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June 5, 2020

Job-Based Insurance in a COVID-19 World

Author Affiliations
  • 1American Enterprise Institute, Washington, DC
JAMA Health Forum. 2020;1(6):e200668. 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.

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Article Information

Open Access: This is an open access article distributed under the terms of the CC-BY License.

Corresponding Author: Joseph Antos, PhD, Wilson Taylor Scholar in Health Care and Retirement Policy, American Enterprise Institute, 1789 Massachusetts Avenue NW, Washington, DC 20036 (jantos@aei.org).

Conflict of Interest Disclosures: None reported.

Employment and Training Administration, US Department of Labor. Unemployment Insurance Weekly Claims. Published May 7, 2020. Accessed May 27, 2020. https://oui.doleta.gov/press/2020/050720.pdf
Garfield  R, Claxton  G, Damico  A, Levitt  L. Eligibility for ACA health coverage following job loss. Kaiser Family Foundation. Published May 13, 2020. Accessed May 27, 2020. https://www.kff.org/coronavirus-covid-19/issue-brief/eligibility-for-aca-health-coverage-following-job-loss/
Tolbert  J, Orgera  K, Singer  N, Damico  A. Key facts about the uninsured population. Kaiser Family Foundation. December 13, 2019. Accessed May 27, 2020. https://www.kff.org/uninsured/issue-brief/key-facts-about-the-uninsured-population/
Bovbjerg  R, Dorn  S, Macri  J, Meyer  J. Federal subsidy for laid-off workers’ health insurance: a first year’s report card for the new COBRA premium assistance. Urban Institute Health Policy Center. Published July 27, 2010. Accessed May 27, 2020. https://www.urban.org/uploadedpdf/412172-laid-off-workers.pdf
Berk  J, Rangarajan  A. Evaluation of the ARRA COBRA subsidy: final report. Mathematica Policy Research. Published February 18, 2015. Accessed May 27, 2020. https://www.dol.gov/sites/dolgov/files/EBSA/researchers/analysis/health-and-welfare/evaluation-of-the-arra-cobra-subsidy.pdf
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    3 Comments for this article
    Band-aids on the Titanic
    Barry Saver, MD, MPH | Swedish Health Services
    I saw the title of this piece and was expecting a thoughtful exploration of how the manifold failures of our current health insurance and health care systems have been made all too clear by the COVID-19 pandemic. Instead, I found an article positing that, "reforming employer-based insurance is more realistic than creating a new government-run alternative." It then proceeds to list a variety of band-aids that have been enacted and suggesting other interventions that should be considered to try to shore up a failing "system."

    Employer-based health insurance has gotten us:

    1) the most expensive health
    care in the world, with some of the worst outcomes among developed countries;
    2) job-lock in order to retain health insurance coverage;
    3) forced discontinuity of care when changing jobs or when an employer changes health insurance options;
    4) around 30% of health care dollars wasted on administration, vs. around 3% for Medicare;
    5) a fee-for-service system that is collapsing in the face of a health pandemic;
    6) a health care system focused on short-term returns, leaving us totally unequipped to deal with situations like COVID-19 that require long-term planning and resource allocation with no guarantee of financial returns;
    7) around 30 million uninsured Americans; and
    8) did I mention the most expensive health care in the world?

    We cannot afford to continue with a system that is so dysfunctional and wasteful. "Medicare for all," perhaps even starting with "Medicare for all who want it," would allow for a gradual transition of health insurance to solve some of the major issues we face, but the COVID-19 pandemic has highlighted the need for more than just health insurance reform. We need to eliminate the perverse, cost-increasing incentives of fee-for-service medicine, to provide every American with stable health insurance that does not evaporate with a change in circumstances, require changing providers and often medications as insurance changes, nor burdens them with high copayments and deductibles that inhibit access to needed care as much as they inhibit discretionary or unnecessary care. We need a system far better integrated with public health and that is not dependent on churning patients through to maintain financial viability. Market-based approaches have failed again and again to yield benefits in access, affordability, or quality in American health care.

    We do not need more tweaks to our faith-based belief in a system of private, job-based health insurance that continues to cost so much and give such terrible outcomes. We cannot afford NOT to create a government-run alternative.
    Yes But...
    Michael Mundorff, MBA, MHSA | Retired
    The article offers many worthwhile ideas, but in the end Messrs. Antos and Capretta adhere to type as apologists for the medical-industrial complex. Not everyone works for Google or General Motors. A substantial number of those currently unemployed had no employer-based health insurance WHILE THEY WERE WORKING. These folks on the lower rungs of the socioeconomic ladder were among the first to be let go during the pandemic shutdown, and many of those positions are gone for good.

    Then Trump doubled down on their misery by refusing to allow a special enrollment period for federally-run ACA
    exchanges during the pandemic.

    The tax preferences for employer-sponsored health insurance which the authors applaud is a relic of World War II which has long outlived its usefulness and has perverse incentives for overutilization which the "Cadillac Tax" would have ameliorated. The self-employed and those on ACA plans don't get to use pre-tax dollars for their premiums.

    Tell me again why there is ANY reason a person's health insurance should be tied to their employer.
    Job-based Insurance
    Jatinder Gupta, PhD | University of Alabama in Huntsville
    I read this article with much interest and found it useful. However, I find it difficult to accept the authors' conclusion about propagating the use of job-based health insurance. This has been shown to be rather expensive, high in overhead costs and increase in the deductibles payable by the patients. While several people in USA do not like the idea of a government-run healthcare insurance system, Medicare has proved to one of the most efficient and effective health insurance system.

    I think we should investigate the use of some type of universal healthcare system where every
    person has a healthcare insurance policy regardless of the employment situation. This type of healthcare system will be more efficient and effective and will not need to be modified in case of pandemics. It will also reduce the chances of prolonged sickness of people who cannot afford healthcare facilities at present and hence will decrease the need for increased emergency health services that are the most expensive.