By Allison K. Hoffman
Historically, job-based health insurance coverage was the gold standard. It was broadly available to workers and was comprehensive. It covered the lion’s share of most services someone might need.
Yet, job-based private health coverage has been in decline. Employers are struggling to maintain plans in the face of escalating health care prices, and indicating the need for government involvement to solve this problem.
Even before the pandemic, a decreasing share of workers, especially lower wage workers, had health benefits through their jobs. The majority of the currently uninsured are workers, either those whose jobs do not offer them coverage, such as gig workers and part-time workers, or those who are offered coverage but cannot afford their share of the cost. Ironically, some of these workers become ineligible for Affordable Care Act (ACA) marketplace subsidies because they are offered job-based coverage.
Even for those who have job-based coverage, health benefits have become less generous over time, leaving households vulnerable to unmanageable health care expenses. The average deductible for a worker-only plan has increased 25% over the last five years and 79% over the last ten years.
To help address these shortcomings and challenges of job-based coverage, the Biden administration should offer employers a Medicare-based public health insurance option for their employee coverage. It would simultaneously offer an out for employers who want it, and start to build the foundation for a simpler, more equitable financing system down the road.
An employer public option could decrease health care and administrative expenses and increase the number of individuals — especially low-wage workers — with health insurance coverage. It could have more impact in improving the financing system than an individual public option, and have greater political viability than Medicare for All. And, if it works as intended, while it will not result in Medicare for All, it would result in Medicare for Many More.
The passage of the 1.9 trillion American Rescue Plan began to fill health insurance coverage gaps. It expanded subsidies for private plans on the ACA marketplaces and sweetened the pot to encourage Medicaid expansion holdout states to extend eligibility to all low-income eligible. The Congressional Budget Office estimates a net increase of 1.3 million people with health insurance in 2022. Right now, these efforts are short-term, phasing out in 2023, but Congress might later extend them as part of the proposed American Families Plan.
On the campaign trail, Biden also proposed a public, a “Medicare-like” choice that people could select instead of a private plan on the ACA marketplaces. The theory behind this idea is that the public option will offer coverage at a lower price, and, through competition, will drive down the cost of ACA marketplace plans. In reality, for reasons that I’ve described in detail elsewhere, this individual public option will have limited impact, yet it will come at a high political cost.
Other proposals, including Medicare-X, which was introduced by Senators Bennet and Kaine, imagine extending the individual public option to small employers on the ACA exchanges.
But a public option available to large employers could have more transformative potential, making it worth the hefty political lift any public option would entail. That’s what my co-authors, Amy Monahan and Howell Jackson, and I propose in a new article advocating a public option for employer health plans.
We suggest initially targeting large employers, who insure 70 percent of all people with employer plans, have employee benefits staff more adept at determining whether a public option might make sense for employees, and would be ideal partners to test the feasibility of building out a public plan to provide more affordable and equitable coverage for the working-age population.
Key design features of our proposed employer public option include:
- Voluntary – Employers could freely choose whether to offer health benefits through the employer public option or to retain their private plan. Yet, employers that choose the public option must offer it on an exclusive basis, not alongside other health plan offerings, to avoid sorting less healthy employees into the public plan.
- Benefits and Cost Sharing – Using Medicare as a starting point, plan benefits would have to be modified for a working population, and could be simplified as well. Medicare’s complicated cost-sharing provisions that result in many enrollees purchasing supplemental coverage need not serve as the guide for the employer public option in the same way that it would not for an individual public option.
- Network and Reimbursement Rates – A primary advantage is reliance on governmental rate setting. We suggest initial reimbursement rates set between Medicare rates and current employer plan rates, for example, at 150% of Medicare rates, with adjustment over time as needed. Requiring Medicare-participating providers to agree also to participate in an employer public option would ensure a broad network of providers.
- Help for Lower-Wage Workers – An employer public option could harmonize subsidy design between the individual and employer market, by making ACA premium tax credits available to individuals in the employer public option.
- Continuity of Coverage – An employer public option could reduce coverage disruptions that result from job change or loss and from churn between employer-provided coverage and Medicaid. A recent study suggested that one in six employees stay in an unwanted job to keep their health insurance, especially Black and low-income workers. If an individual public option were enacted simultaneously, people who lose job-based coverage could relatively seamlessly move to the parallel individual public option. As more employers choose the public option, workers could change jobs and retain the same plan. Additionally, the employer public option could be designated as a coverage option for the Medicaid expansion population. Employees whose income fluctuates during the course of a year could remain in the employer public option with Medicaid subsidizing premiums when the employee qualifies for Medicaid coverage.
- Employer/Employee Contributions – Premiums for the public option would be determined using community rating and could continue to be made on a pre-tax basis. Minimum employer contribution percentages would be specified, either based on their current contribution rates or on a universal employer contribution percentage. These premiums would be a voluntary exchange transaction — technically an offsetting government collection — and not a tax and spending program, making for a smaller budgetary footprint.
So long as employees are guaranteed good coverage, employers might welcome the opportunity to relinquish the increasingly burdensome task of running a health plan. They could shift nearly all administrative tasks and legal responsibilities to the public option, including reporting and disclosure, claims administration and appeals, pursuit of reimbursement claims, and any COBRA continuation coverage requirements.
For many years, employer-based coverage was the cornerstone of health insurance in the U.S. This cornerstone is crumbling. We suggest that the Biden Administration turn next to policies that can begin carefully building a stronger one.
Allison K. Hoffman is a Professor of Law at the University of Pennsylvania Carey Law School.