Employer-sponsored health insurance #1

I missed this EconTalk interview about employer-sponsored health insurance when it occurred in January. The topic is still very relevant, so the interview is still worth hearing/reading.  My comments follow.

Ed Dolan was the guest. He said he knew of no major countries other than the United States where health insurance is tied to a job. Some who commented on the interview said that wasn't true, which Dolan acknowledged. I consider that a very minor flaw, and he made several good points.

The structure of the health insurance market was discussed, but not that there are really two very different parts to that structure. One part consists of people who have employer-provided health insurance or they buy individual coverage from an insurer (some on the Obamacare exchanges). The second part consists of people who have (1) Medicare Advantage, or (2) original Medicare plus perhaps a Medicare supplement or Medigap policy or Medicaid. A supplement or Medigap policy or Medicaid pays for healthcare in addition to what original Medicare pays.

The first part consists mostly of people under age 65, and the second part mostly people age 65 or older. The exception for the first part is that a few people under age 65 have Medicare due to disability. The exception for the second part is that a few people age 65 or older do not have Medicare or Medicare Advantage because they still work and have employer-sponsored insurance.

The second part of the market is quite competitive. Many insurers offer Medicare supplement (Medigap) policies and Medicare Advantage policies. They are often advertised, especially during open enrollment (Oct. 15 to Dec. 7). In contrast, the first part of the market is not very competitive. An employee must generally choose from a very small number of plans the employer offers. Not many people buy insurance policies for themselves, so the market is small and the risk pool is small and very risky to insurers. The buyers are the self-employed, not employed, part-timers, and employees of smaller employers that do not provide health insurance. Many complain about the premiums being too high. I don't see many advertisements aimed at potential buyers. The number of persons with employer-sponsored insurance is several (7 or 8) times as many as the number buying individual insurance on their own.

Here I argued that making employer-paid insurance premiums taxable income to the employee would significantly change the nature of the first market (and lower government deficits). Some employees, considering how much they pay into an employer plan plus the additional income tax, would choose to switch to the individual policy market. Many could switch eventually, with fewer employers offering health insurance and higher wages instead. The individual market risk pool would become much larger, with more choices and more competition. Also, people who have employer-sponsored coverage tend be healthier than average. If many of them moved to the individual market, there would be more spreading of the risk and lower, more predictable claims, which permits lower average premiums.

I believe the Universal Catastrophic Coverage that Dolan proposes would be much better than the current system. Higher income folks having higher deductibles, i.e. higher out-of-pocket expenses, makes sense. They can better afford it, and it would reduce government spending on healthcare. I find it ironic that people such as Bernie Sanders and Elizabeth Warren don't advocate higher deductibles, i.e. higher out-of-pocket expenses, for people with higher incomes. They only advocate lower deductibles to benefit middle and lower income people. In general higher income people utilize healthcare more and live where medical provider charges are higher. Lower deductibles benefit higher income people, too! Why do Sanders and Warren desire a plan that does that? Of course, both are advocates of ever higher government spending with little or no concern for government deficits and debt. As is, Medicare and Medicaid will add to ever increasing future deficits, much due to the aging baby boomers. Medicare spending is expected to double in 10 years (link).