The paradox of health reform.

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Sept. 21 2009 8:07 PM

The Paradox of Health Reform

Employer-based health insurance is dying. Why does Obama want to save it?

Click here for a guide to following the health reform story online.

President Obama has said more than once that if he were "starting a [health care] system from scratch" then he might very well prefer a government-funded "single-payer" health care system to the peculiar employment-based system of private insurance that evolved in the 1940s as a means for employers to evade wartime wage controls.

The only problem is that we're not starting from scratch. We have historically a tradition of employer-based health care. And although there are a lot of people who are not satisfied with their health care, the truth is, is that the vast majority of people currently get health care from their employers and you've got this system that's already in place. We don't want a huge disruption as we go into health care reform where suddenly we're trying to completely reinvent one-sixth of the economy.

From a political point of view, this argument is sensible and wise. Polls tend to show that while a significant majority of Americans favors a more aggressive role for government in controlling health care costs and extending coverage to the uninsured, a majority simultaneously pronounces itself satisfied with its own health insurance, which typically is provided by employers. A March poll conducted by CNN found an overwhelming majority (77 percent to 23 percent) dissatisfied with the health care costs borne by the country as a whole, but also found a narrow majority (52 percent to 48 percent) satisfied with the total cost of its own health care. It's a baffling but not unusual discrepancy. As journalist David Whitman noted in his 1998 book The Optimism Gap, Americans tend to take an unrealistically sunny view of their own circumstances compared with those of other people. (A familiar illustration is the way the public consistently condemns Congress yet re-elects congressional incumbents year after year. Congress may be terrible, but my representative is the greatest!)

Illustration by Robert Donnelly. Click image to expand.

From an economic point of view, Obama's argument that employer-based health insurance is entrenched in the United States is extremely shaky. In fact, employer-based health insurance is dying. A troublesome irony is that health care reform may spare this awkward and inegalitarian system the death it richly deserves.

Chances are that you, dear reader, have personally experienced employer-based health insurance's decline. During the past decade, premiums have more than doubled; deductibles have risen by one-third. Because of rising costs, between 1996 and 2002 the percentage of private-sector employees offered health insurance by their employers declined from 81 percent to 77 percent. Even when offered health insurance, employees often couldn't afford the payroll deductions; during that same period, the percentage enrolled in private-employer health plans declined from 70 percent to 62 percent. If the White House and Congress were to do nothing, it's reasonable to conclude that employers would continue their gradual retreat from health insurance, which they are not required by law to provide.

In a May 22 post for the New York Times' Economix blog ("Is Employer-Based Health Insurance Worth Saving?"), Princeton economist Uwe Reinhardt ticked off the reasons employer-based coverage doesn't work very well:


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