Employer-Based Health Insurance: “Job Lock” Is Not the Problem, “Insurance Lock” Is
Over at The Incidental Economist, Austin Frakt is publishing an interesting series on “job lock“. This is the idea that, because most of us get our health benefits from our employers, we are “locked” into jobs we don’t like because they offer benefits which we do like (or need).
We get our health benefits from our employer because they are non-taxable. If employees bought health insurance on our own, we would pay premiums with after-tax dollars. Given this government discrimination, the idea of job lock makes sense: If we got our homes from our employers we would surely hesitate to switch jobs, which would result in forced eviction from the current home to a new one.
But while there may be some job lock due to employer-based benefits, the problem has become way overblown in public discourse, with politicians like Nancy Pelosi claiming that ObamaCare would free the masses to pursue artistic dreams, free of wage slavery.
As discussed in a previous blog entry, job lock — as an independent factor in employees’ choices — is significantly reduced (if not eliminated) by HIPAA, a law passed in 1996. If you had a job with health benefits and took a new job, HIPAA meant that the new employer’s insurer could not underwrite you for health status, or exclude pre-existing conditions, if you had maintained continuous coverage at your old job. (Most states had similar laws by 1996.)
So, some of the consequences identified as deriving from job lock are likely from other factors. For example, people with chronic illnesses are significantly less likely to switch jobs than healthy people. But the employer-based nature of health insurance itself cannot cause this, because the next employer cannot charge a newly employed, chronically ill person a higher premium, or deny coverage for the chronic illness.
The real reason for chronically ill employees’ likelihood of sticking with their jobs is that they are more likely to fear other risks associated with getting a new job, or that potential new employers can identify the chronic illness and draw back from hiring the person (although, of course, they would never admit this).
The real problem with our employer-based health benefits is “insurance lock”. Until recently, and even now only for very large employers, an employee could only get his health-insurance policy from one insurer: The one chosen by his employer. Nor is there a choice of plans from that one insurer: According to the Kaiser Family Foundation/Health Research Education Trust Survey of Employer-Sponsored Health Benefits (2013), 87 percent of employers offered only one plan type (exhibit 4.1).
If you want to switch car insurance or homeowner’s insurance, you pick up the phone, get on the Internet, or see an agent. If you want to switch health insurance you have to deal with someone in your HR & Benefits department who has a million other things to do and explain to her why you think the company should switch plans. That is no way to make friends in the HR bureaucracy.
The consequence is that insurers design plans that will satisfy the needs of the HR & Benefits staff, not the individual beneficiaries.
“Insurance lock”, not “job lock” is the real problem with employer-based health care. And the way to fix it is not with ObamaCare, but with a refundable tax credit that goes to every working-age American household .
You have some things wrong. In the past, if a person, under HIPAA, wanted to quit megaFirm and move to miniFirm, the miniFirm would not hire him if old, infirm, abreeding female, and so on. To do so would mean an increase of insurance premiums in subsequent years because of higher healthcare claims.
Sure, it’s illegal to discriminate on the basis of age, sex, race and so on, but we all know that age discrimination, to name one, is rampant if not universal.
If I were a small business employer who offered health “benefits,” I sure as hell wouldn’t hire a female of breeding age or an old or infirm person. Such is illegal, of course, but so is hiring a Mexican without papers, which I always do when he shows up at my door with a rake.
Naturally, if I were a small business employer who didn’t offer benefits, I wouldn’t hesitate to hire any person who “works like a Mexican,” even if of breeding age or 8-months pregnant.
Thank you. However, I got that part right (“… potential new employers can identify the chronic illness and draw back from hiring the person…”).
HIPAA makes this undisclosed discrimination worse, because the employer cannot charge a higher premium to the new employee (if previously covered).
I am reading it right now.
“This is the idea that, because most of us get our health benefits from our employers, we are “locked” into jobs we don’t like because they offer benefits which we do like (or need)”
Well, not everyone can do a job he or she likes because people usually like having fun while a job is not a part of it. However this should not be a reason to depreciate job-related healthcare.
Not everyone has to have fun at their job, sure. But should people be condemned to stay at a job they hate because they fear losing their benefits?
Job satisfaction plays a huge role in general life satisfaction. If you’re at a job you hate, benefits might not be enough.
“Insurance lock”, not “job lock” is the real problem with employer-based health care. And the way to fix it is not with ObamaCare” This is key point of this problem which could not be a problem.
But I thought ObamaCare was the end-all, fix-all of all problems?!
“If you want to switch health insurance you have to deal with someone in your HR & Benefits department who has a million other things to do and explain to her why you think the company should switch plans.”
This makes sense. If they do not like the plan, how can they do exactly?
“The consequence is that insurers design plans that will satisfy the needs of the HR & Benefits staff, not the individual beneficiaries.”
So true. And so incredibly disappointing.
Individual choice is so important. Things like this just prove that.
“or that potential new employers can identify the chronic illness and draw back from hiring the person (although, of course, they would never admit this)”
This is really sad. No one should have to keep a bad job because they think they can’t get hired because they’re sick.
My question is: how would they identify it? Most diseases, you can’t tell by looking at a person.
I guess maybe just the ones where you can? I’m not sure.
People can look just generally sickly. And maybe there’s a way to see it in their paperwork? Who knows?
Wrong. You look at a woman of breeding age. You know in your heart that you would be a fool to even consider hiring her.
On the other hand, a woman of breeding age, knowing that the potential employer won’t consider hiring her, can offer and prove that she’s been sterilized, making her as valuable as a young man as a potential employee.
Here is an excerpt from notes I sent to Professor Frakt:
“… there is no measurable “job lock” anymore – where an individual must remain at a specific employer for fear of losing health coverage due to pre-existing condition. I can confirm that from first hand, face to face experience.
I challenge you to identify any economic analysis that uses data from this century that identifies “job lock” – data that reflect the new reality after both COBRA’s continuation of coverage provisions and HIPAA’s portability provisions (pre-existing condition limitations, actively at work prohibition, special enrollment periods, etc.) took full effect.
No one will be able to identify the minimal level of job lock that was in effect as of the passage of PPACA – as it represented only those with significant breaks in service between employers … obviously, not a job lock situation at all. That is, if they had coverage where they were working, the pre-ex had probably lapsed after a period of time (typically 12 months). And, if they did not have coverage where they were working, what job lock from ESI would there be to measure? The only “job lock” left is, of course, leaving an employer that offers health coverage to become self-employed or to leave employment altogether. Not sure why anyone thinks wage earners, paying taxes, should subsidize health coverage for those who want to pursue their dreams or businesses. Some will make the argument that society will benefit from innovation and capital investment, etc., and I suppose society will … if the business is successful and generates tax revenues, etc. So, I suppose you could argue that COBRA continuation of coverage is inadequate … however, if the new business is not capable of sustaining an offer of health coverage as part of the total rewards package after 18 months, sounds like time for the entrepreneur to return to wage employment.
What folks are probably studying, when they look at turnover data today, when looking at the impact of ESI, is the retentive effect of satisfaction with ESI (or they are capturing some status quo or familiarity bias) … and perhaps the unwillingness of individuals to migrate to new employers where the health coverage may or may not be as effective. From that perspective, it may be indistinguishable from “wage job lock” or “commute job lock” or other facets of the status quo that “impede” mobility.
I suppose you could argue that COBRA was not “affordable” and therefore, creates “job lock”. Well, that’s the nature of total compensation, guys. You work here, you earn these wages and these benefits (they are not gifts, they are not “provided”, but earned). That’s not “job lock”, that’s compensation.
Job lock is where the individual can’t access coverage, or can’t change jobs because of the “gap” created by a preexisting condition exclusions or underwriting limitation. I can confirm that if there is “job lock” out there, it is because people don’t read (or don’t understand) the various mandated notices for both COBRA and HIPAA. So, if there is “job lock”, it is not because of any limitation of code or regulation, but because the policy wonks in Congress and their staffers always default to mandatory disclosures, which are almost always ineffective.
… Anyway, if you believe in “job lock” that results from the retentive effects of total rewards, I am here to predict that such “job lock” will INCREASE as a result of PPACA & HERA, not decline. That is, the disparity between employers who offer coverage and those who don’t, and the value of health coverage offered by employers (value, network, employer support, etc.) versus Medicare, Medicaid and narrow network public exchange insurance options, will actually increase. This is specifically true when it comes to specialty care for those with significant medical issues, those with existing physician/patient relationships, etc. Don’t believe me? How about Dr. Ezekiel Emanuel who recently confirmed in his new book and in a related post in the New Republic “Insurance Companies as We Know Them Are About to Die.” Ezekiel Emanuel, New Republic, 3/2/14. Having predicted the demise of employer sponsored plans (to represent less than 1/3 of those with coverage by 2025), Dr. Emanuel predicts we will see a two tier coverage structure emerge, with a base level of public coverage and supplemental policies offered by employers and insurers (a la Great Britain)
“… Having the assurance of a high-quality network is the key. … (alongside contracting with) recognized centers of excellence for rare/serious diseases … there will be a market for supplemental insurance … The well-heeled and worried will be a prime target for such plans….”
Sounds like a significant INCREASE in job lock by 2025 as a result of PPACA … at least compared to the level of job lock in effect back in 2010 upon passage of the Patient Protection and Affordable Care Act.
Hire young women and old men all the time. Can’t afford the litigation costs. Fact is, health costs are only a very small part of total rewards …
You suggest she won’t be hired due to medical maternity costs, but we moved past that more than 35 years ago with the passage of the pregnancy discrimination act, and also, of course, the fact your boss and mine, today, is just as likely to be a woman or a man.
Thank you. I am amazed at your statement. What line of business are you in? If the employees are very highly paid, I can appreciate your statement. However, if you are running a business with people who earn five-figure incomes, health benefits are significant as a share of overall compensation.
A large part of total rewards only if the employer heavily subsidizes the cost. Even under health reform, an employer can avoid the penalty taxes with an offer of a plan with a deductible of $6,350.00, and charge 9.5 percent of pay. That combination is not what most Americans were thinking of when promised “affordable” quality coverage.
So, sure, some employers offer better coverage at lower cost than the PPACA minimum to avoid penalties. But, is there anyone out there who doesn’t believe that direct compensation and other rewards are less because of the cost of health coverage? That is, total rewards are likely to be about the same, on average (and averages can be deceiving) whether or not there is a generous, high value health plan component.
Thank you. We may be going in circles. I think everyone agrees that total compensation equals money income plus benefits. So, in a competitive labor market, if we changed the tax treatment of health insurance, employees would successfully demand more money income from employers to pay for individual health insurance.
In your example of “affordable” health coverage under Obamacare, it is also important to note that in such a case, the employee will be deemed to have declined affordable health coverage from his employer and be ineligible for tax credits in an Obamacare exchange!
I strongly disagree that health coverage and totalrewardsspend would be comparable if the Feds removed the tax preferences. I don’t think you would see employers drop coverage… Change, sure. See dr Emanuel’s predictions about the future of employer plans in his new book.
Today, companyhealthspend is not allocated on the same basis as other rewards. Take away the preference, and watch the allocation of suchspend change radically … widening the income gap in wages. Between top performers and all others widen.
Look for it to widen as employers respond to the looming Cadillac tax … Targeting lower value coverage to stay below the arbitrary dollar thresholds. One of the unintended consequences of health and tax reform.
Thank you. I think what you mean is that currently, (except for the top executives), health benefits have to be offered without discrimination to every worker in a class of workers. I.e. all full-time workers get the same choice of health benefits, whereas money wages (including bonuses and raises) vary.
Even if there were no tax preferences to the consumption of health care, higher-earning people would demand more than lower-earning people. This would not be a straight-line function of income but curve upwards, because health care is a superior good.
It’s yet another reason not to give them a much bigger tax break than we do lower-income people, which is what happens under the current exemption.
We’ll just have to wait and see on developments
While not perfect, a refundable tax credit placed on the individual (with an HSA), makes a lot of sense. Obviously, some people will fall through the cracks, but how hard could it be to craft polices that cater to these people. Do we really need to rewrite labor law?
one more point that is seldom discussed. To me it makes no sense that certain items are excluded from deductibles. As an example, a procedure or medication may come with no copay, regardless of your deductible. I think if you have a $3000 deductible, you should first spend $3,000 before your insurance kicks in. Doing so provides the consumer with an incentive to reduce costs, keeping premiums and overall health care costs low.
Aside. If you are on part d. next time you go to the pharmacy, ask what the cash price is. I bet that for generics, 25% of the time you will find that the cash price is set below your copay. why is that?
Thank you. The people who “Fall through the cracks” will be those who do not use the tax credit to buy health insurance or deposit into an HSA. In that case, the federal government has a fixed sum of money that was not claimed, but is attached to a ZIP code. The tax credit can then fund the safety-net institutions there.
This unifies a currently complex system of transfers via DHS paymenst, federally qualified health centers, etc.
I need to keep my job for the health insurance because my husband’s job doesn’t offer it. I know several people that work at Starbucks just to qualify for benefits because their spouse is a sole proprieter and they can’t afford personal insurance. I’m hopefull that Obamacare will enable others who wish to do so to start small busineses.
Thank you.
However, this does not prevent you from switching jobs to another job with health benefits. Pre-Obamacare, HIPAA and state laws allowed you to switch to the new employer’s health plan without underwriting or pre-existing conditions exclusion.
Your friends at Starbucks are in the same situation. They could move to Whole Foods, for example, and move immediately onto Whole Foods’ health benefits.
There is some anecdotal evidence that people who want to divorce did not so so because of this condition. Nevertheless, this is not “job lock”.
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