Should be. - The Real Reason the U.S. Has Employer-Sponsored Health Insurance
At a community enrollment drive in the 1950s for Blue Cross and Blue Shield in Oklahoma, Ralph Rhoades, left, a manager who later became president of the plan, greeted a new member. Courtesy of Blue Cross Blue Shield of Oklahoma
By Aaron E. Carroll
Sept. 5, 2017
The basic structure of the American health care system, in which most people have private insurance through their jobs, might seem historically inevitable, consistent with the capitalistic, individualist ethos of the nation.
In truth, it was hardly preordained. In fact, the system is largely a result of one event, World War II, and the wage freezes and tax policy that emerged because of it. Unfortunately, what made sense then may not make as much right now.
Most insurance in the first half of the 20th century was bought privately, but few people wanted it. Things changed during World War II.
In 1942, with so many eligible workers diverted to military service, the nation was facing a severe labor shortage. Economists feared that businesses would keep raising salaries to compete for workers, and that inflation would spiral out of control as the country came out of the Depression. To prevent this, President Roosevelt signed Executive Order 9250 .. http://www.presidency.ucsb.edu/ws/?pid=16171 , establishing the Office of Economic Stabilization.
This froze wages. Businesses were not allowed to raise pay to attract workers.
Businesses were smart, though, and instead they began to use benefits to compete. Specifically, to offer more, and more generous, health care insurance.
After World War II, Europe was devastated. As countries began to regroup and decide how they might provide health care to their citizens, often government was the only entity capable of doing so, with businesses and economies in ruin. The United States was in a completely different situation. Its economy was booming, and industry was more than happy to provide health care.
This didn’t stop President Truman .. https://kaiserfamilyfoundation.files.wordpress.com/2013/01/7871.pdf#page=3 .. from considering and promoting a national health care system in 1945. This idea had a fair amount of public support, but business, in the form of the Chamber of Commerce, opposed it. So did the American Hospital Association and American Medical Association. Even many unions did, having spent so much political capital fighting for insurance benefits for their members. Confronted by such opposition from all sides, national health insurance failed — for not the first or last time.
This system is regressive. The tax break for employer-sponsored health insurance is worth more to people making a lot of money than people making little. Let’s take a hypothetical married pediatrician with a couple of children living in Indiana who makes $125,000 (which is below average .. http://fortune.com/2016/04/04/doctor-salaries/ ). Let’s also assume his family insurance plan costs $15,000 (which is below average as well).
The tax break the family would get for insurance is worth over $6,200. That’s far more than a similar-earning family would get in terms of a subsidy on the exchanges. The tax break alone could fund about two people on Medicaid. Moreover, the more one makes, the more one saves at the expense of more spending by the government. The less one makes, the less of a benefit one receives.
[Although wages are flat worldwide, that could still be true.]
There are other countries with private insurance systems, but none that rely so heavily on employer-sponsored insurance. There are almost no economists I can think of who wouldn’t favor decoupling insurance from employment. There are any number of ways to do so. One, beloved by wonks, was a bipartisan plan proposed by Senators Ron Wyden, a Democrat, and Robert Bennett, a Republican, in 2007. Known as the Healthy Americans Act .. https://www.congress.gov/bill/110th-congress/senate-bill/334/text , it would have transitioned everyone from employer-sponsored health insurance to insurance exchanges modeled on the Federal Employees Health Benefits Program.
Employers would not have provided insurance. They would have collected taxes from employees and passed these onto the government to pay for plans. Everyone, regardless of employment, would have qualified for standard deductions to help pay for insurance. Employers would have been required to increases wages over two years equal to what had been shunted into insurance. Those at the low end of the socio-economic spectrum would have qualified for further premium help.
This isn’t too different from the insurance exchanges we see now, writ large, for everyone. One can imagine that such a program could have also eventually replaced Medicaid and Medicare.
There was a time when such a plan, being universal, would have pleased progressives. Because it could potentially phase out government programs like Medicaid and Medicare, it would have pleased conservatives. When first introduced in 2007, it had the sponsorship .. https://www.congress.gov/bill/110th-congress/senate-bill/00334/cosponsors .. of nine Republican senators, seven Democrats and one independent. Such bipartisan efforts seem a thing of the past.
It’s important to point out that neither of these options has anything even close to bipartisan support.
Without much pressure for change, it’s likely the American employer-based system is here to stay. Even the Affordable Care Act did its best not to disrupt that market. While the system is far from ideal, Americans seem to prefer the devil they know to pretty much anything else.
Aaron E. Carroll is a professor of pediatrics at Indiana University School of Medicine who blogs on health research and policy at The Incidental Economist and makes videos at Healthcare Triage. Follow him on Twitter at @aaronecarroll. His coming book, The Bad Food Bible, will be published on Nov. 7.
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