Individual Health Insurance: Solution for the New Economy? Part 1 of 2
Individual Health Insurance
The employer-based health insurance system was born during World War II, when the economy and the health care system were very different than they are today. That system worked well for a while, providing millions of working Americans with good health insurance and good health care.
But over the past decade, the limitations of employer-based health insurance have become increasingly apparent.
A health insurance system created at a time when workers - almost always the husband - held one full-time job, often in a factory and usually for relatively long periods of time, may be an anachronism today, when both husband and wife often work, not for one company, but several jobs, or are self-employed.
And it has no relevance to the growing population of Americans who lack health insurance and so must rely of personal resources, government programs, or the charity of others when they need medical attention.
In short, a New Economy demands a new health insurance model.
Role of the Tax Code
We have an employer-based health insurance system in the U.S. today largely because of the tax code.
During World War II, employers began to offer health insurance as a way to attract better workers. The federal government allowed employer contributions to health insurance to be excluded from employees' income and payroll taxes, thus providing a tax break for employer-provided health insurance. That tax advantage was not available to the self-employed, or to individuals who purchased health insurance on their own.
The employer-based health insurance system brings many benefits, but also a number of problems... and the problems are growing as the economy continues its gradual transformation.
With an employer-based health insurance system, workers cannot control their own fate; they may find their coverage reduced, changed, or canceled through no fault of their own.
In addition, employers are increasingly, though perhaps reluctantly, concluding that health insurance is not worth the time and money. If Congress decides to increase employers' exposure to lawsuits, they may conclude providing health insurance just isn't worth the risk.
Fortunately, employer-based or government-run health insurance are not the only options available. We already have a working model that provides quality, affordability, and choice. The challenge is to expand that model so everyone can benefit from it.
The Changing Workplace
While the employer-based health insurance system worked well in the Old Economy - that is, in an industrial economy where most people hold one job, usually some type of manufacturing position, for long periods of time - it simply does not meet the needs of an information-based New Economy, where people are increasingly becoming self-employed and/or work for several employers at one time, or in rapid succession.
A recent study by economists Robert Laubacher and Thomas Malone, both with the Sloan School of Management at the Massachusetts Institute of Technology, has outlined the changes that are reshaping the economy and the workforce. For example, according to the study:
- Today, more than 25 percent of American workers are part-time workers, independent contractors, or temps.
- When contract and on-call work is included, the share of the nation's workforce operating outside of traditional, full-time jobs grows to nearly 30 percent.
- In high-tech regions, these numbers can be significantly higher: only one-in-three employed Californians holds a permanent, full-time, day-shift job working on the site.
In explaining the trend in the workplace, the authors write:
The "traditional" U.S. employment system - in which firms hired entry-level workers, slotted them into clearly defined positions, trained then in-house, and promoted the best performers - defined most work in America from the end of World War II into the 1970s. Over the past quarter century, it began to unravel, driven by two major factors.
First, business competition became much more intense, due to globalization, deregulation, and the increasingly demanding institutional investors. Second, new information-driven ways of competing emerged - "lean" product development and manufacturing techniques, "re-engineering" of administrative work, outsourcing, and the granting of greater autonomy and authority to front-line workers. These changes altered the factors that determined success - where scale and stability had been crucial before, speed and flexibility were now favored.
"Because of these developments," the authors continue, "the old black-and-white classification, which defined the full-time 9-to-5 job as the norm and deemed everything else as 'non-standard' - is no longer an appropriate lens for viewing employment arrangements."
Not only is the workplace changing, but those who work are also in transition. For example, the number of married male workers fell from 86.1 million in 1970 to 77.6 million in 1998. By contrast, the number of married women in the workforce increased by about 50 percent, from 40.5 million in 1970 to 61.2 million in 1998.
New Insurance for a New Economy
What we need is a health insurance system that compliments a mobile workforce with a wide range of employer-employee relationships. One that may be connected with the workplace, but not necessarily dependent on it. One in which individuals, rather than employers, are in control.
The good news is we already have an effective health insurance model compatible with the changes being imposed by the gradual shift to a New Economy: the individual health insurance market.
For decades, people who did not get health insurance through their employer have turned to what is usually referred to as the individual market for health insurance - meaning it is individuals and their families, not employers, who purchase the policy.
Because consumers in this market spend their own money for health insurance, they want to make sure they get value for their dollar - a quest almost entirely absent in the employer-based health insurance model. Most want health insurance as a protection against expensive medical costs. As a result, they usually purchase high-deductible policies and pay for routine care out of pocket.
While employer-based coverage has been evolving significantly over the past 10 years, so has the individual market. Insurers have tried to develop policies that are comprehensive and competitively priced. Today, in states that have kept health insurance regulations to a minimum, individuals and families are able to purchase good policies at reasonable prices.
Who Buys Individual Health Insurance Policies?
Currently, the self-employed are the primary purchasers of individual policies. But many individuals whose employers do not provide health insurance also purchase these products.
In 1998, about 15.5 million people were covered by individually purchased policies:
- Half of those covered were workers;
- Only about 16 percent were nonworkers;
- The remaining 34 percent were dependents of those buying the policies.
The number of persons covered by individually purchased policies is admittedly small compared to the 155 million workers under age 65 and their dependents who receive health insurance through their employers. Nevertheless, that 10 percent of insured Americans are covered by individually purchased policies demonstrates there is an individual health insurance market with considerable experience meeting millions of Americans' health insurance needs.