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Of Once and Future Kings: The Future of Employer-Sponsored Health Insurance

Of Once and Future Kings: The Future of Employer-Sponsored Health Insurance. Len M. Nichols, Ph.D., Vice President Center for Studying Health System Change* for Leonard Davis Institute Seminar March 11, 2005. Overview. Divergent views on ESI Coverage levels and trends Affordability trends

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Of Once and Future Kings: The Future of Employer-Sponsored Health Insurance

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  1. Of Once and Future Kings:The Future of Employer-Sponsored Health Insurance Len M. Nichols, Ph.D., Vice President Center for Studying Health System Change* for Leonard Davis Institute Seminar March 11, 2005

  2. Overview • Divergent views on ESI • Coverage levels and trends • Affordability trends • Offer, eligibility, and take-up trends • Reasons for persistence of ESI • Likely trajectories • Policy options

  3. Divergent Views of ESI • Left critique and preference • Right critique and preference • California’s SB 2 and voters’ split • Employers’ laments, plans’ and providers’ fears

  4. Sources of Coveragenon-elderly population, 2003 Employer 63.4% Public 11.9%None 15.0% Source: CTS Household Survey, 2003

  5. ESI Coverage Trends 1987 1993 2002 US 70.1% 64.3% 64.2% CA 61.0% 53.2% 59.6% Source: US data, Fronstin, EBRI, December 2003; CA data, authors estimates using CPS.

  6. Affordability Trends • ECI of BLS: • Real wage growth since 1980: 10.8% • Real benefit cost growth since 1980: 49.4% • Health insurance share of total private compensation • 1999 5.4% • 2004 6.6% • (note: 1993-4) 6.6 and 6.7% Source: BLS

  7. Compensation of Employees as a Percent of GDP 6.3% 3.8% 0.7% 3.6% 51.8% 47.5% SOURCE: U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts.

  8. HI Share of compensation for workers who accept ESI • BLS NCS data suggests 6.6% for average worker • 88% are in offering firms • 77% of those are eligible • 81% of eligible take their employer’s offer • => 6.6/.55 = 12% of compensation for workers who accept ESI Source: BLS on compensation shares, MEPS-IC on offer/eligibility/take-up percentages

  9. Hourly Cost of Family Health Insurance as a percent of hourly wage levels 1998 2001 2003 25th percentile wage 33.2% 38.7% 47.1% Median wage 22.4% 27.6% 32.6% Mean wage 17.9% 21.9% 25.7% Source: premiums from KFF/HRET surveys, wages from NCS of BLS.

  10. Family premium / median wageof selected occupations Median wage family premium/median wage Physician $60.10 7.3% History Professor $27.63 15.8% LPN $16.18 26.9% Secretary $15.00 29.1% Bank teller $ 9.93 43.9% Cook $ 8.75 49.8% Source: premiums from MEPS-IC, wages from BLS, 2002.

  11. Offer, Eligibility, and Take-up Trends 1996 1999 2002 In firms that offer to some 86.5% 89.1% 88.3% Eligible 81.3% 78.5% 77.1% Take-up among eligible 85.5% 82.3% 81.0% Source: MEPS-IC, various years.

  12. ESI Coverage Trends, by Income 1987 1993 2002 All 66.3% 60.4% 65.0% < poverty 13.9% 11.7% 16.5% 1-2*poverty 48.5% 43.0% 41.9% 2-4*poverty 76.0% 72.0% 71.4% >4*poverty 85.7% 82.3% 85.6% Source: Author’s analysis of CPS data.

  13. Why Does ESI Persist? • Tax preferences • Economies of scale • Risk pooling • Administrative • Provider price discounts • Econs of scale alone => offering firms would have to pay more to make worker whole than they have to extract in wages to “contribute” to premiums

  14. Distribution of Tax Subsidy Rates • Tax subsidy rate percent of workers • < 10% 5.5% • 10-25% 11.2% • 25-30% 38.1% • 30-40% 39.3% > 40% 5.9% Source: author’s analysis using CPS workers and NBER’s TAXSIM program, for 2002.

  15. Implications of Persistence • ESI system still works well for higher wage workers • Lower wage workers with offers were “lucky” when health care was cheap • Forces for workforce segmentation are growing • outsourcing / more efficient production processes • rising health care costs

  16. Is ESI in Crisis? • No, but stress fractures trace income lines • Are higher wage workers less willing to subsidize lower income co-workers? Neighbors? Strangers? • Should co-workers or neighbors bear the costs of the unfortunate alone?

  17. What Can Policy Do About These Trends? • Not much, forces for segmentation are global capitalism, and we like that (at Wharton, anyway) • Still,… • Failure to subsidize => Dickensian America • Failure to rein in cost growth while subsidizing => overtaxed America • SO? • Assess technology prior to coverage • Set tax cap at EBM-based benefit packages • Use Medicare monopsony power to create information systems • Subsidize our fellow workers’ access to health care

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