Will Health Reform Free Workers From 'Job-Lock'?

A look at how healthcare reform will change employee benefits.

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The job mobility of most workers shrinks in a recession, but for as many as 25 percent of workers, the freedom to move between jobs can be missing in high times, too. This is the working-world phenomenon known as job-lock—when workers won't leave their jobs because they can't afford to lose their healthcare benefits. Some analyses suggest that healthcare reform could free up millions of job-locked workers to chase something new.

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Most workers—about 60 percent—get their health insurance through their employers, and as health premiums have spiraled, those benefits have become highly valuable to most. Nearly a quarter of top-performing employees said healthcare benefits were one of the top three reasons they would leave an employer, and two thirds said healthcare benefits were an important reason to stay with a company, according to a 2006 Watson Wyatt study. Last year, 78 percent of finance and accounting workers surveyed by the Mergis Group viewed healthcare benefits as "most crucial to retaining them."

The value of staying with the same employer—and the same health plan—goes beyond cost. Job-lock is most common among people with pre-existing conditions, as they may not be able to get coverage of those conditions in a new plan. Workers in job-lock are unwilling to leave their existing jobs even when they would be more productive in a different position. Loyalty to doctors may prevent some workers from switching jobs and changing plans, according to a report by health economist Jason Shafrin.

It's safe to assume that if health reform legislation prevents insurers from refusing coverage based on pre-existing conditions, "then those people who feel locked into their jobs because they're afraid they'll lose their benefits based on a pre-existing condition will leave," says Peter Cappelli, a management professor at University of Pennsylvania's Wharton School. But more generally, "it might be more interesting to think about who leaves," Cappelli says. Healthcare coverage tends to be less of an issue for young workers and more of an issue for parents and older workers. "My guess is that what you'd really see, if you made healthcare less the preserve of larger employers, is you'd get more of those people able to leave," he says.

Most workers simply want jobs with healthcare coverage—even if they have to switch plans—and virtually all large employers already offer benefits to most of their workers. While it's still unclear what precise shape healthcare reform will take, existing bills in the House and Senate suggest it may have the greatest effect on the ability of small employers to attract top performers and on the ability of workers to strike out on their own, as it is likely to reduce the expense of benefits for small businesses and entrepreneurs. Last year, fewer than half of businesses with between three and nine employees offered health benefits, compared with 99 percent of businesses with 200 or more, according to the Kaiser Family Foundation.

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Small businesses pay as much as 18 percent more than large firms for the same health insurance policy, according to a report by the president's Council of Economic Advisers. Employees at small businesses also tend to get leaner benefits packages and pay higher deductibles. The bottom line: "Small firms are likely to be at a competitive disadvantage in the market for hiring workers," according to the council's report. "Small firms are likely to have a more difficult time than larger firms recruiting potential employees who do not have health insurance from another source. Even if a small firm provides the best fit for a worker's skills and interests, the individual may choose not to work there, given the implicit tax."

Kris Dunn, a human resources executive and a blogger at HR Capitalist, says healthcare reform could strip away some of the power large companies command because they're able to offer better benefits, "thereby making start-ups and micro companies a more attractive option for more workers," Dunn says. Similarly, reform could require a new strategy for companies that offer middle-market pay but make themselves competitive through benefits. Much will still depend, however, on how broader coverage is paid for, he notes.