A Relationship That May Have Run Its Course

The controversy over ObamaCare continues to rage.

As the White House and its supporters feverishly gear up for the October launch of state exchanges where the uninsured can purchase health coverage, the reform effort’s foes continue to push for repeal of the 2010 Affordable Care Act. Many of these critics have pounced on the recent news that the administration is delaying until 2015 the requirement that businesses with more than 50 employees provide health insurance to their workers or pay a penalty.

“The best delay for ObamaCare is a permanent one,” said House Majority Leader Eric Cantor, a Virginia Republican.

But behind this bitter political clash, some see “a hidden consensus,” at least among policy experts: Many of them want to replace the model whereby most people get their health insurance through the workplace.

“Wonks of the left and right disagree on what that replacement should look like,” Ross Douthat wrote in last weekend’s New York Times. “But they’re united in regarding employer-provided coverage as an unsustainable relic: a burden on businesses, a source of perverse incentives for the healthcare market and an obstacle to more efficient, affordable and universal coverage.”

It wasn’t always this way. Spurred originally by the exigencies of World War II and several landmark tax-law decisions, more and more businesses over the years found themselves offering medical coverage to their workers. Workers, meanwhile, were happy to lean on their employers for coverage.

Indeed, unions such as the United Auto Workers often prided themselves on extracting ever-bigger health benefits during contract negotiations. “The demand for ‘benefits,’ that is, for guarantees of security, has become as strong as, if not stronger than, the demand for higher wage rates,” Peter Drucker noted in his 1950 book The New Society.

As late as 1978, Drucker predicted that medical benefits would continue to expand, and the “vehicle for these extensions of coverage will not be law but contracts between individual employers and their employees.”

Over time, though, Drucker clearly saw the weaknesses of this arrangement, with a growing number of uninsured (thanks, in part, to less and less job security for individuals) and out-of-control healthcare costs becoming an unbearable burden for many employers.

“Let me say if we had listened to [President Dwight] Eisenhower who wanted catastrophic healthcare for everybody, we would have no healthcare problems,” Drucker asserted in a 2001 interview. “What shut him down, as you may not have heard, was the UAW. In the 1950s, the only benefit the unions could still promise was company-paid health care. Under the Eisenhower principle—where for everybody who spent more than 10% of their taxable income for health expenditures, government would pay—this would have been eliminated. So the UAW killed it with help from the American Medical Association.”

What do you think? Is employer-provided health coverage “an unsustainable relic”—and, if so, what should replace it?