Employer-based health insurance (insurance that is purchased by employers for their employees and financed through employer or joint employer-employee contributions) is currently subsidized in part by the federal government through tax exclusions for employer contributions to employee health insurance plans. This subsidization costs the federal government close to 10 billion dollars a year in lost revenues. Many proposed national health insurance plans assign a key role to employer-based health insurance as a vehicle for financing health care. Federal subsidization of employer-based health insurance and plans that assign employers a key role in the administration of a national health insurance plan both assume that private industry acts to realize federal health policy goals—particularly cost containment—in administering health insurance plans.
Little is known, however, about how employers go about selecting the plans they offer their employees or about the incentives and disincentives regarding cost of care that are created by employer-based health insurance. Existing evidence suggests that rather than helping to contain health care costs, employer-based health insurance may be partly responsible for their present escalation. In addition, employer-based health insurance may not be the most equitable way to implement a national health insurance plan.