Part of the“My Prescription” series.
Only in the U.S. is health insurance linked to a specific job. Why have we chosen this path? The truth is we have not chosen it at all. We have literally stumbled upon it. Here are a few key events that lead us to our current system (a watered-down and simplified history):
I. Prior to WWII there was very little in the terms of health insurance in the U.S. Meanwhile many European countries had already moved to universal coverage in an attempt to maintain a healthy workforce. The U.S. was behind. During WWII the government implemented wage controls. However, U.S. business found the loophole and started offering fringe benefits to get around wage controls (health insurance began as a wage insurance – the insured retained wages when they were sick, but had limited coverage of medical costs).
II. Medical advancement gave legitimacy to medicine (many advancements came out of the war effort especially trauma care – improved anesthesia and sterile practices. Antibiotics were also instrumental in establishing legitimacy). Hospitals began the transformation from a place for the poor and indigent to a place where medical care was sought by the middle classes.
III. A 1948 ruling by the National Labor Relations Board allowed for health benefits to be a subject of collective bargaining. The Unions ran with it to legitimize their presence.
IV. A 1954 federal tax law exempted many of these fringe benefits from taxation providing an incentive to bolster employment-based benefits including health coverage.
V. Medical advancements have accelerated what is possible making quality care more and more expensive. As more conditions are treatable more money is needed to treat them. Insurance begins to fill that gap after WWII.
That’s the history in brief. Here are maybe the more important reasons it worked (fairly well) for a few decades. Pooling people based on place of employment – not health status – makes the insurer less vulnerable to adverse selection. Thus people are enrolling based on employment (healthier people) and not based on illness (unhealthy people). Any pooling mechanism has to minimize adverse selection and employment-based coverage does that for a majority of our citizens. Second, employers offer economies of scale. Employers can administratively manage health insurance cheaper than other settings would be able to based on volume. Also, based on volume, employers (especially large ones) have the leverage to negotiate prices. Economies of scale definitely played a role in making employer-based health insurance cheaper than individual-based health insurance.
This is why we have employer-based insurance. Employer-based insurance certainly is not the result of a great vision of how to achieve optimal health care. It is more of a reaction to a lack of vision. As a nation we stumbled and patched together a system that met temporary needs left by the void of inaction.