By Thomas P. Miller

As the political seasons change, forecasts of the long-predicted decline of employer-sponsored insurance (ESI) coverage tend to ebb and flow. Of course, more zealous advocates on the right and the left seem predisposed to disparage the longstanding role of ESI in the US health care system. From one perspective, employers’ dominance in determining the terms of most private health care market coverage means less choice for individual workers, disruptions in care arrangements whenever their job shifts or ends, and more expensive insurance costs (if not more comprehensive coverage) than at least some workers would prefer. From the other end of the health politics spectrum, ESI is seen as a barrier to restructuring and redistributing much more of health care spending and coverage arrangements in a more overtly politicized and centralized manner.

And yet, as most places of employment (in person and
virtual) re-engage in another annual open season of workplace insurance
enrollment, ESI mostly persists. It keeps doing so decade after decade, though
declining gradually in its overall share of covered lives and health care
dollars in the United States. The latest health insurance surveys generally
show a modest decline at best in ESI coverage despite the immense stresses and
strains of a pandemic and its accompanying deep, though brief, recession.

The simplest Occam’s razor explanation would point to
inertia, undoubtedly the most powerful force in the US health policy universe.
Policies in place for many decades tend to stay in place, due to embedded
reliance interests, the difficulties of gaining sufficient majorities to
displace them, and heightened risk aversion to disruption in established
arrangements (particularly ones for health care).

But let’s first take a quick look at the balance sheet of standard
pros and cons for ESI and its elusive alternatives. On the debit side, ESI has
to try to accommodate diverse workers’ preferences by steering its coverage
options toward the least-objectionable middle ground (or at least around
whatever pleases most of the firm’s more important employees). It distributes
more compensation in the form of comprehensive, but also expensive, health
benefits, even for less-well-compensated workers. The offsetting price for what
the latter may value less is mostly paid in lower cash wages than they might
have preferred instead. ESI arrangements also work much better for older,
long-term employees than for younger ones more likely to leave a company sooner.
ESI works better for larger and more profitable businesses. It faces more
difficulty in covering workers as consistently or generously in smaller ones.
But even the largest employers lack the market clout, unified strategies, and
coercive tool kit of government agencies in shaping reimbursement levels and
coverage rules.

As usual in comparative policy calculations, a number of
these “liabilities” also operate as “assets” when viewed from another
perspective. Lack of uniformity and standardization also can be seen as an
opportunity for flexibility, experimentation, and customization. The practices
and politics of a centralized administrative state inevitably drift toward one
size that fits few and sclerotic barriers to periodic adjustments or
well-tailored exceptions.

It is also far easier to ascertain and reward a more stable
majority of employees in most companies and hold the latter’s executives
accountable than it is to assemble a sustainable legislative political majority
in Washington that will reach final decisions. Recruiting and retaining more
productive workers with more attractive health benefits (as well as higher
wages) remains part of what we still prefer to presume remains a largely
competitive, results-driven economy (particularly amid very tight labor
markets). Employers actually have to balance the value of what they provide in
health benefits against its costs, compared to different compensation options. On
the other hand, government officials find it far easier to scapegoat and blame
shift when the numbers do not add up attractively.

The relative generosity of ESI reimbursement provides part
of the financial food chain that keeps the health care sector well-nourished
(if not approaching metabolic syndrome) through multiple payers and indirect
cross-subsidies. On the other economist’s hand, the deadweight economic losses
of increased taxes, in place of employer payments through non-wage health
benefits compensation, should not be omitted from more simplistic single-payer
cost comparisons. Employers that imagine significant cost relief by leaving
health care financing to the public sector should check to see exactly who will
be making up any difference through increased tax-side “contributions” to
federal and state health care budgets.

These offsetting columns in the financing ledgers for health benefits can result in close political calls from time to time, but the most decisive factors in determining and maintaining our mix of public versus private and group versus individual in health care markets may be found elsewhere. Hence, we next will examine the broader political economy of health care regulation and most voters’ resistance to the uncertainties and disruptions of rapid change, in part II ahead.

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