Monday, November 18, 2019

Why Are We Really -- I Mean Really -- Stuck With Job-Tethered Benefits?

by Neil H. Buchanan

In two recent two columns -- here (regarding health insurance) and here (regarding retirement savings) -- I have provided excruciatingly specific details about the very odd process that plays out when Americans change jobs.

The overriding question that intruded into both columns, even though I was largely focused on other matters (such as the cruelty and ridiculous expense of our health care system) was: Why, in fact, do American employers routinely offer and manage any of these benefits?  Other than being familiar, what allows a system that is utterly illogical to continue to be accepted by nearly everyone as simply the way that things are done?

Last week, Professor Dorf took a useful run at this question.  Noting that employers have largely gotten out of the business of providing retirement benefits -- by shifting the risks of inadequate planning or simple bad luck onto employees, which is the point of changing from vested pensions ("defined-benefit" plans) to tax-favored retirement savings accounts ("defined-contribution" plans) -- he plausibly suggested that my more recent column pointed to what must surely be simply unintended consequences, including those that showed up in my story about the travails of Professor X, who nearly lost more than one-third of one of her largest retirement savings accounts because the account was not fully portable.

There is little more to say about the retirement savings question, mostly because there truly is no obvious advantage to anyone -- employers, employees, unions, right-wing lobbyists, Republicans, Democrats, reactionaries, or progressives -- in the weird rules that Professor X was forced to navigate.  While Professor Dorf and I are equally befuddled by that particular state of affairs (a state of affairs that I could call a "standoff," but that would imply that there is anything other than stasis involved), we both agree that there is more to say about the continued connection between employment and the provision of health insurance.

The question, again, is simple: Employers have no particular expertise or desire to provide health insurance to their employees, so why do they continue to do so without complaint to their political patrons (that is, the Republican Party)?  Here, I will summarize Professor Dorf's cynical explanation, offer what I will call a "pedestrian" explanation that is roughly as cynical as Professor Dorf's, and finally provide what I think is the most cynical (and accurate) explanation.

After all this time, and given the many headaches and expenses of creating an entire bureaucratic category -- the Human Resource Department -- that has gone from unknown to ubiquitous in only a few decades, why have businesses not rebelled?  Again, businesses also have no reason to be providing benefits like "cafeteria plans" that offer subsidized child care, much less retirement savings, but the focus here is on health care.  Long before now, we would have expected them to say to Republicans: "Hey, this is a mess that has nothing to do with us.  We don't care how you do it, but we want our part in it to end."

Professor Dorf's explanation, which I think is correct but incomplete, is that businesses are run by people, and those people skew heavily Republican -- and because they skew Republican, they understand that to fight against business-run health benefits would be a political betrayal.  In other words, it is not that Republicans are strictly doing the bidding of businesses but that businesses and Republicans are in an embrace that sees their continued shared interest in maintaining the anti-worker status quo in health care.  (I will stop repeating this aside after this, I promise, but that shared interest is anti-worker in other areas of policy as well, not just in health care.)

As Professor Dorf points out, this political symbiosis with Republicans exists both for big businesses and small.  Although he had no particular reason to mention it, I still find it interesting that the first Supreme Court case that challenged the Affordable Care Act, NFIB v. Sebelius, was a challenge to the ACA by the right-wing radical lobbying arm that purports to represent small businesses, the National Federation of Independent Business.  They are to the U.S. Chamber of Commerce what Rep. Jim Jordan is to Sen. Mitt Romney, or what Lindsey Graham and Bill Barr today are to Lindsey Graham and Bill Barr circa 2016.  That is, everyone involved is an extreme right-winger, but there are degrees of "the crazy."

All of these people, however, understand where their political loyalties lie.  In turn, they have (in Professor Dorf's brief summary of the matter) decided not to rock the boat.  But if some of them change their minds, he notes, we could see change arising from a schism among Republican stakeholders.

Again, I like that story quite a lot.  I do think that it raises further questions, however, in particular why the schisms have not already disrupted the system and resettled it on some new conventional wisdom.  Republicans, after all, long viewed themselves as the party that is tough on the Russians, but suddenly they are not in the least bit worried about a Donnie-come-lately Republican turning them into a party of Putin sycophants.  Groupthink is not necessarily static.

As I noted above, I have two different types of cynical explanations for the Republicans' continued commitment to the employer-based model.  The first explanation (the "pedestrian" version of cynicism) can be summarized in four words: Bosses like "job lock."

What does that mean?  If workers know that they cannot be certain that they will be offered health insurance when they change jobs (or, if offered, whether it will be as not-awful as their current coverage), then they will be reluctant to leave their jobs.  This gives employers leverage over employees, which allows them to hold down wages and otherwise abuse workers.

While even conservative economists would say -- a la Ronald Reagan's defensive claim during the 1981-82 recession that "workers should vote with their feet"  -- that locking workers into jobs is "inefficient," Republicans and businesses all know what bargaining power looks like.

On the comments board for Professor Dorf's column, one reader made a related point: “Benefits in general can be used as incentives. Say most workers are full time and the rest are part time. The full time employees get benefits and the part timers do not. Part timers would have the incentive to work for a promotion to full time, resulting in both more paid hours but also insurance and paid time off.”

Note that the rules that businesses are gaming there -- that is, the laws that allow employers to provide zero benefits for 39-hour-per-week workers but that require benefits to be provided to 40-hour-per-week workers -- are themselves the result of power politics.  There is nothing at all requiring us to have a system with such a cliff effect differentiating part- and full-time workers.  Because we have such a system, however, employers can create "incentives" that cause their workers to eat sh*t and thank their bosses for the privilege, in the all-too-inevitably-vain hope that the workers will be given full-time status.

I think that there is much to this explanation, just as I think that Professor Dorf hit an important nail on the head.  But I also think that there is an even more fully cynical explanation hiding in plain sight.

As I have noted in my previous columns, we should have expected a business-led shift in Republican thinking on health insurance a long time ago, because there is a way to build a new system that takes employers out of the health insurance market entirely but that Republicans would love. As I put it in the more recent of my two columns: "We could have a health care system that is just as profitable (and cruel) as the current system is without making one's employment status the determining factor in whether one has health insurance (or how good the insurance is, or how many options one has)."

Think about a world in which businesses are not expected to provide health insurance to their employees (meaning that the current tax and other incentives have thus been eliminated for employer-based coverage).  Would that world have to be based on a single-payer health insurance system?  Of course not.  Everyone could be forced to buy health insurance in the same way that they now buy automobile insurance or homeowners/renters insurance, with no intermediary between the customer and the for-profit insurance company.

Would that system have to have rules preventing insurers from discriminating against people with preexisting conditions?  Again, of course not.  Would it result in universal coverage?  Highly unlikely.  Would it result in extremes of health care inequality that mirror the growing inequalities of income and wealth that have categorized the era that Reagan kicked off?  Inevitably.

Indeed, not only would it be possible to devise a system based on individual health insurance policies that is just as profitable and cruel as the current system is, it might even be possible that such a new system would be even more profitable and more cruel.  After all, under the current system, what still counts as relatively good health care coverage is the result of large employers negotiating relatively good deals for their employees.  Even when I was at working at a private university (and thus not benefiting from the full weight of the University of Florida and the state government of the Sunshine State), I received much better coverage than I ever could have received in the individual market, because my employer included me in a large group plan.

Why, then, are businesses -- and especially the for-profit health insurance companies that directly enrich themselves under the current system -- not positively eager to dump the employer-based system?  The answer is that even these guys are change-averse in the same way that the people who are being demagogued by Joe Biden and Pete Buttigieg are change-averse.  That is, just as people are being told to fear Elizabeth Warren because she will "force" them to do something that is truly in their best interests (but that is new and therefore scary), businesses and Republicans are also scared to try something new, because it is new.

Yet this requires further explication to reveal the full cynicism behind this kind of aversion to change.  After all, whereas individuals might think, "Hey, Middle-Class Joe and Mayor Pete are right that I simply can't risk everything on the hope of a better system," CEO's of Fortune 500 companies and even the Tea Partiers who make up the NFIB's constituency are fully or at least partially able to protect themselves against the downside risks of a systemic change.

No, the fully cynical explanation is that the Republicans' constituencies all have a reason truly to fear change in the system, a fear that is not merely based on the impossibility of accurately predicting the results of large-scale change.  Instead, they have good cause to be afraid that the transition to any new system might unleash progressive political forces that could actually make the resulting system less profitable.

After all, if we open up the system to big change, people might insist through the political process that the government put some limits on what insurers can get away with when "negotiating" with individuals and families.  There might be pressure to limit drug costs, or to force insurers to provide basic packages at reasonable rates.  All of this threatens the things that Republicans hold dear.

And to be clear, many Republicans view the cruelty in the current system as a plus -- punishing poor people for being poor "takers" instead of rich "makers" -- which means that they are not merely worried about protecting profits but also about maintaining social control over disadvantaged (Democratic-voting) groups.

The very possibility that the political process might result in an opening for progressive change is thus reason enough for Republicans and their supporters to hold onto the status quo like grim death (pun intended).  Therefore, even though businesses surely hate having to be involved in providing health benefits for their employees, they might view that as a small price to pay to stop the little people from getting the idea into their heads that something better is possible -- and from opening up a political free-for-all that the Republicans might not be able to control.  Cynical enough for you?

2 comments:

Hashim said...

Aren't you overlooking a much simpler explanation? As you note, employer-sponsored insurance is often better than individual-market insuranc because of economies of scale (both in terms of negotiating leverage and the risk pool, though the latter benefit has been mitigated by the aca). So if an individual employer tried to drop insurance, its employees would demand an even greater increase in wages because otherwise they'd suffer a net reduction in take-home pay without any change in the relative supply and demand of their labor. To be sure, some employees might lack leverage to do so, but not all or even most would, especially if employers are as powerful as you think they are - they are presumably already paying their employees the absolute least they can get away with. Of course, if employers all acted in concert, that would avoid the problem, but only at the risk of violating antitrust laws. So that just leaves employers trying to exert pressure on Congress to change the laws governing the individual market to compensate for the loss of economies of scale for employees- good luck with that.

Joseph said...

Adding to Hashim's argument, I also think there is a simpler explanation based on economics. There is incentive for employers to offer health insurance in order to attract and maintain employees. As Hashim suggests, employers are hardly a single-unified force even if there are generally common goals and concerns. Attempting to eliminate employer provided insurance would be extremely unpopular among employees/voters. Yet if a bill were proposed that had a realistic chance of becoming law that would decouple benefits from employment, I could see major employers lobbying in favor of that change, albeit spinning it as a commitment to ensuring universal coverage or whatever. That kind of move would absolve them of direct responsibility while claiming it actually helps employees, especially if the bill were being pushed by a liberal administration. Corporations are trending toward aligning more with liberal causes because they see it as good for business. Sometimes interests could really align, as with the idea that benefits should be decoupled. A little ironic that the Republicans are supposed to be the devils pushing for the kind of policy you think would be better than the status quo.