Arnold Kling  

Health Care Disintermediation

Health Care and Moral Values... Remembering a Teacher...

The Bureau of Labor Statistics' William J. Wiatrowski reports on a decline in workers receiving employer-provided medical benefits over the past decade. Some of this reflects employee choice.

In 1992-93, roughly 3 out of 4 private industry workers were offered medical care and 63 percent participated; in 2003, 60 percent were offered a plan and 45 percent participated. This amounts to a decline in the takeup rate from about 85 percent to 75 percent.

I refer to this phenomenon as Disintermediation.

Thanks to Steve Verdon for the pointer.

For Discussion. What are the factors that might explain the trend toward fewer workers opting into corporate health plans?

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COMMENTS (10 to date)
Bernard Yomtov writes:

My simple guess as to the reason for the decline:

The plans got more expensive, both in total and from the point of view of the employee. That is, not only did premiums increase, the share paid by employees rose as well.

Arnie Kriegbaum writes:

My particular compensation package has not changed since 2002, so my insurance coverage is much lower (though still very good) than it used to be. I would love to remove the employer from the insurance equation, and the employer (mine anyway) doesn't want the costs incidental to maintaining the health plan.

Attitudes about who is best at selecting coverage need to change from the "benevolent" employer to the individual. Most of my collegues think that all our raise should always go to the tax-advantaged health plans. This tells me that the taxman is too involved in health plans.

By the way, I wonder why private insurance is burdened with the catastrophic stuff that would otherwise have been covered by the government anyway? For example, a prematurely born baby is a massive drain on group policies and if the mother were not covered at all, the baby would still receive mandated services.

I am only interested in easy answers to this one. :-)

Jim Erlandson writes:
What are the factors that might explain the trend toward fewer workers opting into corporate health plans?

More two-income households and more coverage of non-spousal partners would help explain the trend. When "employer-provided medical benefits" are offered to both members of a two-income household, they will opt-in to the better plan and opt-out of the other.

Bob Dobalina writes:

My insurance (major medical) is independent of my employer, and costs $70/month.

My employer offers only bells-and-whistles coverage at $125/month.

I save $660 per year if I don't visit the doctor. If I do go, I spend $80-$200, leaving me with an extra $400/year. Meanwhile, if I break a leg or catch meningitis, I'm not going to die or go bankrupt.

It would be nice if my employer would subsidize my health care plan, or give me a rebate, but I can't have everything, I suppose.

Dave Schuler writes:

Is it disintermediation if a worker goes from an employer-contributed plan to no plan or a spouse's employer-contributed plan? Or should that term be reserved for when an employee leaves an employer-contributed plan and enters plan with no employer contribution?

If so, the quoted statistics do not demonstrate disintermediation.

William Woodruff writes:

More employees (myself included) are simply opting out of Employer health care. By not participating I save $ 320 on a monthly basis. Do the math, I have been with my current employer since August 1996. By not paying $ 320 a month for my "Employer Provided' health care, I have an additional $30,7 K in my savings account. At 35 years of age, the $ 30,7 K I would have spent would have merely subsidized a not-so-healthy participant in the program.

Lawrance George Lux writes:

Two main reasons, often in conjunction: High Cost plus Spousal access to a better, more comphrensive medical plan. lgl

Adam O'Neill writes:

David Cutler wrote this paper a couple years ago.

"This paper examines why health insurance coverage fell despite the lengthy economic boom of the 1990s. I show that insurance coverage declined primarily because fewer workers took up coverage when offered it, not because fewer workers were offered insurance or were eligible for it. The reduction in take-up is associated with the increase in employee costs for health insurance. Estimates suggest that increased costs to employees can explain the entire decline in take-up rates in the 1990s."

NBER WP 9036

Deb Frisch writes:

In the United States, the ease of purchasing wheaties, massages, motor vehicles and plumbing services does not vary as a function of whether one is employed by a traditional institution (university, corporation, Uncle Sam, state government, etc.) or not. The ease of purchasing health care does.

It is a trivial matter, requiring 0% of one's attentional resources to secure health insurance if you work for the FDA or the U of X or IBM. It is a very non-trivial matter otherwise.

The cost of health care varies enormously as a function of whether one is in one of Sam's clubs (government, education, corporation) or not. The November 24 Wall Street Journal has a front page story about Curtis Selby, a member of the "Old Brethren Church" who opted out of health insurance for religious reasons. He developed a variety of serious ailments and had to negotiate rates for different services at various hospitals. The article provides several examples of how the cost of treatment X varies enormously as a function of whether an HMO, Medicare, Medicaid or Joe Uninsured is footing the bill.

The current system makes a mockery of free market economic theory - the price of a colonoscopy should not vary as a function of the source of the payment.

The current system is a joke. Get it?

Kari writes:


the price of a colonoscopy should not vary as a function of the source of the payment.

Why not? Health plans can negotiate price with providers because they deliver volume. Same with the government. Triple-A members can get better room rates at hotels, and that does not make a mockery of free market economics.

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