Antos J, Capretta JC. Job-Based Insurance in a COVID-19 World. JAMA Health Forum. Published online June 5, 2020. doi:10.1001/jamahealthforum.2020.0668
The COVID-19 pandemic has landed a body blow on the American economy that threatens to leave millions of workers without health insurance. More than 30 million new claims for unemployment insurance have been filed since mid-March.1 The number of workers and family members losing health coverage during the public health crisis is much larger. The Kaiser Family Foundation estimates that 47.5 million people were at risk of losing employer-sponsored insurance because of massive job losses over the past 2 months.2 This calls for immediate action by Congress to limit the loss of coverage and implement longer-term reforms to improve the security and value of employer-sponsored health insurance.
Despite its imperfections, reforming employer-based insurance is more realistic than creating a new government-run alternative. The immediate challenge is to maintain insurance protection for displaced workers and their families during the current crisis. Congress has taken steps to help businesses cover the cost of wages and health benefits, and more can be done to promote coverage. That can set us on a path that takes advantage of market discipline, consumer choice, and effective competition to rein in costs and ensure access to appropriate care.
The Paycheck Protection Program included in the CARES Act was a necessary first step. It provides $349 billion to small businesses and other organizations to pay up to 8 weeks of payroll costs, including benefits. That money ran out in mid-April and had to be replenished by Congress with an additional $310 billion. The next COVID-19 relief bill, which could be enacted this summer, should strengthen job-based insurance while improving incentives to return to work.
Some workers remain employed but may not have enrolled in their employer’s health plan. The Kaiser Family Foundation estimates that 3.3 million people who were uninsured in 2018 had been offered job-based insurance.3 The onset of the pandemic has provided new urgency to securing coverage and may lead some uninsured workers to reconsider their decisions to decline their employers’ offers. As a condition of receiving additional assistance, firms should give those workers another chance to enroll through a mandatory open-enrollment period.
Workers who are no longer employed can also be helped to keep their employer coverage. Covering unemployed workers through their job-based insurance makes sense because many workers should be able to return to their old jobs when social distancing protocols are relaxed. That would also avoid disrupting access to care during the current crisis by allowing families to retain access to their physicians and other providers.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers to allow workers who have left the job to remain enrolled in the company’s health plan. However, the worker typically must pay the entire premium without a contribution from the employer. In 2019, the average cost of family coverage through an employer plan was $20 600. Given the high cost, only about 20% of those eligible for COBRA coverage enroll.4
A premium subsidy would improve take-up of COBRA coverage. In 2009, Congress created a temporary employer tax credit to offset the cost of COBRA for eligible unemployed workers. Employers were required to pay 65% of the premium, with that cost fully covered by the tax credit. This provision modestly improved take-up, but having to pay the rest of the premium remained a barrier for those who had lost their jobs.5 In the next relief bill, Congress should offer a new temporary tax credit to employers that covers more of the cost, perhaps as much as 80% of the premium.
Once the immediate crisis subsides, more fundamental reforms are needed to address the shortcomings of employment-based health coverage. Existing federal tax subsidies should be restructured to give workers better insurance choices that promote more efficient use of health services. Additional reforms would limit the risk that an economic downturn would force families to lose their insurance.
Employers and workers saved $280 billion in 2018 because of federal tax preferences for employer-sponsored health insurance. That subsidy could be used as leverage to promote more flexible and cost-effective insurance options for workers.
To promote cost discipline, employers could be required to offer fixed-dollar contributions that provide the same subsidy to all workers regardless of their choice of plan. Workers would have an incentive to enroll in lower-premium offerings, and employers would have an incentive to negotiate with insurers for more attractive low-cost plan options. Those incentives would be strengthened if the federal tax benefit were converted from the current open-ended subsidy to a defined contribution system.
To expand choice, employers could be encouraged or required to join in privately run insurance exchanges rather than restricting their employees to the more limited set of options typically available today. To ensure workers who lose their jobs do not become uninsured, a self-financed COBRA subsidy could be permanently added to the nation’s unemployment insurance system. Unemployed workers who enroll in COBRA coverage would receive support for their health coverage in addition to unemployment benefits. The cost of this additional subsidy would be financed by adding a health insurance surcharge to the unemployment compensation tax paid by employers. To discourage layoffs, the federal unemployment tax should be experience-rated, with higher taxes paid by employers incurring higher-than-expected benefit payments.
The problems exposed by the COVID-19 pandemic have reignited the debate over our country’s health care system. Instead of discarding job-based health insurance, Congress should make immediate improvements to keep individuals who are temporarily out of the workforce on their employers’ plans. In the near term, that means providing additional subsidies to maintain coverage and promote economic recovery.
When the crisis passes, structural reforms can make employer coverage more affordable and secure. Federal tax preferences for job-based insurance should be modified to promote efficient coverage and reduce cost escalation. Rather than limiting those preferences (as attempted by the ill-fated Cadillac tax), conditions could be placed on employers to offer workers lower-cost, higher-value plans. Employers could coordinate with each other through mechanisms such as private exchanges to increase their market power and secure lower prices for medical services. Employees could be given stronger incentives and better information to obtain appropriate care at lower cost. Such reforms are difficult and politically controversial but are necessary to promote access to high-quality medical services for workers and their families.
Corresponding Author: Joseph Antos, PhD, Wilson Taylor Scholar in Health Care and Retirement Policy, American Enterprise Institute, 1789 Massachusetts Avenue NW, Washington, DC 20036 (firstname.lastname@example.org).
Conflict of Interest Disclosures: None reported.
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