Putting Employer-Provided Health Care in Context and Thinking about the Future

Brendan S. Maher, Regulating Employment-Based Anything, 99 Minn. L. Rev. (forthcoming 2015), available at SSRN.

Employer-provided health care occupies an uneasy position within health law. On the one hand, it is the primary source of health insurance coverage for non-elderly Americans and provides relatively robust coverage. On the other hand, linking health insurance availability to employment status and subsidizing such purchases through the tax code raises significant fairness concerns. The explanation for the Affordable Care Act’s continued reliance on employer-provided coverage was largely based on political expediency: health care reform had no chance of passing if it looked like the future of employer-provided health care was threatened. We were assured, after all, that if we liked our health plan we could keep our health plan.

Brendan Maher’s article, Regulating Employment-Based Anything, seeks to move our discourse away from merely relying on political expediency arguments to try to articulate the theory behind encouraging socially desirable goods to be provided through the compensation deal and, perhaps even more importantly, to articulate the theory behind employer-based interventions versus other forms of market interventions. While the article is not focused solely on health care, I found it very helpful in thinking through many of the issues involved in attempting to build a system of universal health coverage around an existing employer-based system.

One of the most important contributions the article makes is to encourage all of us who think about employer-provided health care to engage in more thorough analysis of the justifications for such market interventions, rather than simply chalking everything up to “historical accident.” As Professor Maher explains, employee benefit regulatory interventions occur because the government concludes there is a problem with the provision of Good X, and further concludes that regulating the labor deal is an attractive way to fix it. The article presents three possible advantages of regulating the labor deal as compared to other regulatory interventions to deliver Good X: (1) the use of sophisticated parties to aid employees in obtaining Good X, (2) the power of groups in purchasing Good X, and (3) use of the compensation deal as a natural decision point to promote Good X acquisition and planning.

Maher is quick to point out that there is also a case to be made against using the labor deal to provide socially desirable goods. First, he explains that the three advantages above are actually weaker than they appear, and that labor-based interventions may not be as attractive as other forms of market intervention. More subtly, he points out that regulating the labor deal leads to opacity regarding the provision of Good X (Who is paying for it? How much does it cost?). In addition, employment-based interventions may lead to the perception that the delivery of Good X is an employment issue rather than a social issue.

When we apply this framework to the provision of health care through the labor deal, we see that there is at least a plausible case to support such intervention. First, purchasing health insurance is a highly complicated decision, and employers may be more sophisticated than employees in making such decisions. There are also advantages of group insurance purchasing—lower overhead costs and natural risk pooling. Finally, there is a plausible case that tying the health insurance decision to the compensation deal makes sense. Health care is a significant expense for most individuals and encouraging individuals to think through that expense in the context of their compensation deal is arguably a natural decision point.

But as Maher explains, reality is more complicated than the above analysis provides. First, it is not universally true that employers are more sophisticated decision-makers than employees. Large employers may have this expertise, but there is little reason to believe that the same is true for small employers. And importantly, Maher points out that even in the case of large employers, a sophisticated decision-maker only benefits employees where employer-employee interests are aligned. Maher makes an important, and often overlooked, point that there is relatively little reason to believe that employers and employees preferences are similar. In explaining the lack of alignment, Maher notes, “This is not to impugn business decisions as immoral—not at all—but merely to make the uncontroversial point that humanistic warmth toward others is routinely, in commercial settings, deprioritized or set aside.” The second advantage for regulating the labor deal, the advantages of group purchasing, is likely the strongest argument in favor of employer-provided health care. These advantages are well-documented. However, as the article points out, the ACA will dramatically change the individual health insurance market in ways that make the group purchasing advantage less obvious. And finally, while there is a plausible case that health insurance should naturally be considered as part of the compensation deal, there is little compelling about it other than being a major financial purchase, not unlike a housing or car purchase.

In terms of employment-based interventions versus other forms of market intervention, Maher points out that regulating the labor deal to encourage the provision of health care has always been a fragile exercise due to the constant threat by employers to refuse to play. When contemplating employer-based health care regulations, regulators feel constrained by employer threats to cease offering health insurance at all—a particularly serious threat given the pre-ACA health insurance market which, in most states, did not offer a viable alternative to group coverage.

Maher’s article does not offer any prescription for health care reform, nor reform of any other aspect of employer-provided benefits. What it does do is to encourage those of us working in the field to be more disciplined in our thinking about employer-based regulations, rather than simply accepting and analyzing the status quo. As things begin to meaningfully shift in the health insurance arena, it is a good time to step back and consider reasons other than political and historical path dependence for our continued reliance on employer-provided health insurance.

Cite as: Amy Monahan, Putting Employer-Provided Health Care in Context and Thinking about the Future, JOTWELL (May 29, 2015) (reviewing Brendan S. Maher, Regulating Employment-Based Anything, 99 Minn. L. Rev. (forthcoming 2015), available at SSRN), http://health.jotwell.com/putting-employer-provided-health-care-in-context-and-thinking-about-the-future/.