Fixing Private Health Insurance

Chris Pope

Summer 2020

The novel coronavirus has placed an enormous strain on America's health-care system, further exposing problems of cost and insecurity that have become increasingly apparent in recent years. As millions of Americans suddenly lose their jobs in the midst of a pandemic, they may find themselves without health-care coverage precisely when they need it most, and unable to purchase affordable alternatives from the individual market.

The pandemic has struck at a time when neither political party seems satisfied with the structure of American health care. While Republicans have failed to repeal and replace the Patient Protection and Affordable Care Act (ACA), many Democrats appear more eager to sweep away private insurance entirely than to build on the legislation. The notion of single-payer health care, which would have seemed outlandish a few years ago, is now taken more seriously because rising costs have made the flaws in the structure of private health insurance harder to ignore. According to a survey of employer-sponsored plans by the Kaiser Family Foundation, between 1999 and 2019, average annual premiums for family coverage jumped from $5,791 to $20,576. Rising costs have caused plans to hike their deductibles, which more than doubled between 2008 and 2018. Many businesses have stopped offering coverage altogether.

Employers, rather than individuals, purchase health insurance for 89% of privately insured Americans, as they can do so on a pre-tax basis. But because employees living in different neighborhoods each insist that insurance cover treatment at their local hospitals, group insurance plans have little ability to negotiate good rates by threatening to leave facilities out of their networks. This dynamic has led to rapid increases in health-care spending as hospitals compete for well-insured patients by constantly upgrading their facilities with few cost constraints.

A recent regulatory change allows employers to give workers pre-tax funds to purchase their own health-insurance plans, which covers only the services they need and value, thus enabling them to secure a better deal. But the benefit of such a reform is undermined by individual-market rules, which require plans to be sold on the same terms to people who sign up after they get sick as to those who sign up before falling ill. This arrangement, introduced by the ACA, has caused healthy people to drop coverage, contributed to soaring premiums, and made plans on the individual market of minimal value to most of the population.

To fix this problem, Congress should emulate an approach that Australia and Germany have successfully employed: allowing insurers to offer lower premiums to enrollees who sign up before they become ill and subsequently maintain continuous coverage. This would permit most Americans to access insurance that offers them good value and reward them for staying enrolled in quality plans. Furthermore, by reducing the number of people who develop disqualifying pre-existing conditions during gaps in coverage, it would allow federal subsidies to be better focused on assisting the few who remain unavoidably uninsurable.


Employers have been the dominant purchasers of health insurance in America since the industry was established in the 1930s. In those early days, insurers sought to avoid the risk that plans would attract only less-healthy enrollees by selling coverage primarily to employers, who brought with them a workforce with a balanced pool of medical risks. Employers' bulk purchases of insurance for their staffs also helped reduce administrative costs associated with selling plans — such as marketing and collecting premiums — and enabled employees to benefit from assistance in purchasing a complex insurance product, which in turn helped them obtain good-value coverage and avoid scams.

Yet the growth of employer-sponsored health insurance is also largely the product of public-policy decisions. When the wartime Stabilization Act of 1942 established regulations to control prices and wages, a subsequent National Labor Relations Board ruling clarified that the act did not restrict the provision of fringe benefits such as health insurance. The Internal Revenue Service soon followed suit by determining that health-insurance benefits were exempt from federal income taxation.

Both rules encouraged employers to use health-care benefits to attract and retain staff — a dynamic that continued even after the price and wage controls were repealed. Then in 1954, Congress formalized the exemption of employer-sponsored health-insurance benefits from income taxation. As a result, the share of the American population with some form of private health insurance soared from 9% in 1940 to 51% in 1950; it peaked at 83% in 1975.

For decades, the rapid expansion of employer-sponsored insurance proved appealing to policymakers of both parties. It protected millions of Americans from the risks of financial disaster associated with illness and provided revenues to finance the expansion and development of medical facilities, all without increasing the size of the federal government or creating disincentives to work.

In recent years, however, employer-sponsored insurance has proven to be less of an unalloyed blessing. As health-care costs have soared, health insurance has become less of a "fringe" benefit; today, it represents an increasingly large share of employee compensation. This has resulted in fewer employers providing health-insurance benefits to staff. The share of non-elderly Americans covered by employer-sponsored insurance, which had barely changed from 68.6% in 1970 to 68.3% in 1999, fell to 58.1% in 2018. At the same time, coverage is becoming less generous. The share of employees enrolled in plans with an annual deductible increased from 55% in 2006 to 82% in 2019. Average deductibles for single-person coverage have themselves increased from $584 to $1,655 during that same period.

In the tight labor market that existed before the Covid-19 pandemic, it was still the norm for employers to provide health-insurance benefits. But 78 million Americans live in families in which someone lost a job during March and April 2020, and health-care benefits may not be part of their compensation packages when they return.

Even before the novel coronavirus, small firms were increasingly unlikely to offer insurance. While 99% of large firms (those with more than 200 workers) offered health insurance to staff in 2019, only 47% of the smallest firms (those with three to nine employees) did so. This disparity preceded the ACA's weakly enforced mandate that firms with more than 50 workers provide health insurance to employees. It reflects lower overall compensation among smaller businesses, their lack of economies of scale as purchasers of health insurance, and the weaker ability of small risk pools to absorb large medical claims.

The nature of employer-based health-insurance coverage has long posed problems for those in unstable employment situations, such as independent contractors and those working multiple jobs. Senator Bernie Sanders recently noted this problem when he wryly suggested that, unlike his Medicare for All proposal, employer-sponsored insurance puts individuals at risk of losing coverage and access to their doctors if they change jobs, turn 26, move to another state, start a business, are laid off, get divorced, or retire early. Indeed, between 2010 and 2013, 40% of those covered by employer-sponsored insurance experienced a change of plans.

Although employer-sponsored insurance is associated with the private sector, it does not empower individual consumers the way capitalism usually does. The benefit packages, provider networks, and out-of-pocket costs associated with employer-sponsored coverage are generally imposed on staff rather than chosen by them, as 75% of firms offer only a single insurance plan and only 4% offer more than two plans for workers to choose from. And these arrangements are overwhelmingly unpopular: A recent Emerson poll found that 70% of respondents opposed employers being allowed to change or eliminate employees' health-insurance plans against the latter's wishes.

To qualify for the federal tax exemption, employers must ensure that their plans make available the same benefit package to all staff. Similar to a requirement that all employees — from the CEO to the janitor — receive the same model of company car, this leads to inflated spending on plan features that many enrollees do not value. To quantify the cost of this arrangement, a recent study by Leemore Dafny, Katherine Ho, and Mauricio Varela estimated that workers would be willing to give up 10% to 40% of the subsidies they receive from employers in order to choose a plan that better suits their needs and preferences.


The central purpose of health insurance is to finance access to medical care. But the one-size-fits-all nature of employer-sponsored insurance greatly hinders the ability of plans to purchase care in a cost-effective way.

When individuals purchase their own insurance, they might make sure to select a plan that has their own doctor, their local hospital, and maybe a few other select providers, but the breadth of provider networks matters little. This dynamic is quite different for employers, who may have staff living in a variety of neighborhoods around a metro area, with local hospitals belonging to many different medical systems; they must therefore include almost all providers in their networks. Among unionized firms, the requirement for broad provider networks is often formalized and entrenched in collective-bargaining agreements.

This arrangement gives hospitals and physician groups a great deal of leverage to insist on generous reimbursement schemes, allowing them to drive up prices and veto contract provisions that might otherwise be used to control costs or steer patients toward more cost-effective providers. If some employees live in a local area where only one hospital is available, for example, that hospital may insist, as a condition of serving those employees, that generous reimbursement be provided for all staff to receive care at all facilities in the associated hospital system.

Under such arrangements, in which insurers cover the bulk of treatment costs, patients will often choose to receive care from the facilities with the most prestigious reputations and the most expensive amenities without concern for the price. That encourages hospitals to compete for patients by spending millions of dollars to constantly upgrade their equipment and the buildings needed to house it. Top physicians, who prefer to practice at facilities equipped with cutting-edge technology, further spur this dynamic — and they often refer patients to colleagues practicing at the most prestigious hospitals without paying much attention to cost. As a result, from 2011 to 2017, increased spending on hospital and physician services accounted for 94% of the $285 billion growth in private health-insurance costs.

Much has been written about how the consolidation of hospitals into larger systems has frustrated price competition. Yet consolidation is less a cause than a consequence of the insensitivity of employer-sponsored insurance to inflated hospital prices. While the consumer price index for hospital and related services increased from 308 to 878 from January 2000 to January 2019, prices at monopoly hospitals are only 12% higher than they are at hospitals with four or more local rivals. Indeed, hospital prices vary more within local market areas than between them — prices are highest at academic medical centers, which usually have many other hospitals nearby, and lowest at rural hospitals, which often lack local competitors altogether.

In the 1990s, health-maintenance organizations (HMOs) achieved a historically unique slowdown in the growth of health-care costs by steering patients toward cost-effective providers. But Americans widely resented this shift because the savings went to employers, whereas the associated inconvenience was borne by patients. Few perceived that slowing the growth of health-insurance costs led to increased wages — or were willing to credit HMOs for the phenomenon.

Putting individuals in control of choosing insurance could change this dynamic. A 2014 study by Jonathan Gruber and Robin McKnight found that when the state of Massachusetts offered lower premiums to a subset of employees for moving to limited-network plans, health-care spending fell by nearly 40% among those induced to switch relative to a control group. This was partly due to lower prices and reduced utilization, but it was also the result of patients using more primary-care physicians instead of costly specialists and hospital services.

Where individuals control the purchase of health-insurance plans, they have eagerly embraced lower-priced, narrow-network options. A 2017 study by researchers at the University of Minnesota and Indiana University found that while a 1% increase in premiums for employer-sponsored plans is associated with declines of enrollment from 0.2% to 0.8%, a similar increase in premiums on the individual market caused 1.7% of enrollees to leave plans. Although only 19% of workers with employer-sponsored coverage are in HMO plans, 72% of enrollees on the individual market are enrolled in HMOs or plans with even narrower networks.

Putting individuals in charge of purchasing plans appears to drive down costs while improving quality. A recent study by RTI International for the Centers for Medicare and Medicaid Services found that, after adjusting for differences in the medical needs of enrollees, health-care costs were 35% lower for people enrolled in the individual market than for those covered by employer-sponsored insurance. And a 2015 study of plans in California by Simon Haeder, David Weimer, and Dana Mukamel found that while networks on the individual market are narrower than those for employer-sponsored plans, the quality of providers covered tends to be the same or higher.

Moreover, because a high proportion of health-care costs are overhead costs, as long as price-insensitive employer-sponsored plans account for more than 90% of privately insured revenues, the medical-delivery system will be oriented toward catering to them. Cheaper independent providers will thus find it difficult to boost their total revenues by undercutting expensive hospitals on price.

Yet several studies of Medicare Advantage (privately managed health plans selected by Medicare enrollees) in recent years have found that individuals choosing more cost-conscious insurance plans may have spillover effects that reduce health-care costs for non-enrollees; this occurs as the growth of hospital costs is constrained by the greater propensity of plans to steer enrollees toward cheaper outpatient facilities. There also appears to be a positive feedback effect from the growth of cost-conscious insurance plans within Medicare: The more a local delivery system becomes oriented toward managed care, the easier it becomes for new such plans to enter and grow.


Although when compared to employer-sponsored insurance, individually purchased insurance is more cost-effective, more responsive to personal preferences, and more secure in terms of providing coverage across changes in employment, it remains a "residual market" largely limited to those who lack access to employer-sponsored coverage. Employer-sponsored insurance may have lower administrative costs than insurance purchased by individuals, but this does not explain why people put up with the extra inconvenience and overall expense of group coverage. As improvements in underwriting and the internet have greatly reduced the administrative costs of selling insurance to individuals, the relative efficiency advantage of group coverage has greatly diminished. Indeed, most other types of insurance are usually purchased by individuals rather than groups.

The continued dominance of employer-sponsored coverage in health care is primarily due to its exemption from federal income and payroll taxes (now worth up to 43% of income) and state income taxes (worth up to an additional 16% of income). Economists have lamented the distortionary effect of the tax exemption for employer-sponsored health insurance for decades. A 1977 study by Martin Feldstein and Bernard Friedman was particularly influential, blaming the exemption for "the purchase of excessive health insurance" and "much of the rise in health care costs."

The ACA attempted to reduce this distortion and slow the rise of costs by incorporating a 40% excise tax on the value of health insurance above $11,200 for individuals and $30,150 for families. In addition to offsetting the initial budgetary score of the ACA, this "Cadillac tax," as it came to be known, was intended to roughly cap the tax exemption for employer-sponsored insurance with the hope that inflation would gradually tighten the cap in real terms over time.

Yet Congress was right to repeal the Cadillac tax at the end of 2019. While employers would surely love to pay less for health care if they could, the weak negotiating power that group plans have with providers means that high prices are intrinsic to employer-sponsored insurance. If the Cadillac tax were still in place, plans would have become subject to it not by covering medically unnecessary services such as cosmetic surgery (for which no tax exemption ever existed), but by simply operating in expensive parts of the country or covering a pool of relatively older and less-healthy employees. Thus, the tax would have served only to prod employers to reduce the share of medical costs that their plans covered or eliminate health-care benefits altogether.

Indeed, employers are very sensitive to taxes in the decision to offer health-insurance benefits. Jonathan Gruber of the Massachusetts Institute of Technology, who advised the Obama administration on the ACA's impact, estimated that "each percentage point rise in the tax price leads to a fall of −0.69 in the percent of workers covered by employer-provided insurance." From this finding, one could expect the elimination of the tax exclusion to reduce the number of Americans with employer-sponsored health insurance by 18 million. Although the Cadillac tax would not have had so radical an effect, its impact would have increased over time because the level at which it would have phased in was indexed below the rate of growth of medical costs — leading the Congressional Budget Office to estimate it would hit 25% of employees by 2028.

So while it is certainly a problem that the tax code favors employer-purchased insurance over individually purchased insurance, the Cadillac tax did essentially nothing to remedy this situation, since nearly all insurance plans cost less than the level at which the tax would have kicked in. Rather than making the individual market for health insurance function better, the Cadillac tax would have served only to make employer-sponsored health benefits worse.

Despite the drawbacks of employer-purchased insurance, there is much to be said for expanding health-insurance coverage by encouraging employers to dedicate a portion of workers' incomes to health-care benefits — which is why the tax exemption has survived for so long. It increases incentives for economic output, assists workers with relatively large numbers of dependents, does not extend beyond allowing people to keep the money they have earned, is limited to spending on medically necessary services, and is constrained by the requirement that employers make the same benefit terms equally available to all staff. And, as a policy intervention to advance those objectives, a tax incentive neither institutes political micromanagement of the health-care system nor establishes an open-ended subsidy.

A better approach, then, is not to erode the tax exemption of employer-sponsored insurance, but to extend it to insurance that employees purchase for themselves. The Trump administration recently moved in this direction by allowing firms to deposit pre-tax dollars into a health reimbursement account (HRA) to compensate workers for purchasing their own coverage through the individual market. This will immediately help many people — especially part-time employees, those working multiple jobs, and employees of small businesses that have struggled to purchase group plans.

Unfortunately, while the administration estimated that 11 million would receive coverage through HRAs, their appeal is likely to be limited by the current lamentable state of the individual market.


Prior to the ACA, 49 million Americans lacked health-insurance coverage, while an estimated 18% of applications for insurance were denied due to pre-existing conditions. To remedy this problem, the ACA expanded Medicaid and authorized federal subsidies that automatically expand to guarantee health-insurance coverage to low-income individuals and those with pre-existing conditions.

But with no votes to spare in the Senate when the ACA was enacted in 2010, its architects were keen to obscure the fiscal cost of the legislation and to avoid the appearance of simply creating a new entitlement. Gruber notoriously acknowledged this political concern when he stated, "If you had a law that made it explicit that healthy people pay in and sick people get money, it would not have passed....Lack of transparency is a huge political it the stupidity of the American voter."

The ACA's drafters, therefore, sought to offset the cost of direct subsidies by requiring insurers to price coverage without regard to individuals' expected medical costs — an arrangement known as "community rating." The theory was that this requirement would force insurers to use inflated profits from overpricing insurance for healthy enrollees to cross-subsidize coverage of those with pre-existing conditions. Mark Pauly of the University of Pennsylvania presciently warned that this approach was "the worst possible way to do a good thing."

The upshot has been to make the purchase of health-insurance coverage from the individual market an extremely poor deal for all but the least-healthy potential enrollees, which encourages people to wait until they develop major medical risks to purchase plans at all. This, in turn, has further increased the average costs per enrollee, forcing insurers to drive premiums even higher, hike deductibles, and cut access to providers who are most appealing to the seriously ill, just to stay in business.

So, although the ACA redistributes revenues from plans that attract relatively low-risk enrollees to those that attract relatively high-risk enrollees, this does not remedy a situation in which all plans appeal disproportionately to less-healthy individuals. The more redistribution that is done from plans that are attractive to healthy enrollees to those that attract the sick, the more healthier enrollees are pushed to switch to skimpier plans or to stop purchasing insurance altogether. As the capacity for precise redistribution between enrollees according to risk is extremely limited, the ACA seeks to micromanage the structure of benefit designs, prohibiting any differences between plans that may appeal disproportionately to enrollees of one risk profile or another. This inevitably limits the scope for innovation, choice, and competition.

The exchanges established by the ACA have thus tended to become either monopolies or oligopolies with premiums managed by sympathetic state insurance regulators. By 2017, many insurers had dropped out of the marketplace altogether: Of the 3,143 counties (and their equivalents) in the United States, 1,036 had only a single insurer willing to offer coverage on the individual market. Whereas the median county had seven competing insurers offering Medicare Advantage plans in 2019, it had only two competing insurers on the ACA's individual market.

As a result, while premiums for employer-sponsored coverage increased by 14% from 2013 to 2017, premiums on the individual market soared by an average of 105%. By 2018, individually purchased plans to cover a family had premiums averaging $14,016 and deductibles of $8,803 — meaning enrollees were required to pay $22,819 before insurance coverage kicked in.

The ACA initially sought to penalize those who lacked health insurance in order to prop up individual-market plans. But given that most middle- and upper-income Americans have employer-sponsored plans, this penalty largely hit those of modest means who did not have the ability to pay astronomic sums for threadbare coverage. As a result, in 2016 the Obama administration exempted 23 million of the 30 million uninsured from the individual mandate, while only 1.2 million earning above the subsidy cut-off were subject to a penalty exceeding $1,000. With few low-risk people willing to overpay thousands of dollars, year after year, for plans that offered merely catastrophic coverage, individual-market enrollment among those ineligible for subsidies collapsed from 9.4 million in 2014 to 5.2 million in 2018 — even before the mandate was eliminated entirely.


Rather than imposing stiffer penalties in an attempt to force the uninsured into exorbitantly priced plans that are not of much use to them, policymakers should instead seek to drive down the cost of insurance by making it worthwhile for people to sign up and maintain coverage before they become ill. There is much to learn from the recent experiences of Australia and Germany in doing so.

In 2000, Australia established a private health-insurance option known as Lifetime Health Cover, whereby individuals who maintain continuous coverage are entitled to a substantial discount for the rest of their lives according to the age at which they first purchased insurance. This step away from community rating encourages enrollees to purchase insurance coverage before they fall ill so they can obtain discounts in future years. The longer individuals maintain continuous coverage, the more valuable this implicit discount becomes, which further discourages lapses in coverage.

The results have been impressive: While introducing subsidies worth 30% of insurance premiums and a mandate penalty of up to 1.5% of personal income barely affected enrollment, establishing Lifetime Health Cover caused the share of the population with private health-insurance coverage to leap from 30% to 45%. Though there was less of an increase in coverage for individuals in their 20s (since no additional discount was available for signing up and maintaining continuous coverage prior to age 30), the increase in enrollment was particularly high for adults aged 30 to 65 and for children. A 2008 analysis by Thomas Buchmueller of the University of Michigan concluded that Australia's introduction of Lifetime Health Cover had served to "eliminate or nearly eliminate" the increase of premiums engendered by the relative absence of healthy enrollees.

A similar arrangement has long proven successful in Germany. There, private insurance plans can offer discounted coverage to individuals who sign up despite lower risks, but they are required to renew coverage without raising rates if those enrollees then develop major medical conditions. Individuals are therefore willing to overpay relative to their medical risks in the first years of enrollment in order to secure protection against the risks of coverage denials and increased rates that may result from developing serious medical conditions in subsequent years. By pooling medical risks over time rather than across individuals within a single year, this approach — known as "guaranteed renewability" — does a better job of bringing a diverse mix of sick and healthy enrollees into plans than does the ACA's system of community rating.

Plans structured to work on such a voluntary basis must be priced to offer value to all individuals at the time of initial enrollment so that they don't drive healthier individuals to abandon coverage altogether. By making it worthwhile for individuals to sign up for insurance before they fall ill and to subsequently maintain continuous coverage, such an arrangement helps reduce the number of people who develop uninsurable pre-existing conditions while uninsured. That, in turn, enables policymakers to concentrate scarce public funds on those who are unavoidably uninsurable.


Although the ACA's community-rating regulations engendered needless dysfunction in insurance markets, the legislation's direct subsidies have improved access to medical care for low-income individuals and those with major chronic conditions. It therefore makes sense to retain the elements of the law that have helped to extend coverage while eliminating the perverse incentives and impediments to competition that have caused insurance premiums to soar.

As 8.6 million of 12.5 million Americans enrolled in the individual market receive subsidies that automatically expand to guarantee a defined medical benefit at premiums limited as a share of income, ACA coverage ought to be understood not as an insurance market, but more as an entitlement in disguise. Contrary to Jonathan Gruber's political intuition, however, the 2018 midterms suggest that directly subsidizing coverage for individuals with pre-existing conditions is actually quite popular. By contrast, the web of mandates, penalties, insurer cross-subsidies, and astronomic premiums associated with community rating served to fuel the fierce decade-long political opposition to the law. Voters clearly want a safety net, but they want one in which costs are spread broadly over all taxpayers rather than concentrated as a regulatory tax on the purchase of insurance.

In their attempts to repeal and replace the ACA, congressional Republicans fell well short of the votes needed to trim its subsidies. However, they easily managed to eliminate the individual mandate, setting its penalty to zero. Pundits and politicians who still thought of ACA plans as insurance, rather than an entitlement, argued that doing so would cause the remaining healthy enrollees to abandon coverage and premiums to soar further. Yet since most of the healthy people enrolled in the exchange did so to obtain federal subsidies, repeal of the mandate did not make much difference. In fact, for the two plan years following the repeal of the individual mandate, ACA premiums declined slightly after five successive years of rapid increases.

This conflation of two different and distinct functions (that of insuring against the costs associated with risk of illness versus that of providing an entitlement for people who are already ill) hasn't just created a dysfunctional insurance market; it has placed the entitlement on shaky foundations. This is because ACA subsidy levels adjust in proportion to the premiums charged to unsubsidized enrollees, which community rating makes dependent on the proportion of low-risk individuals who sign up. As a result, the more that insurance-market competition or state policy interventions succeed in reducing average costs for unsubsidized enrollees, the less federal assistance is provided for those with subsidized coverage. This makes it hard for states to do the right thing.

Decoupled from the vagaries of insurance demand, the exchange could function more simply and stably if it were straightforwardly structured as a safety-net entitlement. For this reason, instead of imposing a Rube Goldberg arrangement of regulatory cross-subsidies on insurers, Germany simply established a subsidized coverage arrangement known as the Basistarif, which is dedicated to individuals with pre-existing conditions and separate from its underwritten private insurance market. Needless to say, Germany has experienced fewer difficulties since adopting the Basistarif in 2009 than the United States has using the ACA's approach. American policymakers would do well to follow suit.


The arguments for Medicare for All are starting to resonate with many Americans because employer-sponsored health insurance is not responsive to individuals' needs and concerns. Employers themselves are also dissatisfied with this arrangement — they want to focus on their companies' core businesses, not on administering health-care benefits that are increasingly costly and difficult to manage. As a case in point, Starbucks now spends more every year on health-care benefits for its staff than it does on procuring coffee. Clearly, something is amiss.

Employer-sponsored insurance is flawed because it must satisfy the broad variety of preferences of a group rather than being efficiently tailored to the priorities of enrollees and their families. Yet a universal public program would be even less responsive to the great diversity in Americans' needs, circumstances, and willingness to pay for improvements in medical-care convenience or quality. Allowing workers to purchase health insurance from a well-functioning individual market, on the other hand, would enable them to buy cost-effective plans that best align with their personal needs. The success of Medicare Advantage over the past decade demonstrates that people get more value out of health insurance when they control which plan they enroll in.

Health insurance works most effectively when individuals remain enrolled in plans for extended periods. Not only does this reduce the risk that individuals will be uninsured, lessen the expenses associated with marketing and enrollment, and widen the pool of medical risks covered by each insurer, it also establishes a business framework that rewards investments in long-term health. Under Medicare Advantage, where insurers rather than employers bear the risk for enrollees' medical costs, plans have a strong financial incentive to develop and invest in preventive medical services that reduce the need for costly hospitalizations. The prospect of discounts for continuous coverage maintained over multiple years would strengthen such a dynamic in plans bound to enrollees.

Fixing private insurance has long been desirable, but doing so may soon be imperative. If the growth of health-insurance costs is not slowed, employers will increasingly pull back coverage from staff, and entitlements will have to expand to fill the gap. Rather than private insurance making the best medical care available to the bulk of the population, such coverage would become a luxury reserved for the few. Policymakers would then have to sharply increase taxes to finance a basic minimum of care for the growing number of Americans trapped on an increasingly strained Medicaid program.

The pandemic has already transformed public policy in ways previously believed to be unthinkable. A widespread appetite for reform regarding health insurance certainly exists. By working to establish a well-functioning individual insurance market, policymakers can ensure that Americans have affordable and secure access to medical care as they navigate uncertain times — and lay the foundations for a health-care system that they can be proud of in the decades to come.

Chris Pope is a senior fellow at the Manhattan Institute.


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