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Employment-based health insurance is problematic, Victor Fuchs says

In a recent commentary, Victor Fuchs, known as the dean of health economics, explains how health insurance linked to employment skews health care costs

A startling statistic jumps out in the latest commentary by Victor Fuchs, PhD: About 84 percent of high-income families have health insurance through their employers. For low- and middle-income families? Only 35 percent.

This means that employment-based health insurance is largely dominated by those with high incomes. And, Fuchs writes, it then makes sense that the choices made by these insurance plans lead to a health system that is more tailored to the interests of the wealthier -- creating a Whole Foods, rather than Walmart-style of health care.

"Emphasis is on specialty and subspecialty care, expensive technology, extra capacity to facilitate access... and more and better-quality amenities, including space and privacy in the hospital," Fuchs writes in the commentary, which appears in JAMA.

The dominance of employment-provided health insurance creates additional problems, writes Fuchs, who at age 95 continues to decipher the complexities of health care economics in the United States.

To illustrate, Fuchs posed a question: Who pays for health insurance provided by employers?

"Most people think the employer is paying for the insurance," Fuchs said. Employers might write the checks, but if the employer wasn't providing health insurance, employees would have received the money in wages, he explained. In addition, the contribution to employment-based insurance made by employees are tax-exempt, a tax benefit, largely realized by higher income families, that added up to $300 billion in 2018, Fuchs writes.

By obscuring who actually pays for health care, employment-based insurance skews the incentives motivating health care providers as well as those who develop new therapies or devices. Competition, rather than driving down costs, leads providers to try to outdo each other with amenities, he writes.

In addition, when combined with the mix of private and government-provided insurances, simply sorting out who pays for what hikes up administrative costs, Fuchs points out.

Fuchs said he came to his realizations about employment-based health care when pondering why efforts at health care reform have, in his view, fallen flat.

We've had nibblings [of reform] here and there and everybody gets all excited about them, but in my opinion they don't bring us close to what we need to do if we want to change health care substantially.

I decided to think about it very hard and the more I thought about it, I realized the system we have is essentially the system that high income people would want to have, and if there's going to be any true, substantial reform, we have to substitute something for employment-based insurance. 

He recognizes this highly popular feature isn't going anywhere without major political changes.

If, however, unemployment jumps, the stock market crashes, inflation spikes, a war breaks out, unrest becomes widespread or some other significant upheaval shakes the political scene, change might be possible, Fuchs said.

"If the number of unhappy people gets very large, then and only then is it possible for fundamental reform," Fuchs said. "We have to make substantial changes, but we can't make them right now."

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