While employer-provided healthcare coverage is a wonderful benefit for employees who work for employers that can afford their premiums, double-digit increases in healthcare premiums pose a substantial challenge for U.S. employers struggling to compete in the world marketplace. As healthcare costs continue to escalate at an accelerating rate, employers cannot continue to afford increases of this magnitude, but they are reluctant to quit on the commitments they have made to their employees. This problem has only been exacerbated by the increased healthcare offerings available (and the high costs associated with them) and the longer life span of those eligible to benefit from them.
Employer-provided health care originated during World War II with the Stabilization Act of 1942 which froze wages during the war and permitted the adoption of employee insurance plans. Unable to bargain for wage increases, collective bargaining efforts began to focus on the adoption of employee benefit plans. Although only 10 percent of the work force participated in healthcare insurance in 1940, by 1949 employer-provided benefits including health insurance were widespread. Employer-provided health care has grown ever since. Only recently have premiums escalated to the point that employers are dropping employee health plans and encouraging employees to find their own coverage.
Efforts to improve healthcare availability and contain costs have not been very successful. A major effort proposed eleven years ago, unveiled as the “Clinton Health Care Plan,” failed miserably when the voting public came to believe that their healthcare choices were going to be eliminated or substantially reduced by a huge government program. Members of Congress roundly rejected mandated employer-provided health care when small business owners, frightened by the Clinton plan, fought against its passage. The wake of its failure precipitated the advent of “managed care” by healthcare providers as the next method of controlling costs, utilizing “gatekeepers” at HMOs and PPOs. While some savings were achieved by managed care, they have been absorbed and medical costs are rising once again at a rapid pace.
The newest theories for managing healthcare costs include such vehicles as Medical Savings Accounts (MSAs) and the more popular Health Savings Accounts (HSAs). These methods encourage employees to take more responsibility for their health and their use of available health care. By educating employees about health care and its costs, employers are trying to impact the demand for health care. This movement is known as consumerism. According to a recent Towers Perrin study, however, while employers regard consumerism as a potential solution to their health care cost problem, employees are far from engaged in consumerism today and, in fact, are becoming increasingly resistant to their employers’ cost-management efforts. Clearly focused on their own self-interest and the impact on their take home pay, employees are substantially resistant to these plans.
The healthcare crisis is not helped by our federal tax code, which allows no deduction for healthcare premiums paid by individuals. Although it allows businesses to fully deduct the costs of healthcare premiums (since 1942), and more recently, allows deductions for self-employed individuals, individuals purchasing healthcare coverage for themselves cannot deduct the cost of their own premiums from their earnings. As more and more employers opt to not provide healthcare coverage, the costs are being shifted to individuals who are forced to find their own coverage and not given the same opportunity to deduct the cost. While it is true that individuals can deduct actual medical expenses that they incur exceeding 7.5 percent of adjusted gross income, few meet that test.
We are witnessing the expanded deterioration of healthcare coverage within this country. More and more people are going without and risking their own health in so doing. In order to afford increasing premiums, at some point in time, individuals will demand their own tax deductions to cover their own cost of premiums. When they do, then they will act as healthcare consumers, helping to rein in costs and live healthier lives. While it is happening to some, too few are engaged in consumerism now to have any significant impact on skyrocketing costs and premiums. It is an unhealthy situation.