Is it time for business to get out of the business of health care?
The passing of the Affordable Care Act (ACA), or what has commonly come to be called “Obamacare,” has sparked much debate about the nature of health-care access and possible impact on employers. Some have speculated that small businesses will even reduce staff to have more part-time employees or cut staff to fall below the minimum of 50 employees, which have to comply with the provisions of the ACA.
What is not being discussed is whether businesses should be in the business of offering health care. Before answering this question, we must first understand how it came to be that businesses offer health insurance, as it was not always so. Just like the recent law enacting the ACA was passed by Congress; it was Congress that ushered in the era of employers providing health insurance.
According to Rick Lindquist, the president of Zane Benefits:
During World War II, workers demanded wage increases that were prohibited by wartime wage and price controls. To grant a concession to labor without violating wage and price controls, Congress exempted employer-sponsored health insurance from wage controls and income taxation — in effect allowing off-the-books raises for employees in the form of non-taxable health benefits. This created an enormous tax advantage for employer-sponsored health benefits over health insurance purchased by employees with after-tax dollars (e.g., auto insurance). By the mid-1960s employer-sponsored health benefits were almost universal (http://www.zanebenefits.com/blog/bid/140015/Why-Do-Employers-Offer-Health-Insurance).
Lehman and Belady (1974) articulated a set of “laws” related to increasing complexity of software evolution that equally applies to government regulation and the health-care market place. A recent conversation with a small business owner highlights the challenge of selecting health insurance for her employees: “How am I supposed to make a decision on the various health- care plans [available]? I mainly look at the cost, which continues to rise, and try to find the cheapest one.”
In addition to choosing health-care plans under the ACA, employers are required to report the cost of health-care coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement. The increasing cost, complexity and reporting requirements of providing health-care insurance to employees requires that we think beyond the political polemics and in terms for the major provider of health-care insurance; employers.
We have now become familiar with terms such as “universal coverage” and “one payer” or “single payer” health-care systems. Maybe it is time for us to explore some other alternatives, which do not have as much political baggage attached. For example: according to the Kaiser Foundation (See: http://kff.org/other/state-indicator/single-coverage/) the average employer contributes $400 per month, per employee for health-care insurance. What if the employer just paid employees the additional $4,800 per year and employees purchased their own insurance on “open exchanges”? The process could be set up the same way we presently have health- care savings accounts but shifts the administration of health-care benefits and plans from the employer to the end user of the product. Employees could make decisions based on their individual circumstances, and companies could focus resources on their core business.
The above is only one example of how we could change how health-care insurance is accessed in this country. We could also eliminate the favorable tax treatment given to such benefits, which in turn would cause as dramatic shift in the system as when Congress first began exempting health-care insurance in the 1940s. The national conversation already has begun on health-care insurance and its rising cost to the country. It is now time to begin discussions on why businesses should get out of the health-care business. As one company owner said to me in exasperation “I do not cover [employees’] car insurance, why should I cover the cost of [employees’] health insurance.”
Miles Davis, Ph.D , is dean of the Harry F. Byrd, Jr. School of Business at Shenandoah University in Winchester.