Medicaidand Medicare are paid for by tax revenues; private insurance is paid for by individuals and employers (with the ACA, individuals will be eligible to receive public funds as subsidy for the purchase of private insurance on the exchanges). Public insurance covers an individual only. Private insurance is often available for individual or family coverage. Most private insurance is employer sponsored and is subsidized by tax exemption. Contirbutions by the employer and the employee are pre-tax contributions, meaning that the premium is not taxed. Howerver, this benefit is tied to employment, and the benefit does not continue once employment with a given company ends. ESI is more likely to be offered to specific types of employees: full-time, higher income, larger businesses, or unionized employees.
Employer Sponsored Insurance (ESI)
Challenges Associated with Employer Sponsored Insurance
- COST: The rising cost associated with offering health insurance coverage to employees has made this practice unaffordable for many businesses. Health insurance premiums have risen at a rate faster than inflation in the last decade, and employer sponsored health insurance premiums have risen 114% between 2000 and 2010 (Bodenheimer & Grumbach, 2012). The average annual cost of health insurance (including both employer and employee contributions) in 2010 was $13,770 for families and $5049 for individuals (Claxton et al, 2010), which highlights the growing challenges associated with financing health insurance coverage. As a result of the rising costs, many employers have either dropped insurance policies for their employees or increased the cost-sharing burden on workers. The increase in employee contributions to health insurance coverage has resulted in many employees being unable to afford the coverage offered by their employers.
- COVERAGE INTERRUPTIONS : Employment is inherently unstable, as people may be laid off from their jobs or may choose to leave or change jobs. Accordingly, when insurance coverage is tied to employment, there are inevitably interruptions in insurance coverage when people lose or change jobs. This is particularly problematic when people are forced to leave their jobs due to illness, as they may also concurrently lose their insurance coverage when it is needed the most. Individuals may also lose ESI if they receive insurance benefits through a spouse's workplace in the event of a divorce, job loss, or death of the working family member.
- LOW-WAGE/PART TIME JOBS : In the last few decades, the U.S. workforce has shifted from a majority of highly paid, largely unionized, full-time workers with ESI to more low-wage, increasingly part-time, non-unionized workers (Bodenheimer & Grumbach, 2012). The latter are significantly less likely to provide insurance coverage to employees (Bodenheimer & Grumbach, 2012). The percentage of Americans with part-time jobs (which generally do not offer health benefits) increased from 12% to 21% between 1957-2000 (Bodenheimer & Grumbach, 2012). With fewer individuals having access to insurance coverage through their employers, the rates of uninsurance have grown dramatically in the past few decades and there is an increasing dependence on public health insurance programs.
For more information about ESI and the growth of premiums and employee contributions, check out Kaiser's employer health benefits survey: http://facts.kff.org/results.aspx?view=slides&detail=53
One way in which employers are trying to control health care costs is to institute employee well-ness programs. Do you think this is a reward for maintaining health or financially penalizing persons who are older or have health problems? See Goldberg, C.: Can My Company's Wellness Program Really Ask Me To Do That? CommonHealth Blog. September 28, 2012.
Individual Insurance Plans
- No tax subsidy, paid for with after-tax revenue for the individual.
- Individual pays the whole premium.
- Entire policy often more expensive than ESI.
- Was based on experience rating (charge more for sick or risky applicants). State exchange programs will be based on community rating (same premium for everyone with only a few individual characteristics used).
The issue of tax subsidies for ESI is complex.The details are beyond the scope of this course, but if you have an interest in policy/finance you may want to read Tax Subsidies for Health Insurance: