000 health insurance premiums, a 10% premium hike is cheaper than a 3% raise, after taxes and 401k matches.

So if you can get your employees to eat it and smile because they "know" how much their health insurance went up, those outrageous premium hikes aren't such a bad deal.

Posted by: Aatos | October 2, 2009 3:24 PM | Report abuse

Ezra,

I've posted something similar in another diary. I don't understand how employers would lose control of their employees' health insurance if the firewall were broken. What's there to prevent Kyl, Inc. from using compensation incentives to keep employee Henry Healthy on Kyl, Inc.'s plan while using compensation incentives to dump employee Sally Sick onto the Exchange? Years from now it could be implicitly understood that new hires have a shorter probation time if they select the plan more favorable to their employee. It seems to me that employers -- as they have leverage over their employee -- could just as easily if not more easily game the system if there were no firewalls and equal tax treatment of the employer-based system and the Exchange.

As an actuary, I just don't think eliminating the firewall and having equal tax treatment of employer-based health insurance and the Exchange has been as well thought out as many people think.

Posted by: BradGabel2002 | October 2, 2009 3:25 PM | Report abuse

Actually, this is one aspect of health reform I don't like (or rather, the missing aspect that I'd like to see).

Personally, I'd prefer to decouple my health insurance from my employer for the reasons indicated above--to have the ability to make apples-to-apples comparisons in compensation packages.

I also happen to think that I can do a better job than my employer of shopping for and purchasing health insurance (assuming we get a public option and that rating based on pre-existing conditions and rescission is outlawed).

From the employer's point of view, the cost of health insurance administration is significant, and I imagine that most businesses would appreciate being able to eliminate that expense altogether.

With regard to the issue of control, as described above by Ezra, I'm speculating here, but I haven't heard or read much from employers about that issue. I could be mistaken, I really don't think it's on their radar. Hell, the current corporate culture seems to favor turnover to avoid raises, internal promotions, vesting and the like.

Posted by: cjo30080 | October 2, 2009 3:25 PM | Report abuse

You're giving them much too much credit for being benevolent.

Businesses like being in charge of your health care because it makes you much less likely to leave without a really good reason (namely, one that provides you with insurance). I think you've even written about how the American system of insurance decreases labor mobility; surely employers are more comfortable with dictating the terms of that mobility.

Posted by: rusty_spatula | October 2, 2009 3:26 PM | Report abuse

The Chamber of Commerce has been quite clear on this. What they don't want is to have to provide a voucher for employers to purchase insurance. They think it will become a blank chank and they will still get an earful about quality.

And then there are many employers who, rightly or not, think they are getting a better than average deal on insurance. They're afraid any change will leave them worse off than before.

The government either has to step in and break this stalemate, or we're going to continue to have incremental change. Right now it seems like the latter.

P.S. No amount of money is worth working for Conrad.

Posted by: bmull | October 2, 2009 3:27 PM | Report abuse

I'm one of the owners of a family-owned construction company. Every year, we sit down with our insurance broker and try to find the best balance of benefits and cost. Some years, the employee's increase in premiums (we pay 50-60%) wiped out all of the cost of living increases that we gave only two months before.

Given the choice, I would be overjoyed to get out of the health insurance business forever, and go to a single-payer system.

And to be absolutely clear on this point, I would be more than willing to pay higher taxes to make that happen.

Posted by: pgrondin | October 2, 2009 3:37 PM | Report abuse

I thought about 40% of insurance was provided by companies that set up their own in-house PPOs, with the administration done by outside insurance companies. Maybe they think they can do cost control better, or simply want to be the ones to make the call.

I think it's the retention issue mostly, though. Offering good health insurance is one way to keep employees, and it helps that it isn't usually an easily quantifiable benefit like an extra $10,000 a year - employees may simply be grateful to be getting employer-covered insurance period.

Posted by: guardsmanbass | October 2, 2009 3:41 PM | Report abuse

Brilliant as always, but there is a simpler explanation -- CEOs don't really understand the issues either so they ask human resources managers for information.

Now one reason that single payer would be good for firms is that they wouldn't need to employ so many people in human resources (as the job gets much simpler). This is not likely to thrill human resources managers.

We like to think of corporations as profit mazimisers. We accept that CEO compensation is not chosen to maximize shareholder value. Why not assume that health care related lobbying efforts are not chosen to maximize the money to be divvied up by CEOs and shareholders ?

Posted by: rjw88 | October 2, 2009 3:57 PM | Report abuse

Most people, after all, don't really understand the differences between various types of insurance

and I get slammed when I say this. OY!

CEO's don't get it, heck many HR people in smaller companies don't get it either. And you're right it is masked by employees when deciding what job to take.

Also you're assuming Baucus and Conrad Corp are both hiring. Not today they're not.

I"d also be willng to bet that 90% of people on here don't have a clue on it either when it comes to insurance and that doesn't change with a public option or even single payer unless you require ALL providers to accept the single payer including pharmacies, medical device manufacturers, hospitals, doctors ETC, ETC, ETC(ya Good luck with that one in the old USA). Anybody out there know the rules of COBRA when you're ESRD and disabled on SSI with your employer having over 100 employees? Heck Ezra you even said yourself before you didn't know about the rules of open enrollment and went without coverage for a fairly long time. Anyone care to wager any guesses?? For whatever reason its outside the realm of understanding of a large segment of the population.

Posted by: visionbrkr | October 2, 2009 4:10 PM | Report abuse

Shorter visiobrkr: "Insurance brokers like myself are the last line of defense between civilization and anarchy."

Posted by: constans | October 2, 2009 4:28 PM | Report abuse

constans,


well I guess maybe I wouldn't have said it exactly that way but could you answer any questions i posed above? Are you going to find your way through the maze that is the Exchange?? Want another question???

If Mary Smith has her insurance through her job and Tom Smith has his insurance through his job and they have co-ordinating benefits and they have a newborn son, say his name is Constans, who pays Contans' claims first??


And its funny you blame it just on insurance because over the last 10 years many in my industry have had to branch out to do many more things than Health Insurance.

Do you know what states have state disability benefits and if so for how long the duration is?? But wait what if your employer is based in one state but you work in another?? Whose rules apply???

We're like an accountant that gets to deal with the IRS every day. IF you don't think you should have to pay taxes do you think an accountant is useless? Do you think an attorney is useless for what he or she does??

Posted by: visionbrkr | October 2, 2009 4:41 PM | Report abuse

Having consulted with major employers on health insurance benefits for years I can tell you that benefits do not attract employees. There is a minimum bar that must be met (ie, if employer X is in an industry that generally offers benefits, they can not get away with not doing so). But prospective employees can not make any logical distinction between employer X's benefits and employer Y's benefits unless there is a HUGE disparity between them.

Likewise, they do not help retention. Employees leave because of their manager, the work they are asked to do and pay. These have been number 1,2, and 3 forever. The caveat: benefits will keep me around if I have a pre-existing condition and can not get other employment.

Employers like the control in the event they can eek out a competitive advantage in cost. I have had CEOs tell me if they could be guaranteed a level playing field (that their competitors would not be better off than they), if the tax situation was such that they could substitute pay for benefits and send employees to a viable private market, they would dump benefits in a heartbeat.

Posted by: scott1959 | October 2, 2009 4:47 PM | Report abuse

"It's hard to imagine it being run worse, but they probably don't see it that way."

Ezra, the government already runs healthcare in the U.S. Taxpayers foot the bill for about 50% of healthcare spending. Regulations run into the tens of thousands of pages and they are different in every state.

How can anyone think the private sector is running this?

Posted by: kingstu01 | October 2, 2009 4:47 PM | Report abuse

"Anybody out there know the rules of COBRA when you're ESRD and disabled on SSI with your employer having over 100 employees?"

I always have to look that one up (smile). . . .at least I know where to look, whereas many people don't, unfortunately. I agree, knowing the ins and outs, laws and rules, of health insurance is special knowledge that most people don't have, unless they work in the industry or consult with a good agent/broker. Perhaps high schools should offer an insurance literacy class -- it would be a practical skill most people could use.

Posted by: Policywonk14 | October 2, 2009 4:48 PM | Report abuse

visionbrkr, when you have to compare yourself to a *real* professional, like a doctor, an accountant, or a lawyer, it is a sign that you aren't one.

*If Mary Smith has her insurance through her job and Tom Smith has his insurance through his job and they have co-ordinating benefits and they have a newborn son, say his name is Constans, who pays Contans' claims first??*

It may be surprising to you, but that question is pretty straightforward in Canada. You're basically telling me that your job is only possible because the system is as screwed up as it is.

I don't think that the HR professionals are as maliciously minded as some people have claimed they are. I just think that they, like visionbrkr, have an inflated sense of their own importance and necessity. It's like Michael Steele when he was complaining that health care reform would interfere with people's "relationship with their insurance company." People don't *want* a relationship with their insurance company. What they want is their claims to be paid. Likewise, HR professionals think that these various benefit packages are of utmost importance and get agitated at the idea that their ability to offer various health insurance plans in order to attract candidates might be constrained. They're not malicious as much as blinded by delusion: everyone thinks that THEIR career is somehow crucial to the gears of civilization. Even HR.

Posted by: constans | October 2, 2009 4:55 PM | Report abuse

constans,

and exactly what is the answer in Canada? How about the COBRA question??? The disability question???


And again are we going to be able to force every provider in the US into your single payer system? Is that going to happen overnight?? EVER??

I don't have any over-inflated sense of my own worth. In fact if anything I have an under-inflated sense of it and I'm very secure in that. I graduated from college with a BS in Economics but I easily could have done what I'm doing now without it. And if I took a job with a company as an "employee" then I likely would have changed jobs about 3-4 times by now. I've been in the same job for 15 years.

I spent part of my day today helping a mother get their family immediately (the same day the application was submitted) onto their employer's plan and help them get a prescription pre-authorized for her daughter who has to take an injectible of growth hormones because of a degenerative disease she's had since birth. Does your public option work that well and that quickly. If someone needed to be added to the public option the same day do you really think when you call the government they'll be able to get that done???

Posted by: visionbrkr | October 2, 2009 5:16 PM | Report abuse

Actually, if it has to do with control, then the companies are fooling themselves. When it comes to monthly payments/invoices, insurance premiums are the least flexible of items on the balance sheet; they have to be paid, on time and in full. Of all other items, only payroll is equal in inflexibility.

So the insurance companies actually are able to exert control of companies monthly balance sheets also.

(I sent you an email on this a month or so ago).

Posted by: markgoede | October 2, 2009 5:24 PM | Report abuse

Control is probably a big part of the equation.

Uncertainty is probably a big part of it too.

The old saw about "the devil you know" is probably part of the equation too.

Posted by: JPRS | October 2, 2009 6:14 PM | Report abuse

Wbat's 12 percent of your total income,
Ezra? Would you like it if Max Baucus decided that you would have to pay that amount in health insurance? Well, if you don't like it you have to live with it because that's what Max Baucus' bill lowered the amount to from 13 percent of your total income. Isn't he generous? I mean, if he weren't generous to them, the health insurance industry would never thank him with all those millions in campaign contributions, would they?

Posted by: eyemakeupneeded1 | October 2, 2009 6:28 PM | Report abuse

"I spent part of my day today helping a mother get their family immediately (the same day the application was submitted) onto their employer's plan and help them get a prescription pre-authorized for her daughter who has to take an injectible of growth hormones because of a degenerative disease she's had since birth.... If someone needed to be added to the public option the same day do you really think when you call the government they'll be able to get that done???"

Good Lord, you sound like a travel agent fighting the evils of online airline ticketing.

Lets look at how our Canadian neighbors deal with this.. First, there is no 'employer's plan' that must be dealt with upon starting or ending employment. A Canadian woman starting a new job is already in their Medicare system because, let's speak plainly, Canadian politicians, as a class, are less corrupt than American ones.

And since every Canadian is covered from birth, the child was enrolled the same day her doctor signed the birth certificate. When her mother applied for a new job, she didn't have to worry about changing insurance companies or that she'd be dependent on her new boss to provide for the the medical needs of her children.

Oh and since US Social Security numbers are issued at birth, I'm pretty sure Uncle Sam already has the forms, databases and and bureaucracy in place to easily sign up every child for Medicare as well children up for health coverage at birth.

Sorry brother, if we had a cost-effective, honest health care system-- you're out of a job.

Posted by: beowulf_ | October 2, 2009 7:30 PM | Report abuse

beowulf_

interesting you bring up my example but you don't talk about the prescription. I wonder why??? I don't know but would Canada's plan cover it??? I would doubt it. BTW I looked up the cost of nutropin online (the drug she takes). Its $2500 for a package of 6 vials. Sure it'd probably be cheaper in canada but not that much that they'd pay for it I'd suspect. But honestly I don't know so I can't say 100% for sure that Canadian style healthcare wouldn't cover it but you can be sure its more likely covered and paid for in the US than in Canada. Its nice when you can cherry pick your points to make yourself look good. How's that working for you?

Sorry brother, if we had a cost-effective, honest health care system-- you're out of a job.

HAHA. I won't hold my breath. YOu mean like that cost effective, honest $60 BILLION DOLLAR PER YEAR FRAUD system that is Medicare and medicaid?? That type of honesty we don't need more of.

But hey if they ever did it, I'd welcome joining the ever growing ranks of the unemployed and I've said that before more than once. THe point is, it'll never happen. THe government doesn't know how to police itself, just others.

Posted by: visionbrkr | October 2, 2009 8:34 PM | Report abuse

""I would doubt it. BTW I looked up the cost of nutropin online (the drug she takes). Its $2500 for a package of 6 vials. Sure it'd probably be cheaper in canada but not that much that they'd pay for it I'd suspect. But honestly I don't know so I can't say 100% for sure that Canadian style healthcare wouldn't cover it but you can be sure its more likely covered and paid for in the US than in Canada.""

(a) you don't know (and you are wrong-- it is covered). (b) You admit that Canada pays less. (c) There is no guarantee that _any_ American plan will pay for it. It merely just so happens that a certain plan that this family's employer has does without an outrageous deductible-- but under other circumstances, the family would have had to apply for SCHIP for the child or risk having to pay for Nutropin-- and in some policies, there is a $1500/yr max on prescription drug reimbursement, so the family would be on the hook for the remainder for the year.

Posted by: tyromania | October 2, 2009 9:58 PM | Report abuse


tyromania,

oh really? it is covered in Canada? under the base state sponsored plans that are paid by taxes??? you want to check again?

I knew it wasn't "LIKELY" covered but yet i wanted to see one of you liars stumble all over yourselves with "YOUR VERSION" of the truth. If its considered an injectible than it MAY BE covered. If they consider it a prescription THEN ITS NOT. Here are two versions of FACT:

http://www.greatwestlife.com/web5/groups/group/@public/documents/web_content/s6_000285.pdf


http://www.healthquotes.ca/OHIP-Ontario.aspx#

Seniors 65 and older (sorry she's 11) and those on social assitance (she's not) That's whose covered for prescriptions in Canada. It MAY be covered because its not a prescription its an injectible although i don't know exactly how that's treated in Canada. That was why I said I don't know.

Again all the pundits on here who claim to know what they're talking about and are just spewing their crap and don't have an idea of what they speak from can be seen for the transparent fools they are. I understand you have an agenda to push and you really do, I think, believe in what you say but when you blatantly LIE or don't know the truth and yet speak anyway you're seen for what you really are. A FOOL.

Oh and BTW, as I said its an injectible. Her plan in the US like many others covers it at 100%. NO COPAY. NO CAP. We got the letter of medical necessity from her doctor today and its likely that she can get it sometime next week once we expedite it through the pre-auth process. Just like most healthplans that I'm aware of at least cover diabetic test strips at 100%. Not all plans but a good many plans. She won't pay a thing and gets it via mail order once she's set up (just like she previously had under Aetna)You're right some don't cover it in full. But as usual you only speak of caps on prescriptions that are not common because they push your agenda. That's why you review your benefits like any sensible person does to MAKE SURE it covers it.

If you had even the slightest tone of reason in your posts not only wouldn't you sound so bitter, people might believe what you say.

And where do you get the SCHIP from? Did I mention they were on SCHIP? It sounds to me like you have some sort of agenda you're going off on that is totally off base. I'm not surprised. WHen you're ready to come back on here and admit you're wrong (and you've looked up for yourself exactly what OHIP covers then I'll gladly accept your apology.) Again, I'll wait, but I don't expect anything.

Posted by: visionbrkr | October 2, 2009 10:52 PM | Report abuse

(c) There is no guarantee that _any_ American plan will pay for it. It merely just so happens that a certain plan that this family's employer has does without an outrageous deductible-- but under other circumstances, the family would have had to apply for SCHIP for the child or risk having to pay for Nutropin-- and in some policies, there is a $1500/yr max on prescription drug reimbursement, so the family would be on the hook for the remainder for the year.

Posted by: tyromania | October 2, 2009 9:58 PM | Report abuse


boy I bet they're sure glad they have me around to make sure they have a good plan that's negotiated at a good rate. Thanks for making the case of my worth to this client but I don't need it. They tell me it often enough. The mother was ecstatic when i called her today with her ID number after she had just sent me her enrollment form earlier today and I told her we had sent the letter of medial necessity to the pre-auth dept rep that we have assigned to our office to expedite it.

Posted by: visionbrkr | October 2, 2009 10:57 PM | Report abuse

visionbrkr....what you and I do is important in the current 'system'. You do not need to keep throwing out the examples of the people you help. What is tragic is that this 'system' exists in its current state at all. It must be changed, not defended. We can nitpick the Canadian, Swiss, French, German, UK, etc systems, but the bottomline is they are more rational, more humane, less expensive and have better outcomes.

Posted by: scott1959 | October 3, 2009 12:10 AM | Report abuse

scott1959,

I agree that those systems are better and we should find a way to get there (universality) and at a point that everyone can afford and those that can't afford it should be paid for. My point is that many people around here act like those universal systems are utopia and and everything's covered at little or no cost and they're not. Not everything's covered like prescriptions as I pointed out in the Canadian system. how many people around here do you think know that? 5%, 10%, more?? How long before budgets are stretched in those systems so that they are forced to drop prescriptions for all and not just 18-65 year olds and move that into the private systems? Then what do they do when costs continue to rise, make a doughnut hole for MRI's for example? And then when they've watered down their universal care to when it covers a bare bones or a little more and they're still taxing at a high rate what do they do, have private plans that are forced to cover more and high taxes? Its not like they can reduce taxes then. I know our system is one of the worst and least humane in many areas and I want to change it even if it puts us out of a job but I'd like some on the left to be honest about the pluses and minuses of our system as compared to others. Know the facts. That's all I'm asking for. I don't think that's too much.

Posted by: visionbrkr | October 3, 2009 12:58 PM | Report abuse

Speaking as someone running a small company, I really don't want to play in the benefits game. By covering 100% of the premiums for our employees, I have noticed that what people really hate is paying anything out of their discretionary funds, whether it's premiums or co-pays. I've heard people complain about $25 vs. $10 co-pays, assuming the plan with $10 co-pays is vastly "better". I've seen idiots sign up for "insurance" plans with absurdly low maxiumum payouts. People just want to ignore how much health care costs. They don't want to think about it. If people had to pay for things out of their own budgets, we'd see prices come down a lot, because we'd consider the value of the care more.

Posted by: staticvars | October 3, 2009 5:05 PM | Report abuse

2nd point though- I am vastly more concerned about a plan that expands the overpriced care we are paying for. I think more business people have the sense that it is not the insurance companies ripping us off, it's the providers, and the structure of the plans on offer which insulate the "insured" consumer from the absurd cost of care.

Posted by: staticvars | October 3, 2009 5:23 PM | Report abuse

Employer-run insurance is simply outdated. After all, it came about in response to the War Labor Board's rule in 1942 that capped wage increases; "fringe adjustments" such as health insurance, however, were not included in this cap and were thereby used to recruit employees now that higher wages were out of the question*. Before there was post-WWII inflation to worry about, fair wages seemed to be good enough incentive to take a job. Why not now?
I do not agree with Ezra in that I think a higher salary will always influence people more than what health insurance plan is being offered (with the possible exception of someone with a pre-existing condition finding good coverage with an employer-provided plan, which is unlikely anyway). With insurance companies doing everything they can to worm their way out of actually providing insurance these days, it's nearly impossible for the lay man to make heads or tails out of these plans or to know what plan would work best for them. Better to take the extra cash to use elsewhere, or to help with the out-of-pocket expenses that seem impossible to avoid.

*Donald Madison (2005). "From Bismark to Medicare–– A Brief History of Medical Care Payment in America"

Posted by: geogstudent1 | October 4, 2009 9:13 PM | Report abuse

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