The Future of Employment-Based Health Benefits: Have Employers Reached a Tipping Point?

December 2007
EBRI Issue Brief #312
Paperback, 20 pp.
PDF, 556 kb
Employee Benefit Research Institute, 2007

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Executive Summary

Death of employment-based benefits? There have been numerous references in recent reports to the death of employment-based health benefits. This Issue Brief examines the notion that employers have reached a “tipping point” where they will stop offering health benefits.

Data do not show health benefits are disappearing: Evaluation of recent data does not suggest that employment-based health benefits are vanishing. The percentage of small employers offering health benefits in 2007 was about the same as it was in 1996, though it expanded between the mid-1990s and 2000, before declining through 2005. Between 2005 and 2007, the percentage of small employers offering health benefits was stable.

Long-term access to health benefits is stable: The percentage of workers reporting that they have access to health benefits through their job is largely unchanged from the mid-1990s and down only slightly from the late 1980s. In 2005, 74 percent of workers who were not self-employed reported they were eligible for health benefits through their own job, up slightly from 73.6 percent in 1995.

Take-up rates are falling: Take-up rates for employment-based health benefits have fallen from nearly 88 percent in 1988 to 83.5 percent in 2005 among workers with benefits from their own employer, but fewer than 5 percent of workers eligible for health benefits are uninsured.

Employment-based health coverage has fallen, but not sharply: Between 1994 and 2000, the per-centage of workers with health benefits through an employer held steady at between 73 percent and 75 percent. Since 2000, the percentage of workers with health benefits has fallen to about 71 percent.

Business supports employment-based coverage, but not the status quo: The message from most associations representing employers is that the existing employment-based system must be reformed. Most individual employers, including leaders in the field, appear to share this vision. Individual employers believe that there is a business case for offering health benefits to their workers and they continue to invest in improving their health programs.

Mixed views by plan sponsors: Employers interviewed for this study had mixed opinions concerning whether the employment-based health benefits system is the most viable model for providing health insurance. Some think it is the best system available, though they also think that the current system is both “inefficient” and “not intelligent” and that “if we could start over with a clean slate, we would not have the current system.” Some think that an improved version of the current system would be the best system. Others go so far as to say that the current system is not the best system because it is inefficient and because transparencies are lacking.

Waiting to take the plunge: The employers interviewed for this study tend to agree that if one major employer were to drop health benefits, others would follow. And they tend to agree that public policy changes, such as the erosion or elimination of ERISA (federal) pre-emption of state insurance regulation, could result in the complete elimination of employer support for a voluntary employment-based health benefits system.