You deserve the same coverage, and you deserve to keep it

If you can’t get health insurance through your job, finding adequate coverage can be difficult and expensive. But why is it so much harder to get good health insurance outside your employer? And shouldn’t insurance be tied to us, not to our jobs? How can we make the system more equal for independent workers?

Why get health insurance through your job?

The employer-based health insurance was not a deliberately planned system. Facing a severe labor shortage in WWII, the government imposed wage caps on U.S. businesses. To attract workers, companies starting offering more comprehensive benefit packages. Then the government created a big tax incentive (known as the employer tax exclusion) for companies to offer health insurance to their workers. Fast forward to 2007, when the government spent $246 billion subsidizing employer-based care.

What’s good about getting insurance at work?

Employer-based health care sure has its advantages. For one, it creates ideal risk pools for health insurance. A good risk pool needs to have a lot of people, so there are enough healthy people subsidizing the sick, and those people need to come together for reasons other than health insurance so their health risks are random.

Employers get incentives to help pay for care, and they use the power of their group to negotiate better rates. Employees benefit from having the HR department vet options for them, and the system works well for everyone—everyone who works for a big employer, that is.

Trials and tribulations of the individual market

But if you don’t get health insurance through your job, it’s a whole different ballgame. Independent workers seeking health coverage on the individual market lose the benefits of grouping. While the rules governing the individual market vary by state, the problems are pretty consistent:

• Premiums on the individual market are often prohibitively expensive because you must pay for your own risk. In New York, for example, individuals pay up to four times more for their health insurance than they would through a group plan.
• In California, rates are cheaper, but insurers can deny coverage to anyone who they think might be unhealthy.
• Plans can vary widely, with gaps in coverage that can still cause high medical costs.
• And finally, unlike traditional employees, the self-employed have to pay taxes on their health costs (PDF).

This deeply flawed market is the only option available to thousands of freelancers, since most states don’t allow them to form group plans (like Freelancers Insurance Company). Even where groups are allowed, some associations have faced difficulties maintaining their offerings, pushing freelancers back into the individual market.

Will Congress level the playing field?

Congress is proposing the creation of an Exchange (PDF), where people who don’t get coverage through their job can find and purchase health insurance. In some ways, the Exchange is just another individual market. But if Congress includes new rules, we can improve both the quality and cost of coverage available to independent workers.

To create equality in the system, Congress should:

• Set a minimum benefit level for health plans offered in the Exchange.
• Reform the individual insurance market nationwide, so all plans must cover pre-existing conditions, insurers must provide coverage to anyone who applies, and premium rates cannot vary based on an individual’s health status.
• Require all individuals to buy health insurance, provided it can be made affordable (doing so will help bring costs down because it brings the healthy people into the risk pool).

Permission to come together?

Congress should also allow groups of individuals to come together to obtain group-rate health insurance, both within and outside the Exchange. The market reforms listed above may help improve conditions on the individual market, but the best way to offer equal coverage to independent workers is to allow them to form their own groups, in the same way that employers do.

Many of these groups could perform the same functions as employers. They could vet plans available on the individual market and present a select group of choices to their members, just like an HR department. They could also pool their own risk and use their bargaining power to obtain better rates for their members.

Already, many groups, including entertainment unions, professional associations, and churches, offer nationwide group-rate coverage to their members. Independent workers should be able to do the same.