liveonearth (liveonearth) wrote,

Why US Health Insurance is Predominantly Employer-Based

These notes from an NPR story (8 minutes long) on how we ended up with a system in which most people get their health insurance from employers. It turns out, it wasn't planned, it was the outcome of a series of historical accidents, and also the result of business influences on the tax laws of the land.

From Adam Davidson and Alex Blumberg on Planet Money

up until the 1920's medical care in the US was basically medieval in nature
old time potions and strange electrical contraptions were supposed to cure
electromagnetic bathing fluid, Clark Stanley's snake oil linament
John Brinkley, doc offering health advice on the radio-->transplant goat glands as cure-all
upside of primitive care: it was cheap
Americans spent an average of $5/yr on healthcare in 1900
this equal to $100 in today's dollars
downside: these potions and contraptions didn't actually cure anybody
there was no health insurance

before 1911 hospitals were poorhouses where indigent went to die
then hospitals were transformed
doctors and medicines became effective
medical schools improved
antibiotics became available in 1920s
the cost of care was higher--but it really worked
people were willing to pay when really sick
people were unwilling to go to doctors/hospitals for checkups, survivable illness
in the late 1920's the hospitals realized they needed to get more people in there
beds were mostly empty
someone Bailor hospital saw that Americans were spending more on cosmetics than health
(spelling of hospital uncertain)

Bailor hospital started offering an insurance packages to school teachers
50 cents/month and hospital visits were covered
it worked, for the working populations who had the option, for the hospitals that offered it

when the Great Depression hit, the non-insured patient load disappeared from most hospitals
Blue Cross took the Bailor idea and ran with it
began to offer it across the nation
the genius of the plan: selling insurance to people who are healthy enough to work
good population to insure because they are less likely to cost a lot
at least back then
still most people were not covered

the American economy transitions from mixed to managed
planned economy includes government rationing
businesses can't raise prices or wages
how to attract the best employees? offer benefits
this is what spread the practice of insurance: business paid for it
employers offering more and more generous health insurance plans

1943 IRS ruled that employer based health insurance is tax free
1954 another new law made tax advantage more attractive
percentage of people with employer-based insurance BOOMED
9% in 1940
63% in 1953
70% in 1960's

Americans see it as the natural order of things
but it was not inevitable, nor was it necessarily beneficial
it was the result of a series of historical accidents
and (my insertion) of the influence of business over our government and tax law

from (good article!)
The origins of the tax exclusion for employer-provided health insurance have become part of the debate over whether the exclusion should be repealed. To some, initial determinations about a narrow tax issue, coupled with contemporaneous regulatory decisions, account for the predominance of employer-provided coverage in the United States. However, the history of the exclusion is not unambiguous in this respect, and it reveals concerns about tax policy questions that remain today. Section 106 was enacted in 1954 as part of a comprehensive revision of the Internal Revenue Code. At the time, it consisted only of what later became Section 106(a), though the wording has changed several times. Current law subsections (b),
(c), and (d), which are not relevant to the present discussion, were added relatively
Tags: america, business, economics, healthcare, history, insurance, taxes

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