We have had about a 75-year experiment with ESI, but its track record is one of continued decline over the last 30 years—fewer people covered, less coverage for more costs, and less value of that coverage. ESI was more an accident of history than a well-planned financing system for health care. Today, rapidly accelerating costs are the Achilles heel for ESI, both for employers and employees, as they are for the entire market-based ‘system’ itself.

ESI arose at a very different time than today. Beyond the labor shortage, American business was dominant with little concern about foreign competition, and labor unions were strong. Many workers could reasonably expect to hold their jobs for their working life.

But those days are long gone. Most workers these days have multiple jobs, even careers, over their working years. By 2002, only about one-half of employed men or women could claim to have held their job for ten years. (Tejada, C. A special news report about life on the job—and trends taking shape there. Wall Street Journal, September 25, 2002: B5) Loyalty between employers and employees has dropped way off in recent years, part-time workers are not eligible for benefits, and union membership hovers around 10 percent of the workforce.

These markers show a long decline of ESI, as well as the decreasing benefits to enrollees:

• In 1980, more than 70 percent of employees working more than 20 hours a week were covered; that number fell to 56 percent by 2005, with coverage already unraveling as employers shifted from defined-benefits to defined-contributions. (Mishel, L, Bernstein, J, Allegretto, S. The State of Working America 2004/2005. Ithaca. Cornell University Press, 2005)

• Over the 13-year period that Kaiser Family Foundation has been tracking premiums for ESI, employee contributions have increased by 168 percent as compared to increased wages of 50 percent and inflation of 38 percent. One-half of employees of companies with fewer than 200 workers now have a deductible of $1,000 or more for single coverage as compared to 16 percent five years ago. (Altman, D. Rising health costs are not just a federal budget problem. Kaiser Family Foundation, September 27, 2011)

• Premiums for family plan ESI coverage have gone up by 9 percent this year, triple the increase in 2010; family premiums now total $15,073 on average, of which $4,129 is paid by employees (consider that these costs may have little to do with what employees end up paying for their health care, especially those who are older or have one or more chronic diseases!). (Appleby, J. Costs of employer insurance plans surge in 2011. Kaiser Health News, September 27, 2011)

• In 2012, average annual employee premiums for health insurance are expected to go up by another 10.6 percent. (Japsen, B. Companies pass on more of health costs to workers. New York Times, October 3, 2011: B3)

• Many of the so-called ESI plans cannot really be called insurance, since they now pass along so much of the costs of care to enrollees even as the extent of coverage withers away. Retiree and disability coverage are being cut by many companies, and their employees are increasingly being herded into lower-cost networks of providers with quality of care in question. As Dr. Don McCanne, Senior Health Policy Fellow for Physicians for a National Health Program, sums up: “The new national standard in health insurance is unaffordable under-insurance”. (McCanne, D. Quote-of-the-Day, September 13, 2011)

Beyond the increasing unaffordability of ESI for employees, employers—big and small—have the same problem with no end in sight. General Motors says it spends about $5 billion on health care expenses each year, adding between $1,500 and $2,000 to the sticker price of every car out the door. That burden is many times higher than what neighboring competitors just across the border in Canada pay for health care, rendering GM much less competitive in global markets. (Johnson, T. Healthcare costs and U.S. competitiveness. Council on Foreign Relations, March 23, 2010) Small business (with fewer than 100 employees), accounting for about 40 percent of the private U.S. workforce, cannot keep up with the growing cost of ESI coverage. The small employer market has been one of the most profitable for private insurers, with premiums climbing by 74 percent between 2001 and 2008.

The so-called health care reform legislation, the Affordable Care Act of 2010, will not fix this problem. Having handed over a combined employer and individual mandate to the private insurance industry, with minimal regulatory clout, the bill (if and when it is implemented) lacks any semblance of cost containment measures. Federal waivers already give employers whatever they want, as illustrated by a recent HHS ruling that allows McDonald’s Corp. to keep its very low limits of annual coverage of just $2,000 a year. (Adamy, J, Johnson, A. Rules eased for some health plans. Wall Street Journal, November 23, 2010: B1) Whereas President Obama promised that the average American family would save $2,500 a year on health insurance premiums, the Congressional Budget Office later projected that their cost would only increase. (Hemingway, M. Obama promised $2,500 health care savings; CBO says plan is $2,300 price increase. Washington Examiner on line, March 10, 2010)

M. Obama promised $2,500 health care savings; CBO says plan is $2,300 price increase. Washington Examiner

Adding all of this up, we can only conclude that employer-sponsored health insurance, and the overly expensive, wasteful private insurance industry upon which it is based, is in its death throes. As the Vice chairman of Ford Motor Co. said in 2004: “Right now the country is on an unsustainable track and it won’t get any better until we begin—business, labor and government in partnership—to make a pact for reform. A lot of people think a single-payer system is better.” (Downey, K. A heftier dose to swallow. The Washington Post, March 6, 2004). Some 50 years ago, Walter Reuther, as the national president of United Auto Workers, saw the future this way:

“When American corporations reached the point where they couldn’t make their business more efficient without making it less profitable, when their dependency ratios soared to unimaginable heights, when they got tens of billions behind in
their health-care obligations, when the cost of carrying thousands of retirees forced them to stare bankruptcy in the face, they would come around to the idea that the markets work best when the burdens of benefits are broadly shared.” (Reuther, W. as cited by Gladwell, M. The risk pool: What’s behind Ireland’s economic miracle and GM’s financial crisis? The New Yorker, August 28, 2006, p 35)

We have to move beyond denial of this problem, and rein in markets that fail the public interest. We can no longer afford ESI or the private insurance industry. Unless we move past political gridlock on this big issue toward a new partnership between labor, business and government, they can bankrupt us all!

There is an answer, of course, in plain sight—not-for-profit, improved Medicare for All, funded by broadly shared progressive taxes that cost patients, families and business less than they are now paying while assuring universal coverage in a less bureaucratic and more accountable system.

John Geyman, M.D.
Professor emeritus of Family Medicine
University of Washington

Author of Do Not Resuscitate: Why the Health Insurance Industry is Dying and How We Must Replace It and Hijacked! The Road to Single-Payer in the Aftermath of Stolen Health Care Reform (Common Courage Press, 2008 and 2010)

To buy books from John Geyman visit: http://www.copernicus-healthcare.org

So what does this vaunted increased choice, as claimed by the insurance industry, look like? Is it a choice of plans that offer financial security against the cost of major illness or injury, as should be the goal of insurance? These examples belie that premise:

The trend in employer-sponsored health insurance (ESI) is to cover fewer people with less coverage all the time, and to eliminate coverage for retirees if at all possible (eg., the auto industry)

Even when covered, there are many circumstances where enrollees’ choices are minimal or non-existent, such as when their health plans make changes in network providers and hospitals, when plans withdraw from the market, or when lock-in rules restrict them from making changes at their own option

If one loses ESI, there is little recourse for many in the individual market, as these examples show:  because of pre-existing conditions, many applicants are rejected for coverage; many who are not rejected cannot afford the premiums, which are one and a half times higher than the usual costs of ESI coverage; if one loses one’s job, COBRA guarantees coverage for another 18 months, but only one –quarter of those people can afford continued coverage.

The Boston-based Access Project, a non-profit resource center working to improve health and health care access since 1998, recently conducted in-depth interviews with 45 people in seven states who had  accrued medical debt while being privately insured.  They found that only one-half of interviewees who had ESI were offered any choice of plans; even if they had a choice, they tended to choose a plan with the lowest premium because that was all they could afford, even though they felt vulnerable to increased out-of-pocket expenses.

The insurance industry has trotted out a growing number of limited benefit policies (LBP’s) in recent years; do they offer useful choices? Here are two examples of heavily marketed plans at the moment: large employers such as Wall Mart, McDonalds and Lowe’s, often have annual caps of coverage as low as $1,000 to $2,500; Aetna’s Affordable Health Choices caps hospital benefits at $2,000 and accident/ER benefits at $1,000. Is this what market advocates have in mind about choice?

The health insurance industry is actually much more consolidated than we might think; the American Medical Association has found that private insurers have near-monopolies in 95 percent of HMO/PPO metropolitan markets; many of these markets have triggered antitrust concerns by the Department of Justice; as the accompanying graphic shows, a few insurers dominate the market in most states

The trends are obvious for the private health insurance industry – less coverage all the time for more money.  It is a failed industry, though many have not yet recognized it (Wall Street is beginning to have concerns about its future). It succeeds only as long as its enormous administrative and overhead costs are paid by consumers convinced that their “choice” offers more value. All trends indicate, however, that it is an unsustainable industry. The sooner that Americans realize that, the better, since we have another, better choice as to how to finance health care – a single-payer public financing system with one big risk pool, combined with our private delivery system.

Adapted from Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, forthcoming, August 2008 by John Geyman. With permission of the publisher, Common Courage Press.

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Purchase book from Common Courage Press: http://www.commoncouragepress.com/index.cfm?action=book&bookid=396

Visit John Geyman’s web site: http://www.JohnGeymanMD.org

As we saw in our last post, the health insurance industry claims, through AHIP, its national trade group, “to expand access to high-quality, cost-effective health care to all Americans.” Let’s examine how well the industry does in meeting that goal.

For many, it’s hard to imagine that at one time health insurance really did assure access to care. Yet at one time, in the early years of the industry, people were insured without regard to pre-existing conditions or their claims experience. Prior to the 1960s, such medical underwriting practices were considered unethical. Reasonable coverage was provided to all comers for community-rated premiums. Today, most insurers try to select healthier enrollees and avoid exposure to higher-risk enrollees and their higher costs of care. To find the last time Americans could depend on health insurance to assure access to care, one has to go back in history at least 40 years; those days are long gone.

The track record of the industry makes it obvious that it can never expand access to care for all Americans. How can AHIP leaders keep a straight face in continuing to proclaim such a mission in view of these inconvenient facts?

• Of 300 million Americans, 47 million are uninsured and tens of millions underinsured with little protection against the costs of significant illness or injury.

• Employer-sponsored insurance (ESI), once a mainstay of coverage for working Americans, now covers less than three of five workers; more than one-half of small employers no longer offer their employees either health insurance coverage or benefits toward purchasing coverage.

• Even when insured, one-half of women between 19 and 64 years of age spend more than 10 percent of their income on out-of-pocket health care expenses. According to a recent analysis by the Henry J. Kaiser Family Foundation, seniors with supplemental Medigap policies actually spend more of their income on premiums and health care than any other group of seniors, including those with traditional Medicare without Medigap coverage.

• As private insurance markets continue to shrink, the industry turns to generously subsidized public markets; however, growth there is limited by its high costs and is only possible when the government hands out large subsidies (private Medicare Advantage plans, for example, receive subsidies 12 to 19 percent above the costs of traditional Medicare).

These inconvenient truths expose the industry’s goal of expanding access to care as just one more example of self-serving rhetoric without any basis in fact. Just what do we get for continuing to prop up this industry? That’s the subject of the next post.

Adapted from Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, forthcoming, August 2008 by John Geyman. With permission of the publisher, Common Courage Press.

Order link http://commoncouragepress.com/index.cfm?action=book&bookid=396