DAN IS A BRICKLAYER in upstate New York. Bricklaying is tough work—much bending, lifting, and carrying a lot of weight. At forty-five, Dan tells me he has pains in his back, shoulders, legs, and arms, but, fortunately, no serious health problems. One other fact to be aware of: upstate New York has severe winters, so for about four months of the year, unless Dan is very lucky to find some inside bricklaying work, he will not be earning any income.
About two years ago, Dan decided to go out on his own, and he now has one contract employee. It is a tough but in some ways better life than when Dan worked for others. He is learning how to bid on jobs and to balance workloads so he has just the right amount of work, not so much so that he can’t do a good job and keep projects on schedule, but not so little so that he won’t earn enough money to support himself. As a laborer, Dan always faced some degree of economic insecurity. Now he faces even more variation in how much he works and how much money he earns. But as his own boss he has more control over his work—with the positive effects that such control provides.
I ask Dan if he has health insurance. “No,” he replies. What about Obamacare? He replies with a chuckle that “the Affordable Care Act is not that affordable.” The inexpensive policies offered on the insurance exchange don’t cover very much. With seasonal and uncertain income, Dan expresses reluctance to sign up for yet another monthly fixed obligation. I forgo asking him if he knows about the subsidies that help buy health insurance if someone’s income is too low. Figuring out eligibility and applying for subsidies would be one more task in Dan’s already long days—he tells me that sometimes he comes home after a twelve-hour day of demanding physical labor too tired to eat dinner. Navigating the health insurance marketplace would require him to interact with a government website that does not operate perfectly, with complex, multidimensional choices that change frequently, and to deal with numerous forms and organizations.
Dan tells me he is hoping for the best—to keep in good health so he does not need to access the health-care system. He says this even as he also tells me that he knows very few bricklayers who are able to work into their sixties, let alone until the age when they can become eligible for Medicare. Bricklayers often confront back, shoulder, neck, and leg problems—all of which require access to health care to address. Dan’s plan is to build his business so he can hire other, younger bricklayers to do more of the demanding work as he becomes the supervisor and business development person. My conversation with Dan reveals a kind, sincere, helpful human being doing the best he can in an economy that has been hard on the middle class. I tell him I sure hope he doesn’t get ill without health insurance.
Dan’s story is not unusual. The United States was and remains fundamentally different in providing access to health care than any other advanced industrialized country. And America is also different, and not in a good way, in health outcomes. Compared to sixteen other rich nations, the United States has the fourth-highest mortality rate from infectious disease, the highest rate of maternal and infant mortality, and the second-highest mortality from noncommunicable diseases such as diabetes and heart disease. A comparison of twenty-one countries in 2000 revealed that the United States had the highest degree of inequity in physician use.1
There are three important facts to know about health insurance. First, not having health insurance, and not having adequate insurance with sufficient benefits, adversely affects health, mortality, and financial well-being. As described in more detail later in this chapter, about fifty thousand people die annually in the United States because they didn’t have health insurance and therefore did not have access to preventive screenings or health care of excellent quality. People without health insurance also face the financial and other stress that comes from having impaired access to the health-care system and health-care bills that they cannot afford to pay. As noted in Chapter 2, the absence of health insurance has been the single largest contributor to the total of 120,000 excess deaths from work conditions annually in the United States.
Second, not having health insurance is not just a problem for a marginal segment of the population; for instance, for undocumented immigrants, the unemployed, those not in the workforce, or those younger than sixty-five (the age at which Medicare eligibility begins). The lack of health insurance and therefore the inability to access medical care has become an increasingly pervasive problem affecting many people, even those who work full time, in the United States.
Third, for people who receive health insurance from their employer, the good news is that they have health coverage. The not-so-good news: apart from the relatively small proportion of the private sector workforce that works under collective bargaining agreements, everything about a person’s coverage is determined unilaterally by their employer. That means that the cost of someone’s health insurance, the rules that determine which doctors and hospitals that individual can use, how much that person will pay for medications and treatment, and what specific treatments for what conditions the insurance will and won’t cover, are all at the discretion of employers who can, and do, change coverage conditions all the time. Employees can easily find themselves struggling to understand benefits and fighting with their employer-provided health insurer over medical claims.
Even well-intentioned employers may not fully appreciate how their health plans operate, because health insurance is administered by insurance companies, not human resource departments. Therefore, employers have limited visibility into the situations their workers face. The result: a surprisingly large fraction of the US workforce, even people with health insurance, report delaying or not receiving medical care and not obtaining needed medicines or dental care because of costs. For instance, in 2015, Gallup reported that almost one in three Americans delayed medical treatment in the prior year because of the cost, a fraction unchanged even after the passage of the Affordable Care Act. Moreover, people who put off obtaining medical care because of costs were more likely to say they did this for a serious condition than for a nonserious one.2 Even when people get care, they may face stress and have to expend time and energy dealing with their health insurers to get costs reimbursed, efforts that divert people from their primary job responsibilities.
THE FALSE CHOICE
Companies seem to believe there is some inevitable trade-off between offering health insurance benefits that benefit their people and saving money and keeping costs low to increase their profits. But like many of the presumed trade-offs between aspects of employee well-being and dimensions of organizational performance, the choice is a false one. Keeping employees healthy—and satisfied with their health care—is completely consistent with economic performance, particularly if you consider the costs of people wasting time fighting with insurers, turnover, and employee disengagement and dissatisfaction.
According to Dean Carter, the head of human resources for outdoor clothing manufacturer and retailer Patagonia, his company offers health care on the first day of employment for all their full- and part-time employees—anyone not seasonal or temporary. Moreover, the premiums are zero for employee-only coverage. Even though Patagonia operates in a competitive business, it believes providing employees with health-care coverage is both consistent with its values and good business. As Carter noted:
We believe that everyone should have health care. There was some concern in the beginning that people would choose not to have health care, even part-time people. And these jars would appear around the company, because “Bill” just had a hospital stay, and can you help raise money to help him out? We believe that’s something people shouldn’t have to do. Everyone just gets health care, and we have really low maximum out-of-pocket expenses and we try to keep the co-pays low.
Such a system not only helps retain people but also reduces their stress and permits them to concentrate on their work rather than worrying about health-care access and cost.
Administrative Nightmares and Their Costs
Collective Health is a venture-backed provider of customer-focused, service-oriented health insurance solutions to employers designed to benefit their employees. The story of the company begins with Ali Diab, who had sold a company to Google and had stayed on at Google. In 2013, Diab experienced sharp pain in his abdomen that an emergency scan revealed was caused by his intestines twisting in on themselves, cutting off circulation to about ten feet of his small intestine. He needed emergency surgery.
After successfully confronting a painful, dangerous, life-threatening condition that took time for recovery, Diab faced insurers claiming that some of his treatments were experimental and therefore not covered, and that other treatments and medicines were unnecessary; still other claims were denied because he’d failed to obtain required preapprovals. To make a long story short, the insurers proposed leaving Diab with a six-figure medical bill. Diab was a senior executive at Google. He knew Larry Page, Google’s cofounder. Page called the insurance provider, which fixed things, and he also offered Google’s resources if necessary to help with the expenses. As Ali Diab emotionally recounted to me, it was bad enough to face a severe health crisis that terrified him and his family without having to go to war with an insurer—a war that he won mostly because of his great connections and senior position.
Ali Diab decided to cofound Collective Health to make the health insurance experience easier on employees. By providing patient advocates to employees and by using the most innovative information and information technology, Collective Health promised that employees would spend less time dealing with health claims. And because employees would experience more of the benefits rather than the burdens associated with coverage, they would develop more loyalty and deeper connections with their employer. Third, as an organization with focused expertise on health care, the health insurance market, and employee health, Collective Health would be able to relieve some of the burden confronted by in-house human resource and benefits people, another gain for employers.
Simply put, employers pay a lot of money for health insurance coverage, but that coverage is often administered in a way that irritates employees and imposes burdens of stress and time on both employees and human resource executives in their companies. It is as if neither side of the deal profits. Companies pay money for arrangements that all too frequently upset their employees and absorb wasted time learning about and fighting over benefits.
The almost absolute discretion employers in the United States have to determine conditions of access to health insurance—and consequently health care—is different from what people in any other advanced industrialized country confront. All other industrialized countries provide health coverage to all their citizens regardless of age or employment status.3 Employer-centric health coverage is not just a mixed blessing for employees. It also poses demands on employers. Providing coverage requires a lot of effort on the part of employers to purchase coverage that affords reasonable benefits without costing too much. Employers often view the multitude of decisions to be made in health-plan design as a burden. Overseeing the many choices of insurance companies and other vendors, and hiring the benefits consultants who help employers make those decisions, costs money.
Even more important, when employers make health insurance decisions that upset their workforce, something that is quite easy to inadvertently do, the employers risk responses ranging from people besieging a beleaguered human resources department to increased employee turnover to possible unionization efforts. Thus, it is far from clear that employers benefit from the current employer-centric health insurance arrangements—a situation that has provided a business opportunity as well as a cause to companies like Collective Health.
LESS IS NOT MORE
A few years ago, I was preparing to make a presentation to the Human Capital Leadership Council of what was then Hewitt (now Aon Hewitt, post-merger) about how organizational decisions affect human health. The council consisted of the heads of human resources from some of Hewitt’s best customers—some of the largest and best-known US corporations that at the time included Hewlett-Packard, American Express, Marriott, Cargill, and Google. As I was previewing my talk, which would include a discussion of the health effects of not having health insurance, my inside “partner” at the firm told me to drop this part of the presentation, because, he said, “These are all large employers. All of them offer health insurance. So this is not a relevant issue for them.” Not quite, for reasons I will soon explain.
As I was preparing this book, a friend, reviewing the outline, said, “Why do you have a chapter on health insurance? Isn’t access to insurance and care a nonissue now that the Affordable Care Act has passed?” Holding aside that attempts to repeal Obamacare continue as this is written, even the ACA has failed, by a lot, to provide universal health coverage, as bricklayer Dan’s experience makes clear.
Or consider the dilemma faced by casino workers in Atlantic City. Atlantic City has lost about half of its casino jobs in the past seven or so years. With the jobs went health coverage. Many of the remaining casinos, owned by private equity firms or by companies facing financial stress, have eliminated or reduced health insurance benefits. Many hotel workers in Atlantic City are organized by a labor union that surveyed its Atlantic City members and shared the results with Stanford colleague and health policy expert Arnold Milstein. Milstein shared some of the survey data with me.
Seventy-two percent of the people responding to the survey said that the cost of health insurance had affected their ability to pay their monthly bills. Seventy-two percent said that they were unable to address current health problems. Sixty-three percent believed that their health was deteriorating because they did not have health insurance, 75 percent could not afford new health insurance options, and more than half of the respondents reported symptoms of depression. The idea that access to health insurance and health care is a problem that has disappeared is simply wrong. If anything, the issue is getting worse.
Health insurance costs are often economically significant, not just to individuals, but to companies, too. For instance, General Motors, at one time at least, spent more on health insurance than it did on steel.4 Employers typically spend some $12,000 per employee on an employee-plus-spouse health insurance plan per year. For an employer with one thousand employees, the cost of $12 million per year is large enough to get management’s attention. For even larger employers, health-care costs are very salient. Employers that choose to offer insurance can face cost disadvantages compared to competitors that choose not to.
The public policy goal of taking health insurance out of competition among companies, so there is not a race to the bottom in what they offer, is one reason that many other countries do not leave the decisions and costs about health insurance with employers. Instead, the governments and populace of most other advanced economies believe that in relatively wealthy societies, access to health care is a fundamental human right that should not be subject to employer cost concerns. Because health insurance is at once costly and discretionary, the two recessions of the early and late 2000s that encouraged employers of all types and in all sectors of the US economy to reemphasize cost control adversely affected employee access to health insurance coverage and increased the already large number of people in the United States who did not have health insurance.
As noted by the Kaiser Family Foundation, by 2010, just before the Affordable Care Act began being implemented, there were more than forty-nine million nonelderly uninsured people in the United States.5 The growing number of uninsured arose because employer-provided health insurance coverage among the nonelderly had fallen from 69.3 percent to 58.8 percent between 2000 and 2010.6 By 2011, some 40 percent of all employers did not offer health insurance to any of their employees. Moreover, even of the 60 percent of employers who did offer insurance, on average more than one in five of their employees (21 percent) were ineligible for coverage, either because they worked part-time, had insufficient total work hours, or had worked for the employer for too short a period to meet eligibility standards.7 Moreover, “low-wage workers who are offered coverage often cannot afford their share of premiums, especially for family coverage.”8
As health insurance has become increasingly unavailable to workers, it has also become increasingly expensive to keep for those employees who do have access to coverage. In just the ten years between 2001 and 2011, the average employee contribution for individual coverage increased from $355 to $921 per year (a 159 percent increase) and the average contribution for family coverage went from $1,787 to $4,129 (a 131 percent increase) annually. By 2015, the cost of individual coverage had further increased to $1,071 and family coverage to $4,955.9 Both family and individual coverage expenses paid by employees increased at a faster rate than total health insurance premium costs because not only were employers shedding coverage and raising eligibility requirements, they were also shifting costs to employees.
Employers have not only reduced access to health insurance and increased employee cost burdens, but, in an additional move to cut costs, the health insurance plans provided often do not cover all medical needs or do so with such high co-payments and deductibles that people forgo treatment.
Data from a federal government survey are revealing. In 2014, after the implementation of the ACA, the proportion of people reporting forgoing either medical treatment or prescription drugs because of costs was actually higher than it had been in 1997, before passage of national health insurance legislation, although both were lower than in 2010, just after the recession and prior to the ACA taking effect. Moreover, although the percentage of people reporting forgoing medical care or medicine because of cost was obviously much higher for the uninsured than for insured individuals, even among the insured, almost 6 percent of people reported forgoing or delaying medical treatment because of cost.10 An analysis of the employer-centered American health-care system in the New England Journal of Medicine argued that “the increasing prevalence of underinsurance may well be the most serious trend,” even worse than the absence of insurance in its implications for health. The report provided data showing substantial cost shifting to individuals and rising rates of underinsurance that limited access to treatments.11
Because of employer decisions, “having a job does not guarantee a person will have access to employer-sponsored coverage; in fact, about 38 million of the uninsured [77 percent] are in families that have at least one worker.”12 Moreover, 61 percent of the uninsured were in families that had one or more individuals working full time. Survey data shows that the uninsured are more likely to be minorities, to have no education beyond high school, to be in low- or moderate-income families, and to be young. And more than four-fifths of the uninsured are either native or naturalized US citizens, which means that the problem of not having health insurance is not one affecting mostly undocumented workers.
These facts mean that the profound racial and income disparities in health outcomes, an increasing focus of both research and public policy attention, can be at least partly attributed to the racial and family income differences in who has employer-sponsored health insurance. For example, one analysis reported that while people of color comprised 34 percent of the US population, they accounted for 52 percent of the people without health insurance.13
Employer decisions to provide health insurance are, as already noted, a typical collective action problem. If everyone provides insurance, no single company is at a cost disadvantage from doing so. Moreover, the (higher) costs of treating the uninsured don’t get shifted from those who do not provide insurance to those who do. Such cost shifting occurs because doctors and particularly hospitals and clinics raise their rates for those who have insurance to recoup the uncompensated costs of caring for the uninsured. For instance, one study using very detailed state-level data reported that in 2002, uncompensated care just in the state of Maryland totaled $529 million.14 But as in all collective action situations, there are strong incentives for individual employers to defect. By not providing insurance, they can cut their costs below the competition and offload employee health care to others.
As the proportion of employers who don’t provide insurance at all or who make it unduly expensive so that fewer people avail themselves of it increases, other employers who do provide affordable insurance are at a growing competitive cost disadvantage. The cost-shifting implications of providing insurance grow larger, because those who provide insurance pay twice—once directly through their insurance contributions and once indirectly through the taxes they pay to fund public health programs that provide health services for those without insurance. Thus, insurance experts in compensation consulting firms have told me that there will come a tipping point at which more and more employers will abandon the provision of private health insurance altogether because of competitive necessity and also because providing health-care coverage will no longer be seen as normative, as something that good employers routinely do. This will happen even under the ACA, because the “fine” for large firms that fail to offer health insurance to their employees is substantially less than the actual cost of providing that insurance coverage.
When norms change, behaviors change, too. Of course, no one is sure at precisely what level such a tipping point will be reached. But I have been in meetings with senior human resource executives from some prominent, large, and economically successful companies where the discussion has turned to the possibility of employers getting out of the business of providing health insurance to their employees, regardless of what has occurred or might happen in the future at the national policy level—something that all around the table agreed would never have even been considered in the past.
The Affordable Care Act, as of 2016, has extended health insurance coverage to perhaps thirteen million of the forty-one million previously not covered. It is up to the states to decide whether to expand Medicaid programs to provide coverage to children and the poor. Some states have taken advantage of federal funds available to encourage such expansion, but many have not. The data showing that the uninsured are, for the most part, working adults—people just like Dan the bricklayer—means that the effects of health insurance on people’s well-being remain relevant.
THE HEALTH AND ECONOMIC EFFECTS OF BEING UNINSURED
What are the effects of employer decisions to offer health insurance coverage? The most important are, first, health and mortality and, second, bankruptcy and financial stress.
Health Insurance and Health
Decisions about health insurance are important for the simple reason that health insurance or its absence profoundly affects individual health and mortality. An Institute of Medicine (IOM) study using data from 1971 to 1987 on people between twenty-five and seventy-four years old and Census data from 1982 to 1986 on individuals between twenty-five and sixty-four estimated that being uninsured increased mortality risk by 25 percent in working-age adults. This result held even after various other factors that might affect mortality were statistically controlled.15 Based on this estimate of increased mortality and the number of people uninsured at the time, the IOM report estimated there were eighteen thousand excess deaths per year in the United States. As the number of uninsured grew over time, the Urban Institute, using the IOM’s original methodology, estimated that there were 137,000 excess deaths because of being uninsured just between 2000 and 2006, with 22,000 excess deaths occurring in 2006 alone.16
The IOM methodology assumed that increased mortality from not being insured was identical for all age cohorts. But this is almost certainly not the case. The risk of being ill from any cause increases with age, and the risk of having cancer or heart disease, for instance, is also age-related. Not having insurance if you aren’t sick clearly would have many fewer health and mortality consequences than being uninsured when confronted with a serious disease. And there is another complication in this initial analysis. Being uninsured is itself related to health status. Prior to the passage of health reform under President Obama, it was frequently the case that when people got sick, they would lose their health insurance coverage, and exclusions for preexisting conditions were routine parts of insurance contracts. Taking these factors into account, one study noted that after adjusting for the effect of people’s health on the likelihood of having health insurance, the mortality difference between having and not having health insurance coverage reached 42 percent, almost double the increased mortality risk estimated in the Institute of Medicine study.17 Another analysis that used data on adults aged fifty-five to sixty-four estimated that just among this ten-year cohort of near-elderly individuals, more than thirteen thousand people died annually because they did not have health insurance.
A recent review of the scientific literature generally supports the original conclusion of the Institute of Medicine study: that “health insurance reduces mortality” and that “uninsurance shortens survival.”18 In part, this is because having insurance increases the use of recommended care. This review of the evidence noted that one reason the United States has worse life expectancy than many other industrialized countries is that “worse access to good-quality health care contributes to our nation’s higher mortality from medically preventable causes.”19
Other studies show an even higher death toll from an absence of insurance. A longitudinal panel study of about nine thousand people aged seventeen to sixty-four between 1988 and 2000 uncovered a 40 percent higher likelihood of death for those uninsured even after statistically controlling for age, gender, body mass index, smoking, regular alcohol use, leisure exercise, and physician-rated health status. This analysis estimated that there were almost forty-five thousand excess deaths annually because of lack of health insurance. As a comparison, an absence of insurance caused more deaths than kidney disease.20
In addition to these studies of excess deaths from all causes, studies of the mortality outcomes from specific diseases also consistently reveal higher death rates for those who do not have health insurance compared to similar others that have such insurance. One study of 189 patients born with cystic fibrosis who had at least one hospitalization at a university medical center found that the median survival for patients without health insurance was 6.1 years compared to 20.5 years—more than three times longer—for those individuals with private insurance.21 Another study of mortality from cystic fibrosis compared Canadians to Americans. That study found that “Canadians with cystic fibrosis survive, on average, more than 10 years longer than Americans with the same disease, largely because of differences in the two countries’ health insurance systems.” Although there was no difference in death rates across the two countries for people in the United States who had private health insurance, the “Canadian death rate was 44 percent lower than that of Americans on Medicaid or Medicare and 77 percent lower than Americans without insurance.”22
A study of women with breast cancer found that, even after controlling for the extent of the disease when the patient presented for treatment, the adjusted risk of death was 49 percent higher for uninsured patients compared to those with private health insurance.23 An analysis of women with cervical cancer, a disease where prognosis is highly related to the stage of the cancer at time of discovery, reported that uninsured women were about 1.4 times more likely to present with more advanced stage cancer than women with private health insurance.24 And an analysis of stroke patients reported that, depending on the type of stroke, being uninsured increased the risk of death between 24 and 56 percent.25
Researchers have also discovered at least some of the causal pathways and processes that connect health insurance to health outcomes. One causal relationship relating insurance to mortality is the connection between having health insurance and obtaining preventive screening for various health conditions. Research demonstrates “the efficacy of preventive health service use (e.g., cholesterol screenings, mammograms . . . Pap tests) in reducing morbidity and mortality,” and the data consistently show that “uninsured adults are less likely than those with insurance to use preventive services.”26 Many people alternate between being insured and uninsured, for instance, as they change employers or move from being unemployed to finding a job. Panel evidence with comprehensive statistical controls for socioeconomic status shows that even intermittent periods of being uninsured substantially reduced people’s use of preventive screenings and that the effects of not having insurance on reducing people’s obtaining useful screenings persisted for some time even after they got insurance.27
Access to health insurance also affects people’s compliance with treatment regimens, including getting their prescriptions filled. The Kaiser Family Foundation reported that “more than a quarter of uninsured adults say they did not fill a drug prescription in the past year because they could not afford it.”28 One study compared what happened to thousands of people with and without insurance following either experiencing an unintentional injury or the onset of one or more chronic medical conditions. After an adverse change in their medical condition, people without insurance were less likely to obtain any medical care, had fewer doctor office visits, and filled fewer prescriptions. Moreover, people without health insurance were about twice as likely to not have received any follow-up medical care. Not surprisingly, then, even seven months after a “health shock,” those without insurance were almost 50 percent more likely than those with health insurance to report worse health status.29
Having insurance also seems to be related to receiving better care once diagnosed with some disease or health condition. That is because being insured provides access to a wider—and better—set of doctors and hospitals that are not as financially constrained and therefore can offer a broader set of treatments and more comprehensive care, including follow-up treatment. One innovative study used turning sixty-five, the age at which people become eligible for Medicare insurance, to examine the effects of insurance on treatment and health outcomes. The analysis considered unplanned admissions to the emergency department for severe asthma, heart attacks, and strokes, and explored differences between those admitted just before and those admitted just after their sixty-fifth birthday. The study showed that people over sixty-five received more services and therefore experienced a 20 percent reduction in deaths, even for a patient group that was severely ill, with the difference in mortality persisting for at least nine months after being hospitalized.30 Another analysis, comparing states that expanded their Medicaid coverage with otherwise similar states that did not, estimated that expanding access to health care through the Medicaid expansions reduced all-cause mortality by about 6 percent, with some of the effect coming from reducing the incidence of receiving delayed care because of costs.31 These studies are consistent with others that show that insured individuals receive more and better care and also more timely care than those without insurance.
Health Insurance and Financial Problems
Numerous studies have found a relationship between having health insurance and bankruptcy and other forms of financial distress. One report noted that “almost 40% of uninsured adults have outstanding medical bills.” And another study in Oregon reported that “the uninsured were more likely to experience financial strain from medical bills and out-of-pocket expenses.” As a Kaiser Family Foundation report on the uninsured noted, “The uninsured live with the knowledge that they may not be able to afford to pay for their family’s medical care, which can cause anxiety and potentially lead them to delay or forgo care.”32 Financial stress, just like other forms of stress, is negatively related to both physical and emotional health as well as to mortality.33 Stress has direct effects on health and also induces unhealthy behaviors such as smoking and alcohol and drug abuse that further compromise health and increase the risk of premature death.34
There is little doubt that medical bills, even for the insured but particularly for the uninsured, contribute to bankruptcy and other symptoms of financial problems, although the magnitude of these effects remains in some dispute. One examination of 1,771 personal bankruptcy filers in five (of the seventy-seven) federal district courts estimated that about half cited medical causes for the financial distress. “A lapse in health coverage during the two years before filing was a strong predictor of a medical cause of bankruptcy.”35 Nonetheless, about three-quarters of those filing for bankruptcy had insurance at the time of the onset of their medical costs. Another study compared changes in household assets, excluding the value of an owned residence, for near-elderly individuals who were newly ill with insurance to those in the same age range who were newly ill without insurance. Assets in households with a newly ill, noninsured person declined between 30 and 50 percent more compared with matched individuals who were covered by health insurance.36 Although medical debt is quite common, “medical debt is greater for people without health insurance.”
Medical debt and bankruptcy obviously are traumatic and stress-inducing. “One national survey found that 44 percent of those with medical debt used all or most of their savings to pay outstanding medical bills . . . one in five medical debtors took on large credit card debt or a loan against their home to pay medical bills. . . . People with medical debt are often subject to legal judgments, wage garnishments, attachment of assets including bank accounts, or liens on their homes, which can lead to foreclosure.”37
As this partial review of the extensive existing evidence shows, an absence of health insurance is truly hazardous to an individual’s financial and physical health and adversely affects mortality. Therefore, employers who offer health insurance at reasonable cost positively affect their employees’ well-being, while those who do not put their workers at serious physical and psychological risk.
HEALTH INSURANCE AND THE OPERATION OF LABOR MARKETS
When some employers provide health insurance and others don’t, numerous problems arise. Such problems are particularly severe when and if insurers can deny coverage for preexisting conditions, something that was quite common prior to the passage of health reform under President Obama. These problems affect not only employee well-being but company performance as well.
The first problem comes from restricted labor mobility, frequently referred to as “job-lock.” Most theoretical perspectives on human capital, which view labor as subject to market forces, acknowledge the positive function of labor sorting and matching. Simply put, employers have needs for certain technical skills and other attributes, and these requirements change over time as competitive conditions change. To take one example, manufacturing jobs that once required limited mathematical and reasoning skills now require more of such skills as numerically controlled machine tools and more complex manufacturing processes have grown in prominence. On the other side of the equation, employees have both a set of skills and tastes that also change over time as individuals acquire training and learn through job experience what employment conditions they like and don’t like.
Labor markets work best when employers can freely select workers and workers can freely move to employers who offer not just the best financial deal but also the best setting for their talents and abilities. Many scholars and policy experts acknowledge that when employee-employer job matching is restricted, “the economy-wide results will be lower labor market efficiency and productivity.”38 That’s because “labor market mobility enables workers to obtain employment where they are most productive,” so “immobility due to disparities in the availability of scope of health insurance across employers can eliminate potential gains in productivity and income, adversely affect worker satisfaction, and alter the volume and quality of goods and services produced.”39
Non-portable pension benefits are one source of job-lock, and indeed one of the purposes of deferred compensation schemes such as pensions is to tie employees more tightly to their employers, thereby reducing turnover costs. However, having health insurance tied to employers and making coverage difficult to obtain for those who already have some disease restricts labor mobility in ways that disrupt optimal labor matching. Employees stay at employers where they no longer are interested or maybe even competent at their jobs because they are afraid to risk losing their health insurance benefits if they enter the labor market and either don’t find a job right away or don’t find an employer that provides adequate coverage.
Estimating the magnitude of job-lock effects from decisions reflecting health insurance concerns is invariably difficult using available panel data on job mobility. Nonetheless, the empirical evidence, which employs sophisticated methodologies and a variety of controls for other factors that might affect mobility, provides reasonably consistent estimates that show substantial mobility reductions. One study using data from the 1980s estimated a 25 to 31 percent reduction in mobility because of health insurance concerns, an effect that was even larger for employed women than for men,40 while another study focusing on dual-earner men found mobility reductions of about 36 to 51 percent.41 Another analysis reported that chronic illness reduced job mobility by about 40 percent compared to otherwise similar workers.42 There is also evidence that public policies that make obtaining health insurance after leaving an employer easier to obtain, such as “continuation of coverage” mandates, reduce the magnitude of health-insurance job-lock effects on mobility.43 Reductions in labor mobility between 25 and 50 percent are substantively significant and suggest that the theoretical problem of mismatched employees and employers has important productivity and efficiency consequences.
A second problem arises from the current set of health insurance arrangements in the United States: a form of adverse selection. Most group health insurance plans do not have exclusions for preexisting conditions and are open to all employees who meet the relevant eligibility requirements, such as hours worked or length of employment. Not all employers, however, offer health insurance. Moreover, the health insurance offerings on the private, individual market largely do (or did, prior to the passage of health reform legislation) limit coverage to new medical problems and exclude preexisting illnesses. Therefore, employees with medical problems will be drawn to seeking employment at those employers who offer health insurance. Employers who offer such health insurance will, as a consequence, tend to attract a higher percentage of sick people who have higher medical costs. Thus, there are increasing incentives over time for those employers who do offer health insurance to reduce or restrict coverage to cope with the cost disadvantages they face because of this adverse selection effect. Moreover, choosing employment based on the health insurance coverage offered clearly interferes with sorting processes premised more on skills and interests, resulting in additional productivity and efficiency losses.
The labor market distortions created by job-lock and adverse selection make it increasingly costly for employers to offer health insurance. These facts help explain why privately provided coverage has declined over time as we have already seen. But unavailability of private coverage does not “solve” the problem of health costs. Instead, health costs are merely transferred to other payers, most often either the public or medical providers who furnish uncompensated care, even as such costs get increased because treatment gets delivered to patients who are sicker and have more advanced disease because they have delayed seeking care because of uncovered costs.
PROVIDING HEALTH CARE ON-SITE
Good employers take care of their employees by providing health insurance. Healthy employees are more productive. Offering health insurance helps attract and retain people.44 Employers who offer health insurance—and other benefits—signal that they care about their people. Offering health benefits, particularly when competitors are cutting benefits, activates the norm of reciprocity and causes employees to reciprocate with greater levels of loyalty and engagement.
But employers who are concerned about employee health confront some dilemmas. First, as already discussed, as health-care costs escalate, companies that want to do the right thing are caught in a competitive bind—confronted with issues of adverse selection as sicker workers flock to workplaces that offer health coverage and with the problem of competing with companies that have lower costs because they have externalized—offloaded—their employee health costs to the larger society, to care providers, or both. Second, employers confront a health-care system in the United States beset with administrative costs—the costs of marketing health-care plans to employers and their employees, reviewing and paying claims, adjudicating appeals of claims denials, providing pre-authorization for tests and procedures—many of which have a tangential relationship to providing health care. Gail Adcock, the chief health officer who oversees health benefits and is in charge of on-site health care at the large software company SAS Institute in North Carolina, told me that “managed care was mostly about managing costs, not care,” something that not only drove up the administrative overhead but also created distrust among employees. Some Harvard researchers have estimated that administrative overhead consumes almost one-third of US health-care spending, and this large administrative burden is one reason why the United States spends so much on health care without achieving better outcomes.45
One growing employer response to these issues has been to offer health care on-site. This is a solution that not only reduces the enormous overhead burden created by insurance companies, but also permits employers to get closer to their employees’ health issues so they can intervene earlier in the disease process, thereby saving money and also keeping their workforce in better shape. It is well known that a relatively small proportion of employees with serious medical conditions account for a disproportionate share of health costs, and that the risks of people moving into the high-utilization/high-cost population can be predicted, affording the possibility of early intervention and prevention that can reduce health costs.46
Decades ago some companies had company doctors on-site or nearby—particularly companies located in remote locations or those that faced a high risk of injury or disease. Over time, such arrangements disappeared as organizations chose to focus on their core activities and as the employment relationship became more transactional, with less of a sense that employers needed to take care of their workers. But there are many cost advantages for employers offering health care on-site. First, seeing a doctor at the workplace saves travel time. At Sprint’s Overland Park, Kansas, facility, employees “could sign out, drive to their own doctors somewhere in the region, and typically come back the next day. Or they could walk across the campus . . . see a physician in one of the clinic’s three exam rooms, and make it back to their desk . . . in about a half hour.”47
A second advantage is the cost savings. Overhead of doctor’s offices and hospitals is eliminated, as are insurance middlemen with their costs, for all visits by employees and their families to on-site health facilities. Health-care providers are typically salaried rather than paid on a fee-for-service basis, which also cuts costs. Another major advantage cited by numerous employers is reduced absenteeism and better employee health and productivity. People are more likely to visit an on-site clinic that is not only more convenient but often offers a lower co-pay for the visit—in many cases there is none. With more frequent contact with employees, the medical staff can intervene earlier to prevent disease problems from getting worse and encourage healthier behaviors—and have better ability to follow up with people to ensure those behaviors take hold. Yet another advantage cited in employer surveys is the greater use of evidence-based guidelines for treatment and electronic health records that facilitate care coordination. “Studies point to a relatively substantial return for on-site health centers of $2 in savings for every $1 invested, and some studies indicate levels of $3 to $6 for every $1 invested.”48
These advantages have led to widespread adoption of the on-site model. “According to . . . the National Business Group on Health, 23 percent of surveyed employers with more than 1,000 employees reported offering on-site medical services in 2007” with that number expected to grow.49 And on-site medical care has even diffused to smaller employers. So, for instance, Wilson Tool International in White Bear Lake, Minnesota, and Turck, Inc., in Plymouth each have an on-site medical facility even though both have only about four hundred employees.50 A number of companies are now in the business of operating on-site medical facilities for companies, and the service is growing in popularity.
Of course, on-site clinics are suitable primarily for relatively minor illnesses and routine care such as immunizations. But nonetheless, the time used to access even such routine care is enormous. And the ability to cut costs while providing a physical manifestation of companies’ commitment to their employees’ well-being provides some compelling advantages for the on-site model.
EVERYONE’S LOSS
The data are clear: the absence of health insurance leads to higher levels of mortality, worse health, financial strain including bankruptcy, and increased anxiety and stress. The United States continues to have a large population of individuals who lack health insurance and a surprisingly high proportion of people who must forgo medicines and treatment because of cost issues even if they have insurance. Those without health insurance are for the most part working, many of them full time, and are overwhelmingly either US citizens or legal residents. Even for people with employer-provided health insurance, costs have been shifted from employers to employees, resulting in insurance premiums and co-payments that have increased at rates even faster than the growth in health-care costs and have adversely affected access to care. And people with health insurance—and their employers—often confront administrative difficulties in obtaining reimbursement for health-care expenses, diverting employees’ attention from their work and increasing their level of stress.
Health insurance concerns produce job-lock and restricted labor mobility that negatively affects productivity. Worries over accessing health care impact people’s job performance, and their ability to obtain care affects their absence behavior. Administering health-care plans consumes enormous amounts of resources, and much of those costs fall on employers who pay for benefits consultants, human resources staff to administer medical plans, and for the overhead of the health-care providers that they use. These overhead and administrative costs are one reason that some large employers have moved to a model of offering on-site care for relatively minor and routine medical problems.
It is hard to see who, other than health insurance companies and insurance brokers and benefits consulting firms, gain anything from the current arrangements. Moreover, health care and who pays for it has become an increasingly politicized issue. It is not just politically fraught on the national and state government levels, although disputes are frequent in government at all levels. Health-care costs are also politicized inside organizations, where chief financial officers fixated on cost reductions sometimes lock horns with human resource leaders interested in employee well-being. As with any such political struggle, forecasting how things will evolve is almost impossible.
What’s missing in much of the discussion—in government and inside workplaces, in the discussion of health insurance, health-care costs, and employee health—is the human toll these contradictions and paradoxes cause. People face unforeseen medical bills as prescriptions go on or, more frequently, off formularies. As one individual told me, it seems particularly inhumane that individuals confronting serious, sometimes life-threatening illnesses, should also have to cope with insurance companies, insurance plans, and their benefits office, and be at the mercy of these entities about what are often life-and-death decisions.
In this as in so many other aspects of work environments covered in this book, considerations of human sustainability are largely missing from the financially driven discussions and decisions. And it is far from clear that employers benefit from having financially stressed employees navigating a health insurance thicket of forms, policies such as where care can be accessed and what prior approvals are required, and ever-changing cost and benefits offerings.