How The Fight Over A Key Obamacare Rule Highlights The Risks Of Employer-Sponsored Health Insurance

(Credit: U.S. News and World Report)

Ever since the Supreme Court gave Obamacare its constitutional blessing last summer, few Obamacare provisions have elicited as much ire from conservative critics and some in the business community as the requirement that large employers provide health coverage to all employees who work for 30 hours or more per week. Employers are now engaged in a concerted effort to force Congress to ease this worker protection, essentially presenting lawmakers with an ultimatum: loosen the relevant Obamacare rules, or we’ll continue to slash workers’ hours to avoid paying for their health coverage. In fact, this policy battle underscores the innate risks of America’s system of employer-sponsored health coverage.

First, it’s important to note that retail and service-sector employers such as Denny’s and Olive Garden — while making some of the biggest splashes about the Obamacare requirement — are not alone in their frustrations. Citing cost concerns, nonprofits such as charities and city and state governments have also joined the push to change the health law’s mandates for hourly waged workers (although the vast majority of large employers in general plan to keep providing health coverage after Obamacare implementation).

To be clear, these Americans will still be able to access insurance coverage under Obamacare regardless of their employers’ actions, either through Medicaid (if their state decides to participate in the reform law’s optional expansion) or by receiving federal subsidies to purchase insurance on Obamacare’s statewide exchanges. For instance, a part-time worker earning $15,000 per year would only have to pay $300 in annual premiums, with the remaining $2,718 covered by government tax credits. Still, reducing such part-time workers’ hours amounts to a pay cut for low-income Americans, giving employers formidable leverage in their dealings with Congress. And that very leverage — as well as employers’ generally outsized influence over their workers’ health care — is a direct consequence of employer-sponsored insurance (ESI).

American health care didn’t always work this way. In fact, a 2009 NPR foray into the history of ESI found that the modern system took root through a series of historical accidents and ad hoc responses to world events. At the turn of the 20th century, medical services were mostly cheap and procurable through cash or bartering — and the average American’s annual health costs were little more than $100 in today’s currency. But as innovation in health care technology began driving care prices up, individuals’ ability to pay for it began to dwindle, leading Americans to only consume care when they got sick while forgoing checkups and preventative services. The advent of medical insurance was born out of hospitals’ efforts to reverse this trend, as Baylor University Hospital began providing Dallas-area teachers with a monthly premium-driven insurance plan that would come to be called “BlueCross.” While this was limited to teachers at the time, the idea caught on — and by the time World War II came around, employers began offering benefits like health coverage as a way to lure workers during an era of sky high demand for good labor.

What really cemented ESI were subsequent government decisions in 1943 and 1954 to make these employer-provided benefits tax-deductible. This was meant to prod employers into following the example of “good” companies that treated their workers well with generous benefits. The government’s plan worked: by 1953, 63 percent of Americans were receiving health coverage through their employers — a seven-fold increase from 1940. Unfortunately, lawmakers didn’t consider what might happen if the cost of health care kept rising at the same extraordinary rate — or even higher — as it did in the 1920s. How would employers, now the main providers of private health insurance in America, deal with the subsequent rise in the cost of their workers’ insurance premiums?

Now, in 2013, the answer to that question is abundantly clear: by passing costs onto their employees. Between 2002 and 2012, the average annual health insurance premium for individual employer-sponsored coverage increased by 97 percent to $15,745 — but workers’ contributions to these premiums ballooned by 102 percent during the same time period, meaning that companies have been shifting an increasing percentage of their health care costs onto workers. One of the biggest ways that companies have been doing this is through the increasing use of high-deductible health plans (HDHPs), which charge low premiums but extremely high out-of-pocket deductibles on medical care. Since 2006, the number of American workers enrolled in those type of plans has steadily risen:

These plans are convenient for the young, the healthy, and the rich — groups that are either less likely to need medical care or more likely to be able to afford it — but are enormous burdens to the poor and the medically-needy, who are left to choose between skimping on care or paying a massive deductible. Ironically, this has more-or-less reintroduced the same problems into American health care that hospitals were trying to counteract by creating medical insurance in the first place by giving Americans a financial disincentive from consuming care until it is a medical emergency.

Since workers have to rely on their employer for coverage, they have little recourse in changing this dynamic or influencing what plans are available to them. That’s a problem that’s been increasingly affecting salaried employees in the last several decades because of HDHPs. And now, large employers are using the landscape of ESI (and Obamacare’s expansion of it) to hold either part-time workers’ benefits — or their hours worked — hostage.