One of the hot areas of intense debate surrounding all of the recent attempts at reforming the medical insurance industry has to do with how most folks get their medical insurance. While there is a significant number of the population that pays for their own medical insurance directly, the vast majority of people get their medical insurance as part of a benefits package from their employer.

Now, without getting into the politics of it all (which we try to avoid whenever possible here), it’s worth thinking about the pros and cons of employers providing medical insurance for their employees.

Here are a couple of the pros:

• Group discounts. By providing medical insurance to their employees, companies are able to get a significant discount on the premium rates for insurance. This is because the insurance provider is able to spread their risk around to a larger number of people.
• Job competition. Even in a down economy, there are some sectors that have a high demand for personnel and that have to compete for the best of the best. Offering medical insurance as a benefit lets companies compete with one another in the area of recruitment.

There are some downsides to this arrangement, as well:

• Less insurance marketplace competition. When employers offer insurance, their employees are likely to accept it largely because it’s much cheaper than buying their own. And, while some employers offer different plans to choose from, the employee isn’t choosing from the entire available market, but rather a limited number of possibilities.
• Self-employed people pay much more. Because the self-employed and small businesses don’t have the large employee base, they can’t get as good a discount on insurance. This means that employees of small businesses, as well as self-employed folks, pay significantly more than everyone else.

There are some ways around these problems. One possible solution is the idea of the health insurance exchanges, which has been used in Massachusetts and is in the new health care legislation. Another would be employers offering a cash payment for medical insurance, and then allowing employees to pick from the entire marketplace.

Regardless of what happens with reform, it’s likely that the idea of employer-provided medical insurance will go the way of the dodo in the next few decades.

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