The future of employment-based health insurance

A transformation of employment-connected health insurance from a defined benefit to defined contribution arrangement is projected based on new economic realities affecting the competitiveness of the business environment. This article discusses those new realities along with the future of employment-based health insurance. The business of American business is profits, but, to the detriment of that goal, for the past half century business has also been in the business of providing health insurance for workers. However, in light of previously unencountered pressures on profits, employers are realizing they cannot afford to continue the practice of paying for and overseeing the provision of healthcare benefits to employees amid increasing premiums, state and federal mandates, the overbearing cost of managing healthcare benefits, and the threat of loss of protection under ERISA. Yet, the political and social pressures on businesses to continue to provide health insurance are formidable, perhaps impregnable, barriers to complete withdrawal of what has come to be thought of as a "right" of employees. Companies are anxious to find alternatives to the status quo, but any feasible alternative must cost less, require less administrative oversight, and ensure that employees still maintain a measure of choice. Two possible solutions for American businesses are adoption of (1) a "medical savings account" system, or (2) a "voucher" system. Either system would result in lower costs and greater fiscal stability for both employers and employees. They would also remove much of the responsibility for healthcare decisions from employers and place it in the hands of the employees. But, perhaps the greatest contribution of either system would be the reduction in moral hazard and its inflationary effect on medical costs.