The cost of health insurance is continuing its steady upward climb. According to a new report from the Kaiser Family Foundation, the average annual premium for employer-sponsored insurance reached $17,545 this year — an almost $4,000 uptick since 2010, when Obamacare became law.
Many workers may not have felt the true impact of that hike. Their employers often pay part — if not all — of their premiums.
But employer-sponsored insurance is really just another form of compensation. Higher premiums eat up cash that could have gone to raise a worker’s wages or boost his or her retirement account. The end result? Workers’ take-home pay flatlines — or worse, employers force their staffers to pick up more of the rising healthcare tab.
President Obama promised that his brand of health reform would reduce health costs for the average family by $2,500. Five and a half years in, Obamacare has achieved nothing of the sort.
America’s employer-based health insurance system is a product of World War II-era wage and price controls.
At the time, the federal government blocked businesses from boosting workers’ wages. To get around the rules, companies began providing untaxed, non-cash benefits like health insurance.
The exclusion of health insurance from federal tax now costs the government $248 billion annually.
This tax subsidy has distorted America’s healthcare marketplace.
The benefits of the exclusion go largely to families with higher incomes. The Congressional Budget Office reports that 60 percent of that $248 billion goes to the wealthiest 40 percent of families.
In other words, those who need the least amount of help paying for coverage benefit the most.
Second, the employer exclusion encourages firms and individuals to seek overly generous insurance benefits.
Subsidies cause people to consume more of something. Since a dollar of untaxed health benefits is worth more than a dollar of taxed wages, workers understandably opt for more health benefits.
As a result, workers select more expensive health plans than they would if they had to buy them on their own, with dollars that had already been taxed. And they use those generous health plans to consume more healthcare services than they would if they were paying for them directly.
The employer-based system also leads to coverage gaps because workers can’t take their insurance with them when they switch jobs. That can lead to “job lock,” where workers feel that they’re unable to leave their jobs, even if they’d prefer to seek better opportunities elsewhere or start their own businesses.
In short, if the federal government set out to create a healthcare system that provided outsized benefits to the rich, encouraged overspending, and discouraged economic or labor mobility, then it could have done no better than today’s system of employer-based insurance.
Obamacare failed to address these problems.
The president’s reform law intended to curb costly employer-sponsored plans by taxing them. The law’s so-called Cadillac tax will add a 40 percent surcharge to the value of individual plans beyond $10,200 and family plans beyond $27,500. This month, Congress delayed the tax until 2020, instead of its original effective date of 2018.
Nevertheless, businesses had long been adjusting their benefits’ packages in order to avoid the Cadillac tax.
A survey of large companies conducted by the National Business Group on Health found that half expected at least one of their plans to face the tax in 2018. In October 2015, the American Health Policy Institute concluded that 9 in 10 large employers were altering their insurance plans to avoid triggering the tax.
Workers have been left holding the bag. According to the Kaiser Family Foundation, 6 in 10 large employers have already increased cost-sharing for their employees in order to avoid the tax thresholds. One in 10 are now offering fewer services.
Then there are the law’s many other mandates and taxes, which have pushed up costs for insurers. For example, Obamacare requires insurers to cover children up to the age of 26 and levies a sales tax on health insurance that will extract $145 billion over the next ten years. For now, the health insurance tax has been suspended until 2017 following the closure at the end of 2016 of the risk corridor program for insurers.
Insurers are simply passing these costs along to their customers.
Workers searching for their pay raises should simply take a look at their employers’ health insurance bills.
America’s health-cost crisis is in large part a function of its employer-based health insurance system. Obamacare did nothing to reform that system — and its efforts to control the costs it engenders have largely failed.
Absent change, Obamacare will increase health insurance premiums every year — until the law is repealed and replaced with a plan that empowers doctors and patients, not the federal government.