Employer-SponsoredHealth Care Insurance:

Not So Exceptional After All

David Orentlicher, MD, JDSamuel R. Rosen Professor

Co-Director, Hall Center for Law and Health

Indiana University Robert H. McKinney School of Law

U.S. exceptionalism:Perception

Only country where residents generally obtain their insurance from their employers

Employers have long complained that because they bear the costs of health care coverage, they are at a competitive disadvantage with respect to businesses in other countries that have government-sponsored health care

Perception “Is General Motors an automobile

manufacturer that provides healthcare benefits for its workers? Or is it a health insurance provider that also happens to make cars?. . .

At the company's annual meeting in Detroit last week, CEO Rick Wagoner told shareholders that health benefits add a staggering $1,500 to the price of every vehicle GM makes.” Jeff Jacoby, Boston Globe, June 16, 2005

Thanks to David Hyman for the quotes Note that GM’s problem was with

retiree health benefits

U.S. exceptionalism:Reality

U.S. employers are not exceptional in terms of their role in financing health care spending. Employers in France and Germany, for example, also shoulder a high percentage of health care costs

With a single-payer system, U.S. employers would no longer contribute to the cost of their employees’ private health coverage, but they instead would contribute to the cost of their employees’ public health insurance

New AmericaFoundation (May 2008)

Percent of payroll for health benefits

Hourly pay manufacturing

Hourly cost health benefits manufacturing

Total pay plus health benefits manufacturing

United States

13.0 18.32 2.38 20.70

Canada 4.5 19.21 0.86 20.07

Japan 3.7 18.06 0.68 18.74

Germany 6.7 25.53 1.70 27.23

United Kingdom

1.9 20.91 0.40 21.31

France 12.8 16.93 2.17 19.10

Foreign, weighted average

4.9 19.79 0.96 20.73

ACA and employer-sponsored coverage (ESC)

ACA addresses a key problem with ESC—the job lock problem Workers might not have started their

own companies or made other changes in employment that would cause them to lose their health care coverage, especially if they had a pre-existing condition

Under ACA, the entrepreneur will be assured of access to federal subsidies for the purchase of affordable, community-rated insurance

Employer-sponsored coverage (ESC) and access to coverage

As the job lock problem illustrates for access to coverage, what has really mattered about ESC in the United States is the porous safety net for people who do not have access to good insurance from their employers That also was true in France until the

1980s because of low public subsidies ACA greatly strengthens the safety

net with the Medicaid expansion and the exchange subsidies

Employer-sponsored coverage (ESC) and cost containment

While ACA addresses the access problem with ESC, what about employers’ concerns with health care costs?

Does ESC make it more difficult to contain health care spending? Depends on why spending is higher in

the United States than in other countries

Americans are less healthy?

Americans actually may suffer less from high-cost medical conditions than people in Western European countries McKinsey & Company study estimated

that the United States may spend a little less than other countries because of lower disease prevalence (pages 23-24 of study)

Americans smoke less and are younger

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Price-insensitive patients?

Insurance => Price-insensitive consumers If treatment costs $100 and yields a “value” of

$75, it shouldn’t be provided—but if the patient only pays $25 and receives the $75 value, it will be worth it to the patient

Americans pay more total dollars out of pocket, but we generally pay a smaller percentage of our health care costs out of pocket (i.e., through deductibles and co-payments) (premium payments are not included)

France-8%, US-13%, Germany-13%, Canada-15%, Japan-17%, Switzerland-32%

Peterson & Burton, Congressional Research Service (2007)

Financial incentives for patients?

If people are not sufficiently sensitive to costs because of insurance, should we use health savings accounts or other mechanisms to give patients more skin in the game? Raising out-of-pocket costs reduces patient

demand for care, but Patients do not always distinguish between

necessary and unnecessary care Caps on out-of-pocket costs prevent patient

sensitivity to costs of high-cost services (e.g., heart surgery, cancer chemotherapy)

Buntin et al., Health Affairs (2006)

Fee-for-service health care? Fee-for-service reimbursement =>

Quality-insensitive physicians and hospitals Physicians and hospitals paid more to do

more, regardless of outcome, will do more Especially when they lose money on higher quality

care (Urbina, NY Times, 2006) Example of clinic that switched from salary to

commission on fees generated and doctors scheduled more appointments and ordered more blood tests and x-ray

Hemenway, NEJM (1990) But fee-for-service is common around the

world

Higher labor costs? In one view, we can explain higher

health costs in the United States on account of two factors: Medicine is a labor intensive good and Labor is more expensive in the United

States than in other countries Rubin & Miyagiwa, Why Is Medical Care Expensive

in the US.? (March 5, 2011)) While individuals can purchase some

health care overseas (medical tourism), it’s much harder for consumers to benefit from lower labor costs overseas in health care than with other goods

Higher prices in US? Costs are higher in US in large part

because prices for health care services are higher On the buyer side, governments in

single-payer systems can bargain more effectively than can US insurance companies with doctors, hospitals and pharmaceutical companies

On the seller side, hospital mergers have led to greater negotiating leverage with insurers (beware of ACOs)

Peterson & Burton, Congressional Research Service (2007)

Lowering health care costs “All-payer regulation”—Other

countries with multiple insurers rely on a universal fee schedule (with regional variations) negotiated between government or insurers collectively and health care providers

Oberlander and White, NEJM (2009) But even with all-payer regulation, fee-

for-service exerts inflationary pressure Elimination of fee-for-service

reimbursement (salaries, capitation)

Perception

“It’s strange. When I joined GM 28 years ago, I did it because I love cars and trucks. I had no idea I’d wind up working as a health care administrator.” Rick Wagoner, GM CEO, interviewed

by George Will, May 1, 2007 Thanks to David Hyman for the quote

Perception

But with costs under control, would Wagoner be happier paying the government to run his employees’ health care plan? Indeed, in 1950, GM created its

health benefits plan as a preferred alternative to government-sponsored health care

GM wanted to preserve its autonomy