Photographed by Getty Images
By Rick Wartzman
February 10, 2017

With Tom Price confirmed as the new secretary of Health and Human Services, the Trump administration is poised to begin dismantling President Obama’s signature legislative triumph: the Affordable Care Act.

But in many respects, repealing and replacing (or is it now “repairing”?) the ACA is a diversion from what our leaders in government and business should really be focused on: overhauling an employer-based health insurance system that is gradually bleeding to death.

The numbers aren’t even close. Some 11.5 million Americans get their health coverage through the ACA. That compares with 150 million or so whose medical insurance comes via the workplace. (Another 55 million older and disabled people are on Medicare, and more than 70 million poor adults receive Medicaid.)

And if you look at what’s been happening over the past 30 years, the trend is absolutely clear: As the social contract between employer and employee in the United States has continued to erode, businesses are offering flimsier packages of benefits, with workers and their families shouldering more and more of the costs.

“There has been a quiet revolution in health insurance for most Americans,” says Drew Altman, the president of the Kaiser Family Foundation, a nonpartisan research organization. For the majority of the non-elderly population, which gets its coverage through an employer, the situation has been “slowly deteriorating.”

That so many folks get their health insurance through work says a lot about the way that business once defined its role in society.

As the nation entered the 20th century, health plans of any variety were a rarity. Eventually, though, more and more companies began to offer medical benefits, in large part as a way to instill loyalty in their workers.

Early on, Progressive Era activists pushed for the government to have a larger hand in guaranteeing that every citizen was insured. But both business and organized labor resisted, preferring to keep the carrot of coverage within their control. “Neither unions nor big business at that time wanted any competition from government in social welfare programs,” the sociologist Paul Starr has explained.

Doctors, represented by the American Medical Association and other groups, also became fiercely determined to keep the government out of the picture. Ultimately, they prevented any provision for national health insurance from being included in Social Security, when it was passed in 1935.

By the early 1940s, America’s employer-based health system was becoming ever more entrenched. During World War II, Washington capped the amount that companies could pay their employees (in an effort to hold down inflation), but was less stringent regarding benefits. Consequently, businesses used health coverage to attract and keep the best available workers during a stretch when men were off to battle and labor at home was scarce. Group hospital coverage nearly quadrupled during the war, to 26 million subscribers, with the vast majority enrolled in Blue Cross plans.

Over the next 30 years, employers built out a vast private insurance system. In 1950, just 49% of U.S. workers had hospitalization coverage, 35% had surgical insurance, 16% had a plan that covered regular medical expenses, and practically nobody had major medical benefits. By 1975, the ranks of employees covered in these different categories had all exploded—to 72%, 70%, 70%, and 37%, respectively.

Small firms have never given their workers the robust kind of coverage that larger corporations have. Yet all in all, thanks to the business community, “health insecurity became the exception rather than the rule” in America, the historian Alan Derickson has noted.

But things started to slip over time, as health care costs soared; global competition and increasing pressure from Wall Street prompted employers to pare benefits; and the decline of unions left employees with little ability to fend off the changes.

First, the proportion of people receiving health coverage from their employers started to decrease, falling steadily to 55% of all workers today.

Then, employees began to pay more out of their own pockets for their insurance. Since 1990, the fraction of employers paying the full premium cost for a worker with single coverage has fallen from nearly half to about 10%. And the portion of companies footing the entire bill for family coverage has tumbled from 25% to less than 5%.

The average annual worker contribution toward a premium for family coverage now stands above $5,000—an increase of more than 75% over the past 10 years.

More recently, increases in premium costs have slowed, but deductibles have been climbing especially fast, easily outpacing gains in wages. The average deductible for a single individual is now approaching $1,500.

For many of the 60 million Americans earning $20,000 a year or less, this means that even if they have medical insurance from their employer, it has become too expensive to take advantage of; they often fail to fill prescriptions or undergo critical tests and treatments. Many other workers forego obtaining a health plan in the first place, even if their company offers coverage, because their share of the cost is prohibitive.

“If you’re a low-wage employee,” says Jon Gabel, an expert on medical insurance at NORC at the University of Chicago, “health care has essentially become unaffordable to you.”

Not that businesses are doing so great, either. Their premium costs are up by an average of nearly 60% over the past decade.

Fixing the system will require a wholesale rethinking, with government supplanting the private sector as the primary avenue for Americans to obtain medical coverage. This, of course, runs counter to what the Trump administration and a Republican-controlled Congress are sure to advocate, even though the president has promised “insurance for everybody.”

To date, business has been unwilling to move in this direction, as well, even though it would alleviate a huge burden—one that perhaps made sense historically but plainly doesn’t any longer. “Corporate America’s reflexive anti-government ideology now stands in the way of its self-interest,” as policy analyst Matt Miller has put it.

The time has come for a new approach—for the sake of employer and employee alike.

Rick Wartzman is senior advisor to the Drucker Institute at Claremont Graduate University. He is also author of the forthcoming book, The End of Loyalty: The Rise and Fall of Good Jobs in America, due next spring.

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