Spring 1999 Policy Forum

Severing the Link Between Health Insurance and Employment:
What Happens if Employers Stop Offering Health Benefits?

EBRI-ERF Policy Forum
Wednesday, May 5, 1999
Washington, DC
Background & Agenda


    The vast majority of Americans currently obtain their health insurance coverage through an employment-based health plan. The most recent data indicate that health insurance plans provided voluntarily by private- and public-sector employers cover nearly two-thirds of the nonelderly population in the United States.

    Health insurance through the work place offers workers and their families benefits that typically are not found in the individual insurance market. For example, employers are often able to obtain relatively lower premiums than individuals because there is less adverse selection and average administrative and marketing costs are lower. In addition, employers that contract directly with health care providers are often able to obtain significant discounts in return for promises of a large volume of patients.  However, the link between health insurance and employment does not come without a cost.  For example, workers are usually required to change health plans when they change jobs, which also often forces them to change health care providers.  On the other hand, individuals who receive coverage through an employer enjoy a tax preference that those who purchase health insurance outside of the employment-based system do not receive.

    Some policymakers and interest groups would like to sever the link between health insurance and employment. This link could be severed subtly by changing the tax preference given to employment-based health benefits. It could also be severed more forcefully by creating incentives that would result in far fewer employers offering coverage or employees accepting coverage. What would happen if the link between employment and health benefits were severed?  Would fewer Americans be covered by private health insurance? Would the uninsured increase, forcing policymakers to consider the issue (and costs) of government-financed universal coverage? Would "adverse selection" transform the economics of health insurance and ultimately drive the market into a "death spiral" of ever-increasing health insurance premiums? Would health care coverage and quality improve? Would it be necessary for the government to increase regulation of the market? Would an individual mandate be necessary? How would insurers respond?

    The purpose of this policy forum is to examine the link between health insurance and employment, how various federal policies might put that link at risk, and what the implications of those policies might be for workers, employers, and the government.



  • Paul Fronstin, Employee Benefit Research Institute, Public Opinion on Employment-Based Health Insurance: Would Americans Opt Out?

I. Implications of a Changing Tax Code and a Competitive Market on Employment-Based Health Insurance and the Uninsured

    The link between employment and health benefits would be directly affected by a change in the tax preference for employment-based health benefits. This panel will examine the implications of changing the tax preference for employment-based health benefits and other policy changes in terms of who is and is not covered by health insurance in the United States.

  • Bill Custer, Georgia State University, The Tax Preference for Employment-Based Health Insurance Coverage.
  • Bradley Gray, Tulane University, and Tom Selden, Agency for Health Care Policy and Research, Adverse Selection and the Capped Premium Subsidy in the Federal Employees Health Benefits Program.
  • Ken Thorpe, Tulane University, Changing the Tax Treatment of Health Insurance: Impacts on the Insured and Uninsured.
  • Don Cox, Barents Group LLC, Individual Choice Initiatives: Analysis of a Hypothetical Model Act.


  • Jessica Banthin, Agency for Health Care Policy and Research.

II. Policymaker Views

  • Rep. Ben Cardin (D-MD).
  • Rep. John Shadegg (R-AZ).

III.  Alternatives to the Employment-Based Health System

This panel will discuss alternatives to the employment-based system for health benefits and how the alternatives would benefit the American public.

  • Nancy Dickey, American Medical Association, Rethinking Health Insurance: The AMA's Proposal for Reforming the Private Health Insurance System.
  • Stuart Butler, The Heritage Foundation, A Plan for Individual Health Insurance and View From a Think Tank.


  • Tom Rice, UCLA, A Critique of Individual Health Insurance Proposals.

IV. Insurer Responses to a Changing Market

How would insurers and health plans respond if the tax preference for employment-based health benefits were removed and individuals, instead of groups, became the primary customers for insurance products? This panel will bring together insurers and health plans to discuss their responses.

  • Mary Nell Lehnhard, Blue Cross and Blue Shield Association.
  • Carl Scott, Mutual of Omaha.
  • Dwight Bartlett, American Academy of Actuaries.

V. Employer Responses to a Changing Market

How would employers respond if the tax preference for employment-based health benefits were removed? Would they still offer benefits? On this panel, several employers will discuss their responses.

  • Ken Jacobsen, The Segal Company.
  • Victoria Caldeira, National Federation of Independent Business.
  • Ray Werntz, Jr., Consumer Health Education Council.

VI. Social Policy Implications - Summation and Discussion by Panelists

This panel will discuss the social policy and human resource implications of severing the link between health care coverage and employment.

  • Robert Helms, American Enterprise Institute.
  • Deborah Chollet, The Alpha Center.
  • Merrill Mathews, National Center for Policy Analysis.
  • Len Nichols, The Urban Institute.