Aug 20, 2021
Economist Casey Mulligan: Employer-Sponsored Insurance is the 'Vital Centerpiece of American Health Care'

If ever there was a time to demonstrate the value of the employer-sponsored health care market, it was during the coronavirus pandemic. 

Throughout the last year and a half, many companies stepped up to ensure that their workers got the care they need by extending or expanding health benefits. Some went as far as providing benefits to those who were furloughed or laid off in the early months of the pandemic. And it’s no secret that enhanced health benefits and a focus on employee well-being have become crucial to both recruitment and retention.

“As the economy and the country begin to reopen fully, employer-based health coverage is back, providing benefits to millions of American families,” writes Casey Mulligan, a professor of economics at the University of Chicago and former chief economist at the White House Council of Economic Advisors, in an op-ed in The Wall Street Journal titled, “Three Cheers for Employer Health Insurance.”

Below we dive into Mulligan’s compelling argument – backed by his research – on why employer-sponsored health insurance is vital.

Employer-Sponsored Health Plans Build a Healthier Economy

According to the Kaiser Family Foundation, nearly 160 million – or about 50% – of Americans participate in employer-sponsored health plans, far more than any other type of insurance. About half are the policy holders, while the other half are their family members. Mulligan recently published research on the value of employer-sponsored health insurance, in which he says that both workers and their employers put a premium on health care. He estimates that companies and employees value employer-sponsored insurance 75% to 84% above what they actually pay for it, representing $800 billion a year.  

Mulligan said the annual aggregate social value of the employer-sponsored market – which he defines as the positive impact created from employer-sponsored health plans, including work and business formation, as well as the cost of excluding employer health insurance premiums from taxable income – is about $1.5 trillion higher than what policy holders, their employers, and taxpayers spend for health insurance. That represents an added benefit of nearly $10,000 for every person insured.

“From providing coverage for 160 million Americans to encouraging work that drives the economy, this value more than justifies the dominant mode of health insurance in the U.S.,” Mulligan said in the op-ed. “The alternatives to employer-provided health insurance – individual plans, government plans and going uninsured – often involve more public subsidies and can’t replicate much of employer coverage’s value.”  

Effective Workplace Programs are the Right Thing to do and Good for Business

Full-time employees in the U.S. spend more than a third of their day, five days a week, at work. That makes the workplace “an important setting for health protection, health promotion and disease prevention programs,” according to the Centers for Disease Control and Prevention

It also means that effective workplace programs – such as preventive screenings, health education classes, access to local fitness facilities, and company policies that promote healthy behaviors – can help reduce health risks for workers and lead to lower costs for both workers and employers. Studies show that well-implemented workplace health programs can lead to 25% savings on absenteeism, health care costs, and workers’ compensation and disability management claims costs. 

In addition, the pandemic accelerated the widespread adoption of telehealth, which can provide further savings by reducing the cost of travel to a site of care. That alone, Mulligan said in his research, can increase the value of a patient’s insurance coverage. 

Another way employer-sponsored health plans keep costs down is by operating like buyers’ clubs. Plans can use their group purchasing power to negotiate discounts for policyholders in the same way that buyers’ clubs obtain discounts for their members. 

“Costco members may not have a particularly elastic demand for specific brands of, say, blue jeans,” Mulligan said. “Jean manufacturers might take advantage and increases prices when dealing with consumers individually. 

“Costco, however, limits the number of manufacturers that can sell to its members to the few offering good products at the lowest prices,” he said. “In effect, each manufacturer bidding to be in Costco faces a very price-elastic demand from the club because a small price increase may get its products booted from the store entirely. Similarly, employer plans take advantage of the power of the plan members to achieve cost savings, functioning as a competitive force in consolidated provider networks.” 

All of this makes the employer-sponsored market a win for workers. 

“Employer-provided insurance is the vital centerpiece of American healthcare,” Mulligan said. “It should stay that way.” 

A Healthy Workforce is an Employer Imperative

New Cigna research finds employers are the key to linking employee health and productivity, business success, and overall economic vitality.

Get the full report.