CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press For Employer Provided Insurance the Healthy Already Subsidize the Sick

For Employer Provided Insurance the Healthy Already Subsidize the Sick

Thursday, 02 January 2014 06:00

Sarah Kliff has a useful discussion of the changes in the insurance market brought about by Obamacare. It points out that Obamacare will end discrimination based on pre-existing conditions. While there will still be substantial differences in cost based on age, people will pay the same premiums regardless of their health.

However the piece is a bit misleading in its exclusive focus on the individual insurance market. The vast majority of the working age population gets insurance through their employer. With employer based insurance workers effectively pay the same for their insurance regardless of their health. (The premium paid by the employer is ultimately paid by the worker, since it comes out of wages. Employers don't just give away insurance.) 

This is important in the context of the debate around Obamacare since there has been considerable attention given the fact that the young to some extent subsidize the old, since the premium structure does not fully reflect the differences in average costs by age. Insofar as this cross-subsidy exists, Obamacare is just replicating a situation that has long been present in the much larger employer provided insurance system.

It is also worth noting that the subsidy from the healthy of all ages to the less healthy dwarfs the age-based subsidy. This is of course the purpose of the program: to make insurance affordable to the people who need it.

Comments (8)Add Comment
Minor Discounts For Healthy People With Private Insurance
written by Robert Salzberg, January 02, 2014 6:32
Many private companies give a discount on insurance to their employees that don't smoke. The ACA allows a hefty premium for smokers.

Also, many companies encourage wellness programs and give cash incentives if their employees lose weight.

It's very difficult to design effective incentives to be healthy. Health is by far the biggest incentive for being healthy so everything else is minor in comparison.

The sick are subsidized by the healthy, as well as many less fortunate people, Low-rated comment [Show]
written by Mark Jamison, January 02, 2014 7:08
Rachel- Of course if the detractors of ACA hadn't manage to convince several states to forego the Medicaid expansion a significant number of people would have had additional affordable access to regular care channels.
Your comment is silly, especially given your last reference which is, at best, extraneous to any real discussion. Quell your resentment and judgement and look at the facts.

On another topic, Dr. Baker, perhaps you have an observation about this: http://dealbook.nytimes.com/20...cks-up/?hp
What the Sock Puppets Really Fear: Anything that Looks Even Vaguely Like a Free Market
written by Last Mover, January 02, 2014 7:16

Employer provided insurance began in WWII when rationing prevented employers from using wages to attract employees, so they used health care benefits instead.

As health insurers and providers evolved into powerful economic players, this arrangement meant employers retained far more countervailing bargaining power against them in negotiations, compared to individuals forced to face them alone as a single consumer of their product.

While employer-provided health care does include cross subsidies by definition, it is important to remember the overall average cost per employee is substantially lower compared to the per average individual cost by those who must face insurers and providers alone outside of an employer group. In short, for pre-Obamacare, they were exploited greatly to pay far higher prices compared to their employee-group age-health equivalent counterparts.

This is why "pay or play" insurance provided either by employers who paid for it directly or paid for it indirectly through wages never worked. Because the price paid by those supposedly receiving higher wages was always far higher than the wage-compensating increase actually received. The deal from employer-provided insurance was always much better, especially from large employers with substantial bargaining power.

This essentially disintegrated since the economic crisis began in 2008, before the influence of Obamacare took hold, as employers took advantage of the great depression and began shedding health care along with jobs and wages.

So what are the MSM sock puppets crowing about with the young-old death spiral scare based on cross subsidies?

Two things. First it allows them to ignore the huge influence of high unemployment-low demand that keeps wages and health care benefits suppressed to record low levels across the board.

Particularly by employer-provided sources themselves, some who even opted to force their employees to enter the new Obamacare markets for a better deal than they can provide absent tight labor markets at full employment (read "wage-equivalent" health care).

Second, notice how the sock puppets conveniently ignore huge private corporations with enough countervailing market power to keep insurers and providers of health care in check, compared to individual markets.

You see, it's just fine when two economic predators square off in completely private markets to cut a deal, and it's also just fine for health care predators
to cut an entirely different, lopsided deal in the individual market as well compared to that available from employers.

What is not acceptable to the sock puppets whatsoever, is how dare Obamacare give to a person as a person, the same bargaining power wielded by a corporation as a person, to negotiate a private, singular transaction for one's health care as accomplished by real choices from multiple insurers and providers.

That starts to look like a free market that actually works and of course, must be crushed in the cradle before it grows to become part of the Socialist Monster it really is, readily evident from the "cross subsidies" between the young and old ... you know, the same cross subsidies in other developed countries that keep the average cost of health care a half to a third of that in America.
Correction: should have said, "first and CHEAPEST defense against discrimination"
written by Rachel, January 02, 2014 7:44

That's referring to what the ACA has taken away, by imposing such a large package of basic benefits. They've taken away from patients' ability to deal with medical care that they feel is discriminatory, by saying, OK, if you don't want my business, I can save up and go elsewhere.

(With apologies to Dean for using extra space)
written by watermelonpunch, January 02, 2014 11:18
Employers don't just give away insurance.

All reporters, journalists, and everyone who works in Human Resource departments, should be required to write this 100 times on the blackboard!

Minor Discounts For Healthy People With Private Insurance
written by Robert Salzberg, January 02, 2014 7:32
Many private companies give a discount on insurance to their employees that don't smoke. The ACA allows a hefty premium for smokers.

Also, many companies encourage wellness programs and give cash incentives if their employees lose weight.

Does this really count though?

I mean everyone knows wellness programs are largely just B.S.
They're just another form of management fad nonsense marketed to companies with managers or HR workers who are looking for something superficial to make themselves look like they're doing something, making lucrative commissions for the people pushing whatever nonsense, and profit for the companies they're selling for.

Wellness programs have all the red flags of get-rich-quick schemes & fad diets.
Much like the productivity & efficiency management fad systems.
It's so much easier to sell snake oil to someone who's spending the money of someone else (the company's money).

And the evidence from the study I read about a few months ago, seems to back up what most of us already suspected.
I think it was found that they don't actually improve health or save companies money for that matter.

A quick internet search found me this:
Borsos also criticized wellness programs for requiring employees to answer invasive questions about their health. One company survey asked employees whether health problems affected their work productivity, whether they ever had a total hysterectomy and whether they felt nervous or stressed in the last month. If the employees did not answer the survey, they faced a $100 fine. Some companies also require spouses to fill out these surveys.

I think that's in reference to the Penn State wellness questionnaire.

If that's truly a point on which they base their employee contribution - a history of a hysterectomy...
Having had a hysterectomy is almost a most perfect example of a pre-existing condition.

Well, does the ACA cover prohibiting an employer charging more in employee contributions for pre-existing conditions?
Or is it just health insurance companies who are prohibited from charging more for pre-existing conditions?
How about gender discrimination in the workplace? (In that hysterectomies are exclusively a medical history of women.)

Seems to me some of these workplace wellness programs are going to die out like the dinosaurs they are, one way or another. I think that cow has been milked for all its worth by now.
written by Fred Brack, January 02, 2014 4:20
Dean, in this sentence "With employer based insurance workers effectively pay the same for their insurance regardless of their health" did you mean to say "regardless of their AGE"?
Just Who Subsidizes Whom Anyhow
written by Anonymous, January 03, 2014 5:30
In the health insurance market, the healthy who do not need, or use, medical care subsidize the sick and those in need of care. Often, and perhaps usually, the younger members of a group are those who need and use the least care. In one small group plan (100% self-insured) that I participated in about 20 years ago, two of the youngest members incurred the largest medical bills. They were young, healthy women who rarely missed a day of work. Unfortunately, each had fertility issues and the combined cost of their fertility treatments exceeded 55% of the total cost of the plan. That ended our 100% self-insured plan.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.