Traditional pensions are almost gone. Is employer-provided health insurance next?

The percentage of people with health insurance through their employers - traditionally the way most people get coverage - is continuing to shrink, raising anxiety among workers and invigorating a debate about whether insurance should be tied to jobs.

Many of those who get their coverage through their jobs are becoming less secure that those benefits will always be there.

"It's going to disappear," says Angela Ruggiero of North Port, Fla., who lost her insurance when she and her husband changed jobs. "There's no way employers can continue to pay premiums if they continue increasing."

Her concern is reflected in the ongoing discussions among policymakers, politicians and some business leaders over whether to alter the link between employment and insurance. Several ideas have been floated, including a range of proposals in Congress.

The measures can be lumped into differing philosophies about the direction the United States should move: either toward a health insurance market in which people buy policies on their own while armed with tax credits or deductions, or one in which people are able to buy insurance through group-like "exchanges," with some government oversight. Some of the plans likely would encourage employers to drop coverage because the employers would lose all or part of their ability to write off insurance as a business expense.

Federal legislation is unlikely this year. But the chatter about fundamental changes in health insurance comes as a declining percentage of employers are offering coverage. That's fueling concern among consumers such as Ruggiero who say the system isn't working and is poised to leave rising numbers of people - particularly those with health problems - struggling to get insurance:

- The percentage of all employers offering health insurance in the past eight years peaked in 2000 at 69 percent and has fallen steadily since, hitting 60 percent this year, according to an annual survey of employers by the non-partisan Kaiser Family Foundation. Among small firms of three to nine workers, the percentage offering insurance has dropped even more - from 58 percent in 2001 to 45 percent this year.

- From 2001 to 2005, the number of uninsured U.S. workers rose by 3.4 million. Almost 19 million workers - 17 percent of all employees - were uninsured in 2005, according to the Kaiser Commission on Medicaid and the Uninsured.

"I don't think people realize" how easy it is to become uninsured, says Ruggiero, 41, who says she used to think "the only uninsured Americans were the homeless."

Three years ago, she and her husband, John, left jobs with health benefits in New York to move to Florida to strike out on their own: John as a real estate agent and Angela as an office manager for an financial planner. Neither job came with health insurance.

Then they learned how difficult it is to buy health insurance outside of employment, mainly because they both had some minor health conditions. They were hopeful about an "open enrollment" period allowed each year under Florida law. During that time, insurers must offer coverage to sole proprietors and may not exclude those with medical problems.

But for the Ruggieros, the cost of coverage was out of the question: $1,500 a month to cover the couple and their 11-year-old son, Jared. So they remained uninsured until last January. When the real estate market tanked, John took a job as a package handler for a shipping firm, a position he still holds part-time because it provides his family with health insurance.

Eventually, John quit real estate sales and took another full-time job in a warehouse. The warehouse job offers health insurance, but his share of the monthly premiums would have been $300, or about 10 percent of his income, so he declined. Insurance from his part-time job doesn't cost anything out of his paycheck.

"It's a lot of juggling," says Angela Ruggiero.

Paying more for coverage

Like the Ruggieros, most people with insurance get coverage through their jobs. Among people with health insurance, the Census reports that 59.7 percent got it through their jobs in 2006, down from 60.2 percent in 2005. And they're paying more for it.

The average amount workers pay toward the premium for a typical family policy rose from $129 a month in 1999 (about $160 in today's dollars) to $273 this year, a jump of 70 percent when adjusted for inflation, the Kaiser survey of employers shows.

The increases come mainly because premiums have soared, rising at several times inflation in most years. In many cases, cost-cutting employers have increased the share of the premiums that workers pay.

For years, Lyle Kenaga, president of Business Cards Tomorrow in Nashville, paid 100 percent of the premiums for his 15-employee firm. But two years of 20 percent rate increases from his insurer forced him to reduce the amount his company pays toward coverage. This year, the firm pays 70 percent of the premium cost; workers pick up the rest.

If huge increases in premiums continue, "we'll have to consider whether or not to continue providing coverage," he says.

Premiums continue to go up, although the rate of increase has slowed in the past couple of years. This year, the average increase faced by employers was 6.1 percent, according to the Kaiser survey, well below the recent peak increase of 13.9 percent in 2003.

Such premium increases weigh heaviest on lower-income workers.

For example, a household earning $40,000 this year would have to pay 8 percent of its pretax income to cover the average share paid by workers - $3,281 - for a typical family policy offered by employers, which this year cost $12,106. That doesn't include deductibles and co-payments that those with coverage must pay.

"People should be nervous," says Len Nichols, an economist with the Washington think tank New America Foundation. "People aren't so afraid of losing their jobs, as not being able to afford health insurance even with a good job."

For many small employers, years of premium increases have given them few options: Raise the amount workers pay, drop coverage or reduce benefits.

"When they hit us with another 25 percent increase for this year, we had to re-evaluate," says Howard Chanin, president and co-owner of 17-employee Butler Mortgage in Kissimmee, Fla.

He asked his workers if they'd rather have higher deductibles or higher premiums. They wanted the lower premiums. So the annual deductible - the amount workers pay, in addition to premiums, for medical care before their insurance coverage begins - went from $500 a year to $2,500.

"We're taking it year by year," Chanin says.

Looking for answers

Many large employers are uncomfortable with the growing cost of health insurance, but few want to get out of offering coverage entirely.

"They see it as a way to compete for skilled workers, and they do sense that they have a compact with the employee not to walk away from it," says Robert Laszewski, president of Health Policy and Strategy Associates, a consulting firm that works with insurers and other health care clients.

Many small employers also say they want to continue offering benefits.

"I can't imagine not offering insurance," says Diane Dearing, owner of Display Structures in Troy, Mich.

Because of rising costs, Dearing had to change insurers this year - and put more than half of her 20 employees into an HMO, which has a specific list of doctors and hospitals that it covers, rather than a more expensive preferred-provider organization with a wider choice of doctors. Her workers pay 25 percent of the premium.

"It's a huge expense," Dearing says. "But even if I had to go to something like a high-deductible major medical plan, if we're in business and making anything at all, we will still provide insurance."

The idea of separating insurance from employment has been raised before.

"Even in the height of a strong economy, people were talking about it," says Paul Fronstin of the Employee Benefit Research Institute, which published a book in 1999 called "Severing the Link Between Health Insurance and Employment."

"Now it's taking on a new life."

Among other things, critics of the current system say it grants tax breaks to corporations that offer coverage, and tax-free benefits to the workers who get coverage.

At the same time, low-wage workers who don't get insurance through their jobs not only don't have coverage, but also don't get the tax break.

"The employer-based system is fundamentally unjust," says Guy Clifton, a professor of neurosurgery at the University of Texas Health Science Center in Houston who is in Washington as a Robert Wood Johnson health policy fellow.

Proposals to modify the health insurance system - or sever it from employment - are gaining currency across the political spectrum, from presidential candidates to Congress to business groups.

Some of the proposals now under debate would encourage people - armed with tax credits or deductions - to buy their own insurance on the private market, but would not require anyone to buy it or insurers to sell to all who apply.

Other proposals would require all individuals to have coverage and would create "exchanges" in which groups of residents and employees could buy health insurance, regardless of where or if they work. Insurers would be required to sell policies, even to applicants with health problems. In Congress, a bipartisan bill - unusual for a health-reform effort - has been proposed by Sens. Ron Wyden, D-Ore., and Bob Bennett, R-Utah. It would have employers drop coverage and give workers raises, then create exchanges that would allow everyone to buy insurance.

Sara Horowitz, founder and director of the Freelancers Union - whose members are independent workers in finance, non-profits, domestic services, publishing, advertising and health care - says something needs to change, because the working world has.

"The nature of work is changing: Jobs are much more short-term and flexible," Horowitz says.

"That's why we need to think about new kinds of models ... and start building a portable benefits network."