This Labor Day: Is it Time to Rethink the Social Contract on Employer-Sponsored Health Care?

Happy Labor Day Weekend! 🇺🇸 This holiday’s origins date back to the 19th century. On September 5, 1882, the first Labor Day parade was held in New York City. Thousands of workers marched up Broadway demanding fair pay, safe conditions, and dignity on the job. It was not just a parade; it was a call to redefine the social contract between employers and their employees, recognizing that employers had responsibilities beyond simply providing a paycheck. That moment in history continues to shape America’s workplace culture to this day.

Out of that era came not only minimum wage mandates but also the concept of the weekend itself. Unions established “sickness funds” and fought for wage protection during periods of illness. By the mid-20th century, they had secured a landmark victory: employer-sponsored health insurance (ESI). For decades, ESI has become the backbone of workplace benefits and a defining marker of what it means to be a “good employer.”

Today, the concept of a “good employer” continues to influence workplace culture. A recent JPMorgan study found that offering health insurance is a matter of pride and culture. Taking care of workers remains central to the identity of a responsible employer.

At the same time, one in three small business owners stops providing health insurance because of cost. Employers are forced into an impossible tradeoff: the health of their business or the health of their people.

The Affordable Care Act created an alternative for families without access to employer-sponsored coverage through Healthcare.gov and the state-based marketplaces. The ACA made individual health insurance a guaranteed, subsidized option for millions. Yet this solution remains politically fragile, with subsidies and key provisions frequently under debate. Why? Because of a lingering cultural belief that “good employers” must provide health insurance, even if the modern economy can no longer sustain it.

Maybe it is time to rethink this social contract.
Is it time to rethink employer-sponsored health care itself?

The Case for Ending Employer-Sponsored Health Care

If you lost your job tomorrow, would you lose your health care too? That is the flaw at the heart of America’s system. In today’s economy, can a model built around employment still work?

The way Americans get health insurance was not inevitable. It was an accident of history, and it may finally be running out of time.

The Health Care System That Slipped Away

The way Americans get health insurance was not inevitable. It was an accident of history. 

In fact, in 1912 President Theodore Roosevelt proposed an alternate model when he called for a form of universal healthcare as part of his Progressive Party platform. The proposed system would have provided medical care for all working Americans and their families, financed by contributions from both employers. It mirrored the social insurance systems taking shape in Europe. But the idea was quickly blocked by the American Medical Association, which feared government interference in medicine.

What stuck instead was an unintended workaround. During World War II, wage freezes prevented companies from competing on salaries, so they turned to health benefits as a recruitment tool. In 1943, the IRS ruled that health premiums would be excluded from taxable income. That ruling cemented employer-sponsored insurance (ESI) as the default model.

Cracks in the System from the Start

It worked for a while. In the 1940s and 50s, most Americans stayed with one employer for life. In that world, tying health care to the workplace seemed logical. Employers got a recruitment tool, and workers got security. But the cracks were there from the start. Millions were excluded: farmworkers harvesting the nation’s food, domestic workers caring for families, part-timers patching together multiple jobs, and anyone between employers. For those included, coverage often reflected cost containment more than fairness. Until 1978, most health plans did not even cover pregnancy.

Again and again, presidents tried to fix the gaps. Harry Truman’s 1945 universal plan was branded “socialized medicine.” Lyndon Johnson delivered Medicare and Medicaid in 1965, but only for seniors and the poor. Richard Nixon’s employer mandate proposal collapsed with Watergate. Jimmy Carter’s incremental cost-control reforms faltered in the late 1970s. Bill Clinton’s sweeping Health Security Act in the 1990s, which would have required employers to cover workers through regional alliances, was defeated by political and industry opposition.

From Cracks to Fissures

Fast forward to today, and those cracks have widened into fissures. Health premiums have risen nearly three times faster than wages since 2000. In 2024, the average annual family premium for employer-sponsored health coverage reached $25,572, with employees contributing about $6,296 out of pocket. Employers remain under pressure and continue shifting costs, with 51% of private-sector workers now enrolled in HDHPs—plans known to discourage essential, doctor-recommended care despite low premiums 

This is more than theory. Studies show people with HDHPs are two to three times more likely to delay or skip care compared to those in traditional plans. Doctors confirm this trend: 79% of surveyed physicians say high deductibles are a major barrier to care, and 80% report they often see patients delay treatment because of cost. In cancer care, HDHP enrollees have experienced delays of nearly five months in receiving metastatic diagnoses.

Why It No Longer Fits the Workforce

The workforce of today looks nothing like the workforce of the 1940s, when employer‑based coverage first took root. Back then, many individuals spent over a decade, and often more than 20 years, with a single employer. Household structures were also different. In 1940, over 75 percent of U.S. households were married couples, and the vast majority of these were single‑earner families led by one breadwinner.

Fast forward to today, and those norms have flipped. Job tenure has shortened to just 3.9 years. Dual‑income households are the norm—not the exception—and over 36 percent of U.S. workers now participate in the gig economy. Remote and hybrid work have severed the physical link between employer and community, eroding the old idea of the workplace as a local anchor.

In this environment, linking health care to a single employer creates instability for individuals, families, and communities. The risks ahead only make the model more fragile. During the 2008 recession, more than 9 million Americans lost employer‑sponsored coverage. In industries like retail and hospitality, where turnover can exceed 70 percent annually, health insurance is often among the first expenses to cut. As automation and AI reshape the economy, economists warn that up to 25 percent of U.S. jobs could be disrupted within the next decade.

The question is not just economic, it is practical. Leaving health insurance tied to your employer’s profit margins is an extremely high-stakes gamble. Should your access to health care depend on your employer’s profit margins, or do we need a new guarantee that exists regardless of where, or whether, you work?

The Case for Keeping Employer-Sponsored Health Care

For all its flaws, employer-sponsored insurance has scaled because it delivered value. Workers valued the protection and stability it offered, while employers valued its power to attract and retain talent. That mutual value explains both its rapid growth and its endurance. While the politics of ESI may have been accidental, its success was not. By the mid-1960s, more than 70 percent of Americans under 65 had workplace coverage, and today more than 150 million people, nearly half the U.S. population, still rely on it.

Employer and Employee Satisfaction

Think about it. Ninety-three percent of firms with 50 or more employees offer health benefits, and three in four eligible workers enroll.. On average, employers cover about 73 percent of family premiums. While there are penalties for employers with more than 50 employees who fail to provide coverage, workers are not legally required to participate. For most, health insurance shows up as a payroll deduction they could simply opt out of, yet the overwhelming majority choose to stay in.

A majority of employers also report high satisfaction with the health plans they offer. According to the 2022 Kaiser Family Foundation Employer Health Benefits Survey:

• 87% of employers are satisfied with the quality of healthcare their plan members receive.
  
  
• 88% are satisfied with access to healthcare for their plan members.
  
  
• 66% are satisfied with the cost of healthcare for their plan members.
  
  
• 76% are satisfied with the level of engagement among their health plan members.

Business Performance in a Knowledge-Based Economy

Health coverage is not a perk. It is a cultural expectation and a driver of business performance in today’s knowledge-based economy. Talented employees have choices. They consistently rank health insurance as the most important workplace benefit. A SHRM survey found that 56 percent of workers would reject a job without health coverage, even if it offered higher pay.

In talent-driven markets, health benefits are a proven way to attract and retain the best people. The companies leading the frontier of AI and technology, such as OpenAI, Anthropic, and Google, are well known for their highly competitive compensation packages. In industries where performance depends entirely on people, health coverage is not even a question. It is the ticket to play. It signals that employee well-being is taken seriously and that the company is committed for the long term.

Benefits also determine how employees perform once they are inside. Today’s executives obsess over longevity and wellness. They chase biohacks and performance optimization. The same principle applies to organizations. A healthy workforce is the ultimate biohack. It is how companies achieve sustained performance and innovation.

Poor health, stress, and burnout drain focus and crush creativity. These are the assets that power knowledge work. The CDC estimates that lost productivity from poor employee health costs U.S. businesses $225.8 billion every year. Kaiser finds that absenteeism costs more than $2,000 per worker each year. The hidden drain is even larger. Presenteeism—employees working while sick or burned out—costs two to three times more than absenteeism. Stanford research shows that workplace conditions shape health outcomes. They contribute to more than 120,000 deaths annually and up to 8 percent of national health spending.

Health benefits are not a line item to cut. They are the operating system for talent. They are the foundation for attracting top performers, retaining them, and enabling their best work. In a world where machines handle routine tasks, the true differentiator is human creativity, judgment, and collaboration. A company’s health plan is not just compensation. It is its competitive edge.

Innovation Through Employers

Employers have consistently led the way in expanding access to health benefits. Some of the nation’s most important health systems and plans began as employer-backed initiatives. In 1929, Baylor University Hospital’s prepaid plan for teachers became the first Blue Cross. Kaiser Permanente started as a program to care for shipyard and steel workers. Mining companies across Appalachia and the West built and staffed hospitals for coal miners and their families, creating company-owned facilities that evolved into regional health systems, such as the hospitals that became part of what is now West Virginia University Health System.

This spirit of innovation has endured. By 2019, more than 80 percent of large firms with 200 or more employees offered wellness or health promotion programs. Large, self-insured companies pioneered direct contracting with hospitals, bundled payments, and preventive services long before policymakers caught up. Many of the protections now guaranteed by law—mental health parity, preventive care, maternity coverage—were first tested and proven in employer-sponsored plans.

The pattern is clear: while some employers follow only the minimum requirements, others innovate and reshape the health system for everyone. Employers are not just participants in healthcare; they are the laboratories of reform, consistently setting the pace and pushing the system forward.

Administrative Simplicity

One of the overlooked strengths of employer-sponsored insurance is how simple it is to administer at scale. Payroll-based collection means premiums are deducted automatically, making coverage seamless and predictable. Workers do not need to shop for a plan every year or remember to pay a monthly bill; their insurance travels with their paycheck.

Employers also absorb much of the administrative burden. They handle enrollment, manage contributions, and ensure compliance with federal and state regulations. For employees, this means fewer forms to navigate, fewer deadlines to miss, and fewer bureaucratic barriers standing between them and their care.

This simplicity matters. When enrollment is automatic and payments are invisible, participation rates are higher and coverage is more stable. In contrast, the individual market often requires workers to navigate complex plan choices, submit payments on their own, and track eligibility rules—all of which create friction and contribute to higher rates of churn and uninsurance.

By streamlining the mechanics of coverage, employers lower the transaction costs of getting and keeping insurance. That efficiency is part of why employer-sponsored insurance scaled so rapidly, and why it remains the default anchor of the American system today.

For all its flaws, employer-sponsored insurance remains highly valued. It endures not just because of politics or inertia, but because it has consistently proven itself. It is valued by workers seeking security. It is practical for families who need stability. And it still aligns with business interests, giving employers a powerful tool to attract talent, retain teams, and support performance in a knowledge-based economy.

A New Chapter in the Social Contract?

Employer-sponsored insurance is deeply rooted in American culture and infrastructure. It is not disappearing anytime soon. Yet the workforce has changed, and health benefits must change with it.

Where does this leave us? The answer is not abandonment. The answer is evolution.

This is where ICHRAs come in. As an ERISA benefit funded by the employer, they preserve the employer’s role as funder and conduit. This matters because payroll and compliance systems that employers already manage make health insurance easy to deliver at scale. That administrative simplicity is one of the reasons employer-sponsored insurance grew so quickly in the first place, and it remains a practical anchor today.

ICHRAs also reinforce the cultural expectation that “good employers” provide coverage. At the same time, they introduce flexibility by moving away from the rigidity of group plans and instead providing defined contributions—cash for coverage—that employees can use to select the plans and services that best fit their needs.

The ACA laid the groundwork for this evolution. Nearly 100 years after Roosevelt first called for national health insurance, the Affordable Care Act of 2010 created a parallel path for those left out of employer coverage. It established individual marketplaces like Healthcare.gov, banned insurers from denying coverage for pre-existing conditions, and offered subsidies to make plans affordable. For the first time, families without employer coverage—whether self-employed, between jobs, or working part-time—had a reliable way to buy comprehensive insurance. The ACA ensured that health care was no longer exclusively tied to employment.

By linking employer contributions to the ACA marketplace, ICHRAs combine the cultural strength of employer-sponsored coverage with the portability and choice of the individual market. Employees can take their coverage with them from job to job. They can select plans that match their household needs, whether comprehensive family insurance, support for chronic conditions, or wellness and longevity care. Employers, meanwhile, gain predictable costs and a sustainable way to continue delivering the benefit their workers still value most.

In this way, ICHRAs represent a new social contract: still employer-sponsored, but now portable, flexible, and aligned with the realities of today’s workforce. Just as unions once redefined the contract to reflect their era, ICHRAs offer an updated model—rooted in tradition, strengthened by the ACA, and built for the future.