Williams exposed all that’s wrong with health insurance

Venus Williams returned to the professional tennis circuit in July with a win in the first round of the DC Open. (She lost in a late round.) In an interview on the court following the match, the 45-year-old made a somewhat surprising admission on why she decided to return to competitive tennis.

“I had to come back for the insurance because they informed me earlier this year I'm on COBRA," she said, referring to the federal law that allows individuals to temporarily continue their employer-sponsored health insurance after leaving a job by paying the premiums.

Williams has made more than $40 million in prize money during her tennis career and has a net worth estimated to be almost $100 million. There’s little worry she’d become uninsured due to lack of funds. Still, her comments get at the problem buried so deep into our system of health insurance that no policymaker has the nerve to touch it, which is that health and work shouldn’t be linked.

Although America’s system of health insurance is built on employer-sponsored coverage, there’s scant labour market or health justification for this arrangement. The strongest part of the system is the depth of entrenched interests, rather than, say, producing good health outcomes, controlling costs or providing coverage to as many people as possible. Yet, policymakers have made clear that rather than rock this boat, they’d prefer to wait for it to tip over on its own.

Congress’s lack of stewardship over health insurance dates back to its origins. The first such plan in the US was offered by Baylor University Hospital to Dallas public school teachers in 1929. The architect was a former teacher working in the hospital’s administration who came up with a monthly subscription plan in exchange for future hospital stays. After adding more professions and hospitals, it became Blue Cross. The American Medical Association, seeing the success of the American Hospital Association’s new experiment, began to offer non-hospital physicians plans, which became Blue Shield.

Dropped into this swirling mix of loosely linked occupations, hospitals, doctors, and monthly payments for negotiated care was the multi-year wage freezes of World War II. Employer-paid plans were exempt from these freezes, the costs of plans were deemed to be a business expense, and the benefits were not counted as income. After the war, the Internal Revenue Service solidified the twice-over tax preference as part of the Internal Revenue Code. At no point did policymakers articulate a design to provide health insurance for Americans through their employers. Each successive Congress has instead inherited a system whose circumstantial origins were cemented into something permanent but not planned. The lack of planning is evident when considering the myriad miseries the system creates.

Where to begin. First, health insurance is not only expensive for employers to provide, but employers are not equally financially capable of bearing the costs. As a result, larger firms get to provide better coverage than smaller firms, which are at a disadvantage to negotiate things such as insulin costs. On top of which, employees of small firms on average a pay higher share of the total premium as well as face a higher deductible than employees of large firms. Disparity in health-insurance offerings mars the labour market. Productivity is maximised when workers and firms are matched based on their human capital. But throw insurance into the mix, and employers can be boxed out when competing for workers based on their health offerings and workers can warp their job search and tenure based on which employers provide the best health plan. The latter is called job lock, and it’s a good description of Williams' experience: Staying at a job mostly for the health insurance. It’s a bad situation for workers and employers.

Health insurance also mars compensation. There’s evidence that workers who can be identified as adding to health costs, such as women of child-bearing age who may become pregnant or obese individuals, are paid less as a result. This is on top of the broader suppression of wage growth and labor demand experienced by all workers as a result of employer health costs. What’s truly bad about this whole system is that tying health insurance to work creates coverage gaps that the government must fill. Indeed, the evolution of public health insurance has been about Congress trying to fill holes employers leave behind. And in these holes fall some of the most expensive people or situations to insure. Medicaid covers 35% of all disabled individuals in the US, 61% of all long-term care recipients, and 41% of all births while Medicare covers 80% of all deaths. As a macabre aside, the most expensive year of life is the last one, and end-of-life care is half of Medicare spending.

In essence, employers are “skimming the top,” insuring younger and higher income Americans and avoiding the oldest, poorest, chronically disabled, or dying. And the government sinks a fortune into supporting this system. The tax-preferred status of health insurance benefits that opts employers and employees out of income or payroll tax duties on those benefits totaled $384 billion in 2024.

Although the Affordable Care Act added some regulations and mandates to employer benefits, most of the bill’s thrust was to cover those left out of the employer market by subsidising the individual market and expanding Medicaid. It was a compromise policy. What’s incredible about the One Big Beautiful Bill Act is that it dismantles much of the ACA’s wraparound coverage, already weakened by the Supreme Court decision that made Medicaid expansion optional. It’s a rejection of the compromise that propped up the employer-sponsored system, a system so rife with problems that even a wealthy professional tennis legend will admit her career is a function of needing access to consistent health insurance.

Either employer-sponsored health insurance is worth all the costs, inefficiencies, and problems, and Congress works around it, or it’s an 80-year experiment with enough evidence of failure that it’s time to move on to the next system. Sitting on the shore and waiting for the boat to sink isn’t enough.