Background on Employer- Sponsored Health Insurance in the U.S.

1. Background on Employer- Sponsored Health Insurance in the U.S. Jim Reschovsky, Ph.D. Senior Researcher Center for Studying Health System Change (www.hschange.org) 600 Maryland Avenue, SW Ste. 550 Washington DC 20024 202-484-4233

2. The Employer Sponsored Insurance (ESI) System Is Eroding Source: Census Bureau estimates from the Current Population Survey March Supplements

3. Reasons Why ESI Is Relied on As Primary Source of Health Coverage • Workers enjoy tax benefits • Advantages of group purchasing: • Able to negotiate lower premiums • Economies of scale in insurance • Greater insurance market expertise • More efficient insurance markets, i.e., pooling • Implicit social contract betw. the healthy and unhealthy • Advantages to employer: • Needed to attract and retain workers • Healthy and productive workforce

4. Problems With ESI As Source of Coverage Reasons uninsured persons lack ESI, 2007 • Not all families have workers • Employer & worker participation voluntary • Affordability not assured • Burden on employers reduces competitiveness • Tax subsidies encourage overly generous plans • Lack of choice Source: 2007 HSC Health Tracking Household Survey

5. What Happens When Working Families Lack Access to ESI? Source: 2007 HSC Health Tracking Household Survey. Working families defined as those with 20 or more hours of paid labor among all working members. Self insured are excluded.

6. Federal Regulation of ESI: Employee Retirement Income Security Act (ERISA) • Regulates employee benefit plans, not health insurers • Preempts state regulation over self-insured employers • Key provisions: • Nondiscrimination in health benefits • Sponsor fiduciary, disclosure, & reporting responsibilities • Claims dispute adjudication • Continuation of coverage rules (COBRA) • Portability; privacy standards (HIPAA)

7. State Regulation of Health Insurance • Regulates insurers, not employers • Effects only fully insured employer plans • Financial solvency protections • Mandated benefits and providers • HMO licensure, any willing provider rules, etc. • Adjudication of claim disputes • Market rules for small group/individual markets • Guaranteed issue/renewal, rate regulation

8. Decomposing Trends in ESI Rates Among Persons in Working Families % Notes: Labor force participation rates from Bureau of Labor Statistics, other rates from Community Tracking Study Household Survey/HSC Health Tracking Household Survey. Population for labor force participation is all nonelderly adults; for offer, eligibility, and take up rates, persons in working families

9. Average Percentage Increase in ESI Premiums Compared to Other Indicators, 1988-2007

10. Average Annual Premium Costs for Covered Workers, 2000 and 2008

11. Mean ESI Costs Per Worker Hour for Employees with Access to Coverage, 1999-2005

12. Who Pays for ESI? • Nominal answer: • Employers • Workers • Taxpayers • Economists’ answer: • Workers (share of premium) • Workers/taxpayers (in higher taxes/deficits) • Workers (in lower wages/employment)

13. The Problem Facing Workers in Small Firms Firm Size: Source: 2007 HSC Health Tracking Household Survey.

14. 4 Stylized Facts to Consider As You Embark on Health Reform • Coverage gaps largely exist because low income workers can’t afford ESI. • Firm behavior mostly driven by worker demand for insurance. • Regardless of financing source, workers ultimately pay. • ESI reform without parallel efforts to lower costs/increase value in medical care will fail.