The truth is, we have a system today that works well for the insurance industry, but it doesn't always work well for you," President Barack Obama said recently, making his case for health care reform. But it turns out the current arrangement, through which employers are supposed to buy coverage from large insurance firms and enlist their employees to cover the costs, isn't working so well for the insurance industry, either. In fact, the system by which insurance coverage is tied to payroll jobs is a huge problem—especially in a period when Americans are less likely to have payroll jobs than they have been in the recent past and when employers are less likely to cover the costs of that insurance. A look at the earnings reports and stock prices of big insurance companies reveals that tying insurance to employment probably isn't a good idea, after all—unless the employer happens to be the government.

Since December 2007, the U.S. economy has lost 6.5 million payroll jobs, or about 4.7 percent of the total. The economy is likely to lose at least 1 million more by the end of this year. When people lose jobs, they frequently lose their insurance. (COBRA allows former employees to continue purchasing insurance for a period of time, but the costs are frequently prohibitive.) So large insurers have been losing millions of members. A chart in a recent Wall Street Journal article shows that seven large insurers have collectively lost 4.34 million members in their "commercial risk" plans since December 2007. ("Commercial risk" or "risk-based membership" generally refers to people whom insurance companies insure directly.)

Look through the earnings reports, and a consistent story emerges. At Cigna, aggregate medical membership has fallen from 12.07 million in the second quarter of 2008 to 11.2 million in the 2009 second quarter, off 7 percent. For 2009, it expects membership to decline by as much as 5.5 percent. WellPoint recently reported that the number of lives it insures has fallen from 35.4 million in the first quarter of 2008 to 34.2 million as of June 30, 2009—a loss of 1.2 million members in 15 months. In the second quarter, when it lost 338,000 members, "the decline in membership occurred almost entirely in the Commercial segment, reflecting continued employer workforce reductions." UnitedHealth has seen its risk-based membership fall from 10.5 million in June 2008 to 9.65 million in June 2009, off nearly 8 percent. At HealthNet, in the first quarter, "commercial risk enrollment decreased by 214,000 members, or 9.8 percent, to approximately 2.0 million members as of March 31, 2009 compared with March 31, 2008." Since December 2007, Coventry Health Care has lost about 10 percent of the members of its commercial risk plans.

Fewer employees means fewer employees for these companies to insure. But many insurers have seen their numbers decline more than payroll numbers have fallen. Obviously, other factors play a role here. Companies boost or shed enrollment via mergers and acquisitions, and some companies lose market share while others gain. Aetna, for example, picked up more than 1.3 million members for its commercial plans between June 2008 and June 2009. But, at root, the trend is not these companies' friend. The private sector can't afford to employ the same number of people it did in recent years and doesn't feel the same need to offer health care as a benefit. This erosion has taken a toll on the insurance companies' stocks, which have lagged the poorly performing S&P 500 since December 2007.

The declining numbers aren't simply a function of job loss. A Bureau of Labor Statistics study released this week found that in March 2009, only about 70 percent of private-sector workers had access to employer-provided medical care benefits, "and only 25 percent of the lowest wage earners—those with average hourly wages in the lowest 10 percent of all private industry wages—had such access." Note the difference in the data between the public and private sectors. For government workers, 88 percent have access, and the participation rate is high. For private-sector workers, 71 percent have access, and the participation rate is lower. What accounts for the difference? It's unclear. But at least for single employees, the government picks up more of the tab (90 percent, compared with 80 percent for private sector jobs). For family coverage, the split is the same, 70-30, in both the public and private sectors.

In fact, there's pretty good evidence that government spending is all that stands between the struggling insurers and complete disaster. Look through the insurers' earnings reports, and you'll see that a portion of the loss in commercial business has been offset by growth in Medicare and Medicaid programs. At UnitedHealth in the past year, for example, enrollment in its public programs rose from 6.185 million to 7.115 million.

The system of employer-provided health care coverage is crumbling before our eyes, and for more Americans—and for more American insurance companies—government-funded health care is all that separates them from financial disaster. A Gallup poll found that the percentage of Americans who say they get their health insurance from an employer has fallen from 58.9 percent in January 2008 to 56.5 percent in May 2009, while the percentage who get it from the government (Medicare, Medicaid, VA benefits) has jumped from 26.5 percent to 29 percent. (The rest purchase it on their own.) But this poll understates the case. About 17 percent of payroll jobs today are government jobs. Crunch the numbers, and it's more like 39 percent getting insurance from government sources (public programs and public-sector jobs) and about 47 percent from private-sector jobs.

Simply by doing nothing, we're slowly nationalizing health care.

© 2009