Summary
Chairman Good, Ranking Member DeSaulnier, and Members of the subcommittee, I am Paul Fronstin, Director of Health Benefits Research at the Employee Benefit Research Institute (EBRI). I am pleased to appear before you today to testify on ERISA’s 50th Anniversary: The Value of Employer-Sponsored Health Benefits. Established in 1978, EBRI is committed exclusively to data dissemination, policy research, and education on financial security and employee benefits. Consistent with our mission, EBRI does not lobby or advocate specific policy recommendations: The mission is to provide objective and reliable research and information. All of EBRI’s research is available on the internet at www.ebri.org.
Employers’ commitment to worker health established its roots many years ago. Early examples of employment-based health programs include the mining, lumbering, and railroad industries during the late 1800s (Institute of Medicine, 1993). Employers in these industries provided company doctors funded by deductions from workers’ wages. Employers had a practical interest in providing health services to injured or ill workers, who often worked in remote geographic regions.
It was during World War II that employers began to offer more formal health coverage. Because the National War Labor Board (NWLB) froze wages, employers sought ways to get around the wage controls to attract scarce workers (Helms, 2008). In 1943, the NWLB ruled that employer contributions to insurance did not count as wages and thus did not increase taxable income, and they were not subject to the wage freeze. As a result, health insurance became an attractive means to recruit and retain workers. Employers began to offer health coverage to their workers to be competitive in the labor market, and the number of persons with employment-based health coverage started to increase. By the end of the war, health insurance coverage in the United States had tripled (Weir, Orloff, and Skopol, 1988).
It has also been suggested that the tax-preferred status of employment-based health coverage led to the rise in its prevalence and comprehensiveness (Gabel, 1999) and that the tax-exempt status of health coverage has encouraged employers to offer it and to provide more comprehensive coverage than they otherwise would have (Sheils and Haught, 2004).
Employers today offer health coverage because of their belief that offering it has a positive impact on the overall success of the business. And it can be argued that the Employee Retirement Income Security Act of 1974’s (ERISA’s) pre-emption of state law has created an environment of national uniform standards for employee benefit plans, thus giving employers the regulatory means to continue to offer health benefits as they do today.
There were questions as to whether employers had reached a tipping point with health benefits in 2007 (Fronstin, 2007). At the time, there were numerous references to the “death” of employment-based health benefits. Not long after, the Patient Protection and Affordable Care Act of 2010 (ACA) was passed, and similar debate ensued on whether employers would stop offering coverage. There were also contrary views at the time.
In this testimony, I examine trends in the availability of employment-based health coverage. I also examine employer sponsorship of coverage and employee eligibility for coverage, as well as other questions.