ESI, stability and cost

Kevin Drum is highlighting a point I’ve made before.  One of the big reasons for the slow growth in Exchange enrollment is that employer sponsored insurance (ESI) has not collapsed.  The Congressional Budget Office had projected for years that millions of people would lose their ESI and go on Exchange.  That did not happen:

After four years of private coverage hovering around 61 percent of the population, it jumped up to 66 percent within the space of a single year.

Was this due to the economic recovery? Probably a bit of it. But the economy has been puttering along at about the same pace ever since 2012. The only thing that changed in the fourth quarter of 2013 was the introduction of Obamacare….

This is great news all around since we’d always prefer having people insured by their employer rather than buying through the exchange. It’s better coverage and it costs the taxpayers less. On any measure you can think of, this is a huge and undercovered success story. [emphasis mine]

That is wrong.  It is not always preferable to have someone on ESI rather than on an Exchange policy or Medicare or Medicaid or CHIP.

It is politically an easier sell as ESI is seen as part of the background status quo so when Mid-Size Motors switches coverage from Aetna to Cigna to save $2.32 per covered life per month, that is just HR doing their thing.  It is less disruptive but it is not uniformly better.  If it was uniformly better, the ACA would have just been massive subsidies to employers to provider coverage with a hard employer mandate (see 1993 Clintoncare) and some type of safety net for people out of the work force.  We did not go down that route.

There are a couple of major problems with ESI.  First, it is good insurance for people who are the least likely to need it.  I get good coverage through work for my family.  We’re doing well for ourselves and we are healthy.  We could afford to come up with the full cost sharing for the year but we are unlikely to need to do so.  But that case does not apply to everyone.

Yesterday I spoke with  a brand new customer service trainee class.  As part of the icebreaker I asked about families and why they chose this job.  Most of the trainees were 20 somethings fresh from college or had a year experience elsewhere.  ESI is not too important to that group as a class.  One was a mid-30’s woman with two kids.  She had just finished her associate degree.  She was very excited that she would qualify for ESI  on the 15th of the month.  She had been running naked while her kids were covered with CHIP.

However she is getting a worse deal on ESI than she would have on Exchange. Her salary is a smidgen under 150% FPL.  Her ESI premiums are roughly the same as what her Exchange premium for the baseline Silver would have been.  However, Mayhew Insurance offers roughly 85% actuarial value coverage to its employees as the default option (there is also a 65% HSA).  She would have qualified for cost sharing reduction subsidies that bumped her Exchange policy to 94%.  Her ESI is worse coverage than what she would have had on Exchange.  It is worse coverage than what her kids were getting on CHIP.

This is not an extreme example.  If an employer is offering low wage employees a qualified plan with a $5,000 deductible and Bronze level coverage, almost all of those employees and their families would have been better off on Exchange as their out of pocket premiums would be less than 9.5% of their paycheck and the actuarial value of their coverage would be significantly higher.  This is why the CBO thought ESI would have decreased.

The much broader reason why more ESI is not an unmitgated success story on any metric is that ESI is expensive.  The biggest problem in American healthcare finance is that we pay a very high cost per unit.  ESI (with a few exceptions in behavioral health) tends to pay the highest cost per unit of service.  In most areas, the benchmark Silver plan (the #2 Silver) is paying slightly more than Medicare prices for the services its members receive.  Medicare tends to be 30% to 50% cheaper on a cost per unit basis than commercial ESI. Shifting more people into high cost ESI instead of lower cost Exchange, Medicare, CHIP or Medicaid policies makes bending the cost curve significantly more difficult.  It removes some of the explicit costs off of the federal government’s books, but the total social cost is higher.

There are very few things where it is an unalloyed good by any measure.  Increased ESI uptake is not one of them.  It is a good in that higher ESI is less disruptive of a change than an ESI dump but it comes at the cost of giving people expensive and potentially not too usable coverage.

 






26 replies
  1. 1
    p.a. says:

    Was there any thought this time around for hard employer mandates for minimum coverage floors and maximum premium/deductible/copay ceilings? Was it rejected from consideration because it was thought to be a political poison pill?

  2. 2

    @p.a.: I have never been on the Hill so I am only speaking from what I remember reading at the time.

    No, a hard employer mandate without any escape hatches was never considered. It would have killed the bill in committee and it would have killed the bill by the CBO as ESI is by far the most expensive way of covering people. It only looks reasonable because the population ESI covers is self-selected to be healthier than the non-covered population.

  3. 3
    SRW1 says:

    ESI (with a few exceptions in behavioral health) tends to pay the highest cost per unit of service.

    How very reassuring vis-a-vis the idea of Republicans that, left to their own devices, patients will find the cheapest treatment.

  4. 4
    Punchy says:

    I had no idea that Electrospray Ionization had a role in healthcare costs. Goddamn analytical chemists will be the death of affordable colonoscopies. That’s shitty.

  5. 5
    FlipYrWhig says:

    However she is getting a worse deal on ESI than she would have on Exchange.

    See, this is interesting, because I have such a clear psychological sense that having health insurance through work is “better” and that if it’s offered to you, you smile, don’t mess with it, and count yourself lucky. Is there any way to comparison shop between ESI, exchange, and other options? Even if there is, I highly doubt very many people do use it or would. How do you overcome that sort of inertia–my sort of inertia, status quo bias, or whatnot?

  6. 6
    henqiguai says:

    @Punchy(#4): Your little missive justified opening this thread to see what was being discussed. Thanks!

  7. 7
    Luthe says:

    Yeah, I have heard horror stories of people whose ESI gets worse every year but because they have ESI available they can’t get subsidies on the exchange and therefore can’t switch to a better plan.

    I wish there were a way for ESI eligible people to get more fungible benefits. Like, if they opt for the Exchange instead of ESI, they would get whatever share of the premium their employer would be kicking into the ESI to use on the Exchange.

  8. 8
    WaterGirl says:

    @Luthe: My thoughts exactly!

  9. 9
    Betsy says:

    If an employer is offering low wage employees a qualified plan with a $5,000 deductible and Bronze level coverage, almost all of those employees and their families would have been better off on Exchange as their out of pocket premiums would be less than 9.5% of their paycheck and the actuarial value of their coverage would be significantly higher. This is why the CBO thought ESI would have decreased.

    I am always amazed that all these experts and economists, theorizing about people making all kinds of rational choices based on elaborate and confusing data, don’t think about this: NO ONE HAS TIME TO THINK ABOUT ALL THIS SHIT

  10. 10
    FlipYrWhig says:

    @Betsy: Exactly. I don’t want to have to evaluate all these things on my own. I read and write for a living and it’s still confusing. I try to imagine what it’s like for people less comfortable with verbal complexity and my heart sinks.

  11. 11
    Rob in CT says:

    I wish there were a way for ESI eligible people to get more fungible benefits. Like, if they opt for the Exchange instead of ESI, they would get whatever share of the premium their employer would be kicking into the ESI to use on the Exchange.

    Yeah, this is the tricky bit. My employer pays 70% of my premium. The only way I can do better on the exchange is for that 70% to be paid out to me (and even then, it would be taxable as opposed to its currently tax-free status), as I make too much for any subsidies (insert tiny violin sounds here). Plus, I think there is some value in not having to shop around. Frankly I like that HR deals with setting up ~3 options for us to choose from, and then I select from those. I think if I was looking on the exchange I’d run into decision fatigue. That’s worth something.

    From a public policy standpoint, the tax benefit for ESI is bad. Getting to a better place from here, however, is hard.

  12. 12
    NonyNony says:

    @Rob in CT:

    Plus, I think there is some value in not having to shop around. Frankly I like that HR deals with setting up ~3 options for us to choose from, and then I select from those. I think if I was looking on the exchange I’d run into decision fatigue.

    Exactly. In every discussion I’ve seen about this the assumption made is that it’s a purely dollars and cents thing. Except that I am not an insurance expert, so if I go onto the exchange (or off exchange on the individual market) I’m either spending months researching and cost-comparing offerings myself, or I’m hiring someone to do it. I have to sink my own free time into doing something that, with the employer sponsored model I’ve always had, I never really had to worry about. And given how insurance works, this is something I have to do every year when my plan comes up and they jack up the rates. I already do that with my taxes every year and it sucks and requires far less research than choosing a good insurance product annually would.

    I think even if you mandated that companies had to provide the lump sum and let employees opt-out, the CBO still would have over-estimated how many people would voluntarily switch from ESI to exchange. Because unless your employer’s healthcare is significantly worse than what the exchange provides, there would be a lot of folks who would just let their employer’s HR department take care of it and not bother with it.

  13. 13
    Fred Fnord says:

    @Betsy: The point is that the employer does. And why offer worse health insurance to your employees than they would get if you didn’t offer any?

  14. 14
    WarMunchkin says:

    @FlipYrWhig: I guess to maybe use slightly more formal language – there’s a labor cost associated with finding the optimal market plan. It’s not always worth that cost + the exchange premium versus ESI.

  15. 15
    Rob in CT says:

    Yeah, that’s the advantage of Medicare* for all. People wouldn’t have yet another complicated thing they have to figure out and deal with themselves.

    But it would be hugely disruptive in the short term, and has entrenched interests who would fight it tooth and nail. Including some folks with ESI now (because between the tax credit and the coverage itself, some people have a better deal now than they would under Medicare For All once you net everything out).

    * details of said Medicare coverage to be wrangled over in perpetuity, of course.

  16. 16

    @WarMunchkin: Oh completely agree the search cost is high on multiple categories of resource expenditure but for some people it would be worth a lot to go on Exchange instead of ESI.

    Me, it would not make sense.

    The woman I am using as an example, it might make sense to go from a family deductible of $2,500 to a family deductible of $300 especially since kids have a habit of bouncing into and off of things!

  17. 17
    Luthe says:

    @NonyNony: As someone with monthly prescriptions and frequent doctor visits, sinking the time into researching the best plan for me is worth it, otherwise I’d end up on a plan where my prescriptions were included in the deductible (which I’d never reach) instead of going straight to copay status. I think the time/effort tradeoff for most people would be predicated on whether they needed a plan with benefits like that or not. For a single healthy person (or couple), putting in the research would be too much trouble and picking from the employer’s choices would be easiest. For a family of four with a kid who has asthma/autism/some other chronic condition, the time spent researching and picking a plan outside of the employer’s choices is worth it because they would get a better deal with (possibly) better networks. It all depends on how much incentive you have to do the work.

  18. 18
    KG says:

    @Betsy:

    I am always amazed that all these experts and economists, theorizing about people making all kinds of rational choices based on elaborate and confusing data, don’t think about this: NO ONE HAS TIME TO THINK ABOUT ALL THIS SHIT

    I always laugh at the rational market theory because we have loads of evidence that shows people regularly make completely irrational decisions. It’s basically “individually irrational, but collectively rational” like the old “technically true but collectively nonsense” but the other way around.

  19. 19

    @Rob in CT: A lot of people have much better coverage than current Medicare A/B/D and a high proportion of those people vote. That is the fundamental problem with Medicare for all schemes, they are massively disruptive and they usually piss off people who have a decent deal in the system as it is today and those people can and will vote/organize to protect their interests.

    See the fight over the Cadillac tax as one example of part of the coalition against an actual Medicare for all proposal (quite a few unions would be screwed on MfA)

  20. 20
    KG says:

    @NonyNony:

    Except that I am not an insurance expert, so if I go onto the exchange (or off exchange on the individual market) I’m either spending months researching and cost-comparing offerings myself, or I’m hiring someone to do it.

    When I was litigating mortgage fraud cases, one of the things that jumped out at me was a California Supreme Court decision from back in the 70’s that held that a person signing mortgage documents could rely on the word of their mortgage broker as to what the terms were – that the mortgage broker was a fiduciary agent. The reasoning was that mortgages are complex, written in jargon by experts for experts, and that unless you were an expert you couldn’t reasonably understand what the documents said/meant.

    The same, I think, is probably true of insurance. Hell, I’ve done insurance defense and did some coverage opinions. Half the time I wasn’t even sure if something was covered or not. Expecting a layperson to understand the finer points of insurance is a fool’s errand.

  21. 21
    Rob in CT says:

    @Richard Mayhew:

    Yeah. I haven’t attempted to estimate it, but I’d be surprised if a switch from status quo to MfA didn’t actually hurt my family. Which, in the interest of superior public policy, I’m ok with (same as tax reform). But as you point out, relatively well-off people vote at higher percentages (and for that and other reasons, the political system caters to them more) and many such people will resist. This group includes the vast majority of politicians, think tankers, pundits/other media with significant reach, and so on.

    One way of blunting this is to propose better coverage than current Medicare (ala Bernie’s no copays!, no coinsurance!), but that will eat into cost savings.

  22. 22
    David Fud says:

    It seems from the stats I have seen that employers are starting to reduce their subsidies and/or removing spouses and children from ESI. Can you comment on that, Richard? And on any implications of this that I may not grok?

  23. 23
    Rob in CT says:

    @KG:

    Insurance coverage analysis (property casualty, not health, and in a very small subset of claims) is my job. I’ve been doing it for almost 20 years. It’s complicated stuff. Not always because Evil Insurance Company wants it so – often because of court decisions and responses thereto. Simple != clear. Mostly the opposite. Ambiguity is, quite rightly, construed in favor of the insured. So you get these long exclusions trying to be really, really clear but people’s eyes glaze over. So you get 20+ page coverage forms, plus endorsements for various issues.

    There is no solution to this that I can see, however. I look at liability policies from the 60s and they were simple in comparison. But a lot has changed since then. New issues have cropped up (CERCLA wasn’t even a gleam in anybody’s eye in 1965…), case law has been made, and so on. We can’t go back there.

  24. 24
    David M says:

    The disruptive nature of something Medicare for All or other universal single payer proposals is one reason to support smaller proposals that move things in the right direction. Gradually lowering the Medicare eligibility age, raising the Medicaid eligibility income threshold, expanding the Obamacare subsidies, etc are all things I would prefer over “look at the new shiny single payer plan that will go nowhere at best, and probably will help the GOP nominee in the general election”.

  25. 25
    Brinks Truck Driver says:

    Not sure about the exact situation of the family you’re using as an example, but could they be eligible for assistance with esi premiums in lieu of chip? (I think only a few states have this option for chip, though) http://www.dol.gov/ebsa/pdf/chipmodelnotice.pdf

  26. 26
    Nathanael says:

    Can we just expand Medicare and Medicaid more? Why the heck not?

    The important thing is to remove price-setting authority from the private insurance companies (including the non-profits) and remove it from the hospitals and medical conglomerates and pharmaceutical companies. Medicare and Medicaid charge reasonable premiums, get decent prices from the hospitals due to bargaining power, and have so many enrollees that hospitals *have* to accept them to have any business.

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