How Health Care Affects the Talent Economy

As the U.S. government continues to debate health care, Talent Economy looks at the role employer-sponsored coverage plays in restricting talent’s movement.
health care

Health care is a vital tenet of human life in a developed society. This is why interest has raged in recent months as the United States government aims to repeal and replace the Affordable Care Act, former President Barack Obama’s signature piece of legislation that aimed to broaden health care coverage for millions of Americans.

With a new president and Republicans in control of both chambers of Congress, both of which oppose the Democrat-enacted ACA, the government is looking to replace the law with a solution that it says will make paying for coverage more affordable for those who don’t receive coverage by their employer.

Outside of the political debate over how people not receiving health care through their employer can more easily access and afford it is another conversation on the role employer-sponsored health care plays in the talent economy. For the better part of 50 years, employers have offered to subsidize or cover entirely the cost of health care for their employees. For most people, this is the most attractive benefit an employer can offer outside of a salary.

But what role does the benefit play in the movement of talent throughout the economy? Put simply: Does employer-sponsored health care restrict the movement of people in the economy? And, if so, how would a government-provided single-payer plan solve this potential problem?

Rising Costs

In 2015, 49 percent of Americans were insured by employer-sponsored health insurance, according to the Kaiser Family Foundation. However, the amount that employers cover dropped significantly. “The share of Fortune’s best companies that still pay for 100 percent of employee’s health care has dropped to 9 percent this year from a peak of 34 percent in 2001,” the magazine wrote in its March 2016 article, “This Workplace Perk Is Slowly Going Extinct.”

This likely has to do with the increasing costs of care. The cost of health care for an American family of four on an employer-provided PPO plan tripled in the past 15 years, from $8,414 in 2001 to $25,826 in 2016, according to the 2016 Milliman Medical Index.

As health care costs climb, the idea of a single, unified provider system, such as a single-payer system where health care is entirely run by the federal government, has grown, with 58 percent of Americans supporting the idea, The Washington Post wrote citing 2016 Gallup data. To be sure, many consider employer-sponsored care to still be the gold standard in health insurance, but its power is waning.

During WWII, the U.S. federal government froze wages, so employers began to offer health insurance as a way to entice people of higher education and skill to join companies. “[Employer-sponsored care] started out as good, but then it turned into a way that was kind of a straightjacket,” said Shana Charles, faculty associate at UCLA Center for Health Policy Research and assistant professor in the Department of Health Science at California State University at Fullerton.

Before the ACA came to be in 2010, the health care landscape stifled talent to go through a job with no affordable insurance option outside of employer-sponsored, making it daunting to take the plunge on switching jobs or starting a new business. After the ACA was enacted, the rate of uninsured among the self-employed dropped and removed a major barrier to becoming a freelance worker.

The ACA allowed many people to start their own businesses, such as Perry Yeatman, founder of Your Career, Your Terms, an online resource for career-focused women based in Washington, D.C. Health insurance was a serious consideration in her decision to make a career change from corporate life to self-employment. Should the market for health insurance return to how it was pre-ACA, she would be in a situation where an emergency medical cost could bankrupt her family, she said.

This is why many Americans find comfort in the employer-sponsored system. However, some experts say such a benefit limits employees from free movement between companies. Switching insurance providers along with a job change disrupts doctor choice, Yeatman said. “For some people, it is a huge reason that they go to an employer and they stay with an employer.” With the combined employer-provided and ACA market in place now, “it’s a choice economy,” she said.

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ACA proponents seem to agree. “It is reasonable to conclude that the ACA will increase self-employment by between 15-25 percent when its effects are fully felt in the next few years,” said Dean Baker, co-director for the Center for Economic and Policy Research, as quoted on obamacare.net.

What’s the Solution?

To go a step further, a single-payer system could lower costs for businesses. In the Health Law & Policy Brief article, “A Business Case for Universal Healthcare,” authors from American University Washington College of Law say that in 2002, three major car companies signed a letter to the Canadian government to retain the Canadian National Health System. The group cited that “labor costs in Canada are lower than in the United States in part because businesses do not have to pay for their employees’ health insurance.” The health care burden on employers costs them multiple dollars per hour that an employee works, the paper said.

While studies looking into the direct link between a single-payer system and new business creation appear scant, one expert thinks a government-controlled system could encourage greater talent churn in the labor market among some segments. Todd Praisner, CEO of Tango Health, a software company focused on employer-sponsored health care based in Austin, Texas, said older talent, for instance, often stays in their jobs longer to ensure post-retirement health coverage. With a single-payer system, they could more quickly exit the workforce with health benefits, making way for those entering the talent pool, Praisner said.

However, employer-sponsored health care is likely to remain, even if the U.S. adopts a single-payer system. Praisner said it would be a way for employers to show employees that leadership cares about top talent as more than just labor. “[Employers] sense that employee satisfaction is tied directly to how much they think the employer is looking out for the employee,” Praisner said.

Lauren Dixon is an associate editor at Talent Economy. To comment, email editor@talenteconomy.io.