In September, I wrote about the broad lack of incentives to reduce costs in healthcare. Health systems and physicians groups still earn fees for service - more service, more revenue - while the Medical Loss Ratio is perversely incentivizing insurers to accept and maybe even encourage rising costs.
But what about employers? I left them out of my analysis at the time. Then, news hit last month that employer-provided health coverage has surpassed $20,000 a year for a family of four. That got me thinking: Why don’t employers do more?
In 2017, Ezra Klein recorded a podcast with Bill Gurley, an investor with Benchmark Capital, where they asked that exact question. Klein had this to say about employers’ role:
They have all this information and all this expertise. They even have more negotiating leverage than an individual does. You could really imagine a world in employers were more efficient, not less efficient at getting good costs on insurance, on negotiating better prices. They have the expertise and they have the incentive and they have the size, and yet we don’t see this world. And it is to some degree one of the persistent mysteries in the healthcare world.
Klein pointed, as many have, to the tax break employers get for providing health insurance, referring to it as American healthcare’s “original sin.”
If the U.S. didn’t give the employer tax break, we might begin to sever the ties between health insurance and employers. Certainly phasing out that tax break should be a part of any reasonable healthcare reform package. The closest we’ve come to doing so is the so-called “Cadillac tax” on the most generous employer plans. The tax was passed as part of the Affordable Care Act, but it is not scheduled to go into effect until 2022, and meanwhile the Democratic-led House has voted to repeal it. Most observers think the tax never will take effect.