By Thomas P. Miller

Are employers really nearing the end of their rope in sponsoring and organizing the vast majority of more expensive private health insurance coverage? That’s been a recurrent theme in some health policy circles. It tends to wax and wane periodically but seems to be back on the upswing recently (see “Empowering Employers with Health Care Payment, Pricing, and Market Tools,” a recent Bipartisan Policy Center forum lamenting higher and rising costs for employer-sponsored insurance (ESI) relative to public program coverage). The ostensible trigger for these concerns appears to focus on the higher prices that employer-based insurance pays for health care, particularly for hospital-related charges. The full story of causes, effects, remedies, and tradeoffs, as usual, is a bit more complicated.

The aggregate spending statistics, as reported and projected ahead by actuaries at the Centers for Medicare and Medicaid Services (CMS) earlier this spring, might suggest an upturn in privately insured health care—projected to accelerate to 6.3 percent annual growth in 2021 (after negative growth of 1.2 percent in 2020) and expected to grow even faster, at 8.3 percent, in 2022. However, Mercer’s National Survey of Employer-Sponsored Health Plans in 2021 projected a lower rate of annual increase of 4.7 percent for 2022. Keep in mind that these projections are not fully equivalent—the CMS one includes other non-ESI sources of private coverage and both projections predate some of the recent run-up in economy-wide inflation rates this year, which may extend substantially into some future years. However, a workable presumption for many observers is the likelihood of relatively higher costs ahead for employer-sponsored coverage, subject to the usual uncertainties more than a few years out. Those perceptions include the continuing projections that public coverage costs, particularly per enrollee, will not grow as rapidly, as the recent pandemic-driven explosion in public-sector health care funding and enrollment subsides.

Built on these shaky extrapolations of
short-term trends are renewed arguments (or temptations) that employers need
more vigorous “help” from the political sector, either to constrain their costs
or shed them to other subsidized forms of coverage. In other words, “we’re here
from even bigger government, and we’re here to help” (ourselves to more control
of health care arrangements).

The latest medley of proposed remedies include provider reimbursement caps tied to Medicare rates, expanded access to more generous Affordable Care Act (ACA) exchange coverage subsidies for employee dependents facing higher family coverage premiums, and enhanced antitrust enforcement (if not revival of public option coverages and earlier access to Medicare for older workers between ages 50 to 64). These don’t constitute “new” ideas but rather repackaged and reupholstered ones hoping to capture a larger audience this time, under the pressures of short-term duress. In one form or another, they do not directly aim to replace employers’ private coverage with explicitly public program insurance, but instead to help manage it better with the tools and agents of the political branches. And given the ambiguous nature of our mixed health care economy, drawing boundary lines between private markets and political managers is handicapped by short attention spans, convenient blame deflection, and fading memories. (For a partial refresher on why ESI endures despite its flaws and limitations, dial your reading clocks and clicks back to late last year.)

In the current moment (and we’ve seen far
worse), the costly forces of inflationary pressures, tight labor markets,
regulatory reloading, and steroid-enhanced ACA subsidies could be limited by the
economics of recession, the altered politics of off-year congressional
elections, and the reversion to whatever passes for post-pandemic “normalcy.”
In any case, US health care policy and politics remains predominantly incremental
and evolutionary despite periodical rhetorical promises of more drastic
structural change featuring the latest fads and simplistic quick fixes.
However, its largely disappointing state of equilibrium reflects some more
persistent characteristics:

• Agency costs
• Lack of accountability
• Rotating roles as villains
• The long residuals of history
• Time inconsistency
• The respective limits of standardization and
  customization
• Proxy wars for political power

Part II later this week will flesh out the above briefly, and then conclude with some guidance for simpler answers, but not easier ones. Spoiler alert: Everyone still dies in the end, due to inherent design flaws, but those don’t have to cost as much or keep us from more rewarding activities and aspirations.

The post Will the Coverage Buck Ever Stop Somewhere Else? Part I appeared first on American Enterprise Institute – AEI.