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All Healthcare Is Local: Why Employers Self-Insure

“I’m from Massachusetts,” I told the audience.  “So depending on how you feel about reform, I will say either ’sorry,’ or ‘you’re welcome.”

The audience, made up of large employers and benefits professionals seemed to like this.  But it was clear that they were pleased that the health care reform legislation is Congress is pretty well dead now.

Now, if it’s true that health care costs are rising (they are) and this heavily impacts employers (it does) why would the death of a bill meant to address this problem make those people happy?

I’ve written before that part of the problem with the reform bills in Congress is the huge divide between what benefits professionals know about the real world of health care and the things that get “policy wonks” excited.   And so a big reason why these bills never really had widespread support among professional benefits people was because they never made a whole lot of sense to them.

Still, one might ask, why would employers even want to have to deal with health care costs?  Wouldn’t they prefer that someone take this whole problem away from them?  Of course everyone would love if someone could wave a wand and make their problems disappear.  But let’s look at the real choices employers face:

(a) pay for their employees’ health care expenses directly

(b) buy insurance to cover their employees health care expenses

(c) pay the government a tax to cover employee health care expenses

When you see it this way, you can begin to appreciate why, given the alternatives, the best case scenario for an employer is to pay for the health care costs directly.  It’s why the bigger an employer gets, the more it tries to get away from buying insurance.  Indeed, by the time an employer gets to about 10,000 employees or so it just doesn’t buy any insurance at all – it pays for the cost of health care pretty much like any of its other costs.

Employers aren’t irrational to do this.

Big insurance companies aren’t popular with employers.  They know if they buy insurance from them they don’t get a good deal because the market is deeply uncompetitive.  By self-insuring, employers get out of that trap.  They can design plans that match their needs to attract and retain talent, and, increasingly, the health profile of their employees.

What about just leaving it to the government?  Wouldn’t that remove an otherwise crushing cost from employers’ bottom lines?

I don’t know, maybe.  But if you asked a room full of employers if they thought that the government could do anything better and cheaper than they do, well, they would probably laugh at the question.  Even if you took the direct cost of health care away from employers, they are smart enough to know that there isn’t any free lunch.  Inevitably there would be taxes to pay for health care that would have to be something like what they pay now for health care.  And unlike today, when employers can try to do things to control the kinds of expenses they face, the government doesn’t exactly offer those kinds of services.

So where does this leave us?  Health care is still a problem.  And for as many employers as we have in the United States, there are probably just as many different kinds of approaches to the problem.  On the one hand you could say, what a mess.  But I see it differently.  Somehow in this strange confusing mixed up system, the fact that there are so many people trying so many different solutions means we actually have a chance of discovering solutions that really work, without placing too many of our bets on one approach or another.

I very much doubt when Senator Baucus said, early last year, that we need a “uniquely American” approach to health care that he had this in mind.  But I think this is what “uniquely American” really means.  This is the way we solve problems, and it’s going to be as true in health care as it is with most anything else.

*This blog post was originally published at See First Blog*

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