Employer-provided health insurance: how it began and where it’s headed
Did you know that employer-provided health insurance, which many American workers see as a privilege, actually began as a way to circumvent wage regulations during WWII? Because companies were being told what they had to pay employees, they sought a loophole in the form of “fringe benefits” – which not only were tax deductions for the company, but also a before-tax cost to employees.
Sounds like a win-win, right? The problem is these tax-free perks do not extend to an individual buying healthcare on their own. They end up paying more for health insurance with after-tax money. So without a subsidized public option, American workers who lose their jobs also lose affordable health coverage.
As it pertains to this long-standing injustice, The Patient Protection and Affordable Care Act (also known as PPACA or “Obamacare”) is intended to (1) enforce accountability through widespread transparency, (2) issue mandates that keep costs down by driving competition, and (3) give individuals options in the expanded marketplace.
Transparency means accountability
Until now, there has been no government intervention to force companies to reveal how they pay for these health plans. In other words, without such transparency, not even the employees supposedly reaping these benefits know exactly how it’s paid for. Economists tend to agree that the contributions employers make toward fringe benefits come out of the employees’ take-home pay.
The healthcare ruling now forces companies to disclose to the IRS how much they pay for their employee’s health insurance and how much is paid for by employees. Likewise, insurance companies must now report exactly how much of their money goes toward coverage versus administration (80/20 rule).
This transparency extends beyond insurers and employers to the healthcare providers. Healthcare reform will attempt to usher in a new era in which costs are dictated by results rather than benchmarks. For example, The United States per capita healthcare cost ($7,000) is almost double that of countries like Japan or The United Kingdom. But both Japan and the U.K. have a higher average life-expectancy than the U.S.
Though it is no easy feat, the ultimate goal of transparency through healthcare reform is to offer everyone (patients, doctors, insurers, companies, hospitals) credible information about the cost and quality of care, leading to more informed consumers and providers.
Mandates: more options = more affordable
Perhaps the most controversial part of the Supreme Court’s decision was granting the Federal Government the ability to deliver mandates to both individuals and companies. The court ruled that the government could enforce an individual mandate by enforcing a “taxed” penalty to people who can afford health care, but choose not to buy it beginning in 2014.
Likewise, beginning in 2014, companies of over 50 employees are mandated to offer workers a competitively affordable health plan. There are a host of variables (including company size, and income) that affect this mandate, but in a broad sense, the government will use the health care reform tax credit and penalty to ensure individuals have affordable options.
Small businesses will be able to increase their healthcare buying power by participating in government-funded exchange programs. These programs encourage small business to take part by offering up to 50% tax credits on premiums.
What it all means:
Because the average employee sees health benefits as a bonus, he or she is less motivated to discover the value of the service being paid for. Public health experts nationwide agree that employer-provided healthcare was a rotten foundation to a now convoluted and overpriced healthcare system. However, it’s the only system American’s know and one that millions depend on for coverage. Therefore, the goal of the Patient Protection and Affordable Care Act is to create an equally strong public option to level the playing field, which requires participation from all Americans. Will it? We’ll see early next year.
Joseph Polito writes on behalf of Just CMS 1500 forms, a resource for affordable supplies for health care offices, including cms forms and other medical claim forms.