Is Employer-Provided Health Insurance Actually Good For American Workers?

Employer-sponsored health insurance can create significant challenges for some U.S. workers, according to experts.

Roughly 49% of the nation’s workers currently get health insurance coverage via their employers, according to United Healthcare. While proponents of ESI suggest it offers more benefits and guaranteed coverage, some critics claim it limits enrollees’ provider choice and leaves few coverage options for family members.

Analysts told the Daily Caller News Foundation that ESI often provides patients with limited coverage options and may suppress competition in the health insurance market.

The commercial health insurance markets were extremely concentrated on average in the U.S. from 2013 to 2023, according to the Peterson-KFF Health System Tracker (HST). Though — particularly since 2020 — the individual market has become increasingly competitive, while fully insured group markets have seen a drop in competition, per the HST.

“The tax code is largely responsible for healthcare for being unaffordable,” Thomas Savidge, an economist with the American Institute for Economic Research, told the DCNF. “The tax code currently exempts employer-sponsored health insurance premiums, which means that employees pay these premiums using pre-tax dollars, thereby reducing an employee’s tax rate by surrendering a significant portion of their earnings back to their employer.”

“A relic of high income taxes during World War 2; businesses used the tax exemption of health insurance premiums as a means to attract and retain talent while escaping taxes,” Savidge added. “Pre-tax income was used to cover employer-sponsored health insurance premiums. Employers got talent, employees got a lower income tax rate. The downside was that it created a tax punishment for getting health insurance outside of one’s employer where someone would have to pay a higher income tax rate and use post-tax dollars to purchase health insurance.”

Few Americans had health insurance prior to World War II, according to a 2017 report from Stanford Medicine Magazine. When the National War Labor Board froze salaries during the war, U.S. companies struggling with major labor shortages realized they could potentially attract new workers by offering health insurance benefits.

Savidge also noted that this can result in “a situation where one loses health insurance if he or she loses their job.”

ESI receives substantial tax subsidies in the U.S., according to a Health Care Analysis article published in December 2025. American companies can deduct medical care costs and employees are not taxed on the value of their health benefits as income, the report shows.

While this approach has greatly expanded access to healthcare in the U.S., it has also distorted incentives, according to Health Care Analysis’ article.

ESI is currently the largest source of medical coverage for people in the U.S. under the age of 65, KFF reported in April. Meanwhile, over 66 million people in the U.S. presently get their medical coverage from Medicare, which provides coverage for people age 65 or older.

The Affordable Care Act of 2010 featured the Employer Shared Responsibility Provision and the Small Business Health Options Program, each intended to broaden access to ESI for employees of small businesses according to estimates from the Southern Economic Association. Some estimates suggest that there has been a 3.5 percentage point increase in ESI availability among employees at smaller businesses since 2013, per the article.

Ed Haislmaier, a healthcare expert at The Heritage Foundation, told the DCNF that the “effects of the tax exclusion for employer-sponsored health insurance are like those of the mortgage interest deduction.”

“Both are large middle-class tax breaks that effectively encourage people to buy more and pay more than they probably would otherwise,” Haislmaier added. “However, in both cases, those effects are secondary to other, bigger cost drivers. Fundamentally, health insurance is simply a way to pay for the services of hospitals, doctors and other medical providers. How much those providers charge and the volume and types of services they provide are the principal drivers of health care costs.”

Employer-sponsored health coverage can sometimes result in job lock, which refers to employees being discouraged from moving to a different job, starting their own business, reducing their hours to care for family or easing into retirement, according to The Niskanen Center.

Having more choice and increased competition in the health insurance market would help bring down costs, according to Council for Affordable Health Coverage President Joel White.

“U.S. companies can lower health insurance costs for workers by demanding more choice and more competition,” White told the DCNF. “That means expanding tools like [a health savings account (HSA)] and [individual coverage health reimbursement arrangement (ICHRA)] so employers, especially small businesses, have more affordable ways to offer coverage. It also means taking on the health insurance and hospital monopolies that are limiting options, driving up the cost of care, and leaving businesses squeezed from both sides.”

“Congress has recognized that expanding private coverage is better for consumers than pushing them into government-run programs,” he added. “It is also a better deal for taxpayers.”

White also asserted that “employer-sponsored health benefits are the backbone of private coverage in the U.S. and should be protected and strengthened.”

An HSA is a tax-advantaged account designed to help people save money for eligible medical expenses, according to Fidelity Investments. An ICHRA allows employers of any size to reimburse employees for some or all of the health insurance premiums they pay for coverage they purchase on their own, per Healthinsurance.org.

One potential downside to relying on ESI is that it can increase certain costs, according to Niklas Kleinworth, director of Paragon Health Institute’s state health reform initiative. However, Kleinworth noted that the tax exclusion is “not the only driver” of the nation’s ongoing healthcare affordability “crisis.”

“It shifts compensation from wages to benefits, inflates demand for medical services, and contributes to the third-party payment problem that suppresses competition and removes the incentive for consumers to control costs,” Kleinworth explained. “That said, the exclusion is not the only driver of today’s [healthcare] cost crisis. Perverse government regulations and subsidies also have a significant inflationary impact: many are uncapped, automatically rise with premiums, and protect insurers from market discipline.”

Kleinworth also asserted that “other rules in Medicare and Medicaid protect hospitals from competition, support their ability to consolidate, and limit patient choice are prime drivers of soaring health care costs.”

The U.S. has notably spent a massive amount per person on healthcare in recent years. The nation spent $14,885 per individual on healthcare in 2024, marking the highest per-capita medical care costs across similar countries, according to estimates from the Peter G. Peterson Foundation.

Additionally, annual premiums for employer-sponsored family medical coverage in the U.S. hit $26,993 in 2025, marking a 6% increase from 2024, KFF reported. Employees contributed $6,850 toward the cost of family coverage, according to KFF.