It’s time to say goodbye to employment-based health insurance

America’s employment-based health insurance system was problematic before the pandemic. Now, with millions of Americans both unemployed and uninsured, it seems absurd.

In May, the jobless rate hit nearly 15 percent and more than 36 million Americans filed for unemployment. Many of these jobs may never come back. An estimated 12.7 million Americans have lost their job-based health insurance; this number could grow to 43 million Americans. Although a recent study estimates that millions of newly unemployed Americans will be eligible for Medicaid or marketplace subsidies, at least 5.7 million will remain uninsured. 

COVID-19 re-opening and recovery plans must include a new way to ensure people that don’t tie health insurance to employment status. 

Even before the pandemic, employment-based insurance wasn’t working for many Americans. First offered as an employee incentive to offset wage freezes during World War II’s tightly constrained labor market, health insurance benefits became table stakes for attracting and retaining talent. However, as insurance expanded to cover more services and medical inflation grew, employers have shifted rising costs onto employees.  

The resulting value erosion defeats the original purpose, and worse leaves employers open to blame from employees feeling financially squeezed. Still, many assume it’s the best they can get. For many, it is.

The employment-based system traps many Americans in jobs they would otherwise leave. In our research at the Harvard Kennedy School, we saw firsthand the cost to consumers who felt stuck in their jobs due to health benefits. We heard from one woman who stayed in a job she did not love because she wanted to have a second child; she didn’t trust she’d be able to replace her “amazing health insurance.” Economists call this phenomenon “job-lock,” where stagnation and workforce immobility hamper employee engagement and block self-employment and entrepreneurship, which rise with access to health insurance outside of a job. 

Job-lock seems almost quaint now a luxury from another era. COVID-19 lays bare the problem with an insurance system that leaves people economically vulnerable when they are least able to absorb the costs and more likely to need the care. Untethered from stable employment, millions of Americans are desperate for a new way to access insurance. Many businesses have nothing to offer. 

COVID-19 reveals urgency for a new approach, yet consumers fear losing what they have. Time and again, voters have favored incrementalism, craving familiarity. But now, the pandemic has shaken the foundation to which many Americans have clung. Instead of timidly repairing that foundation when the dust settles, we should boldly sever those ties once and for all.  

We must then forge a new path that offers affordability, access, portability, and choice. Such a path runs through the health insurance marketplaces — often called exchanges — created by the ACA. Already a viable option for millions of Americans without employer-sponsored insurance, these marketplaces need not be simply health insurance of last resort. 

Rather, marketplaces present the opportunity to improve choice, optimize benefits, and create insurance portability for consumers. These platforms enable comparisons and create transparency into insurance pricing, spurring competition with the potential to drive down prices and expand the assortment. They empower consumers to select their own plan where their employer plan was chosen for them based on aggregate corporate needs.

The federal government could also offer a subsidized public option or extend current subsidies to protect lower-income consumers. A recent Gallup poll estimates that while 54 percent of Americans support a private health care system, 42 percent support a government-run system. In an open marketplace, consumers are free to choose private or public options that work with their budgets and their families’ needs.  

Employers will also benefit from an open marketplace. Absolved of the burden of choosing health insurance plans for their employees, businesses can focus on what they need to most — getting back on their feet in the wake of COVID-19. Small businesses, struggling greatly during this pandemic, could compete for talent on a more level playing field without having to fight to attract employees drawn to corporate benefits. 

Employers heavily subsidize employee health insurance costs and might welcome the chance to drop these financial obligations. These contributions are vital to financing health care. If businesses get out of the business of buying health insurance for their employees, they will have to pay a price. Taxes equivalent to employer contributions must be levied in order to offer affordable marketplace options. 

Opponents might argue that employers have negotiating power to reduce the cost of insurance; without employers in the mix, this leverage could be lost. However, medical inflation and cost-sharing trends suggest employers are not using that power to reduce health costs nor to protect employees from the increases.

2020 is the year for a health care overhaul. COVID-19 has destabilized employment-based insurance. Facing a pandemic, a recession, and an election, Americans have the opportunity to break the link entirely and empower consumers to shop on open insurance marketplaces. Now, more than ever, Americans need affordable access to health insurance and the economic security that would come with controlling their own health insurance destiny.

Deborah Gordon is a former health insurance executive and author of The Health Care Consumer’s Manifesto; follow her on Twitter @gordondeb. Akshaya Kannan, M.D., MPP, is a graduate of Emory University School of Medicine and Harvard Kennedy School. She is currently a resident physician in Obstetrics and Gynecology at the University of California, San Francisco.