Paul Sanchez
In the United States, health insurance is tied to employment, with 57% of Americans under 65 insured through their jobs. This is a result of wage freezes and tax policies during World War II, which incentivized employers to offer health insurance as a benefit to attract workers. While other Western nations offer universal health coverage, the US system has proven difficult to change, with attempts to reform it failing. This leaves millions uninsured or underinsured, impacting their access to healthcare and contributing to falling life expectancy in the US.
| Characteristics | Values |
|---|---|
| Country with medical insurance tied to jobs | United States |
| Percentage of Americans under 65 with insurance through jobs | 57% |
| Year employer-sponsored insurance took off | 1939 |
| Number of people with private insurance in 1939 | 8 million |
| Number of people with private insurance in 1952 | 92 million |
| Year the IRS decided employer contributions to health insurance premiums were tax-free | 1940s |
| Year the IRS started to chip away at the tax-exempt status | 1950s |
| Number of uninsured Americans in the 1950s | 63 million |
| Year President Truman tried to introduce Medicare | 1940s |
| Year JFK was elected president | 1960 |
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What You'll Learn
The history of employer-based health insurance in the US
During the early 20th century, Americans were accustomed to associating insurance with employers, as many urban workers accessed sickness insurance through employer-based sickness funds. This dynamic contributed to the resistance towards government-based insurance, which was gaining traction in the UK and the rest of Europe through socialized schemes like the UK National Insurance Act of 1911.
In the 1930s, the concept of third-party health insurance emerged, marking a pivotal moment in the evolution of employer-sponsored health insurance. During World War II, industrialist Henry J. Kaiser introduced an arrangement where doctors were contracted to meet the medical needs of his employees, bypassing the traditional fee-for-care model. After the war, he opened up this plan to the public as a non-profit organization, known as Kaiser Permanente.
The post-World War II era played a significant role in shaping employer-based health insurance in the US. A strong economy, low unemployment rates, and intense competition for talent encouraged employers to adopt market-driven responses, including health benefits, to attract and retain employees. The 1942 Stabilization Act, designed to limit wage increases, further incentivized employers to offer health benefits as an alternative form of compensation. By 1943, employers had increased incentives to provide health insurance arrangements for their workers, solidifying the modern era of employer-sponsored health insurance.
Over time, the expansion of healthcare coverage options and the evolution of major medical plans occurred, with vision care and dental benefits being introduced in the 1950s. Labor unions also played a role in negotiating better benefit packages for workers. The creation of alliances and mechanisms that utilized employee groups as a vehicle for insuring a large proportion of workers and their families further solidified the role of employer-based health insurance in the US.
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How World War II influenced the current system
During World War II, the US government froze salaries, causing companies facing labour shortages to attract workers by offering health insurance. The federal government encouraged this trend by ruling that money paid for employees' health benefits would not be taxed. This strategy was a short-term success, but it has had some negative long-term implications. The policies offered were termed "'major medical'", meaning they covered extensive care but not routine doctor visits.
The original purpose of health insurance was to protect against financial disasters caused by serious illnesses, but it was never intended to reduce healthcare costs or serve as a cost-control tool. The expectation that insurance should cover more routine healthcare needs is a more recent development.
During and after World War II, the growth of voluntary health insurance and the interest of commercial health insurance were accelerated by federal policy and union activism, which tied health coverage more closely to the workplace. This trend was particularly notable after the war, with Blue Cross plans initially having larger enrolment than individual and group insurers combined. However, by the end of the 1950s, commercial group enrolments had exceeded Blue Cross group enrolments. The entry of commercial insurers brought new products, different rating practices, and significant competition to the market.
By the end of World War II, most European countries had implemented social health insurance or other government health programs for significant portions of their populations. In contrast, the United States is nearly unique among developed countries in lacking a government-mandated comprehensive health coverage scheme. This divergence became apparent after World War II, when other countries moved to adopt, restructure, or complete their systems to protect their populations against medical expenses.
The American Medical Association (AMA) opposed plans for a national health system during and after World War II, successfully linking socialism with national health insurance as anti-Communist sentiment rose. As a result, Truman's plan for national health insurance in 1945 was not realised, and the US instead developed a system of private insurance for those who could afford it and public welfare services for the poor.
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The impact of employer-based insurance on workers
One of the main impacts of this system on workers is the influence on their retirement choices. Studies show that individuals with employer-sponsored health insurance are less likely to retire early, as they would lose these benefits before becoming eligible for Medicare at 65. This dynamic also affects workers' mobility and job choices. Those who would struggle to find an equally well-paying job tend to work harder and are less likely to leave, as they value the health benefits they receive.
The US stands out among Western nations for its reliance on employers to provide health insurance. This has resulted in millions of people under 65 lacking insurance, as they are not covered by their employers or are unemployed. This situation has persisted despite attempts by various presidents to expand coverage, such as Lyndon Johnson with Medicare and Medicaid, and Barack Obama with Obamacare.
The cost of employer-sponsored health insurance has been rising, outpacing workers' wages and leading to concerns about affordability. This trend has widened the gap between health insurance costs and workers' earnings, with surveys indicating worry among insured adults about affording monthly premiums and deductibles. These rising costs have also impacted employers, who have continued to offer health benefits despite recent policy changes and broader trends.
Recent policy initiatives, such as the American Rescue Plan Act (ARPA) and the Inflation Reduction Act (IRA), aim to address affordability by expanding subsidy eligibility and generosity for those purchasing health plans from Affordable Care Act (ACA) exchanges. These changes may weaken the link between employment and health insurance benefits, offering workers greater choice and potentially reducing the impact of employer-based insurance on workers' decisions.
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Attempts to reform the system
The US is the only country where health insurance is tied to employment. Over the past 70 years, several presidents have attempted to reform the system and provide coverage to people outside the employer-sponsored system. Here are some of the notable attempts:
Dwight Eisenhower's Administration
In the mid-1950s, President Dwight Eisenhower's health secretary, Oveta Culp Hobby, pitched a plan to provide national insurance to the 63 million uninsured Americans. This was the third attempt to get a national health plan in place since the end of the war, joining most other Western nations in providing universal coverage.
Lyndon Johnson's Administration
President Lyndon Johnson introduced Medicare and Medicaid, which aimed to provide coverage to people outside the employer-sponsored system.
Barack Obama's Administration
President Barack Obama's signature legislative achievement, the Affordable Care Act (ACA or "Obamacare"), expanded access to health insurance for millions of Americans, particularly those who were previously uninsured due to their employers not providing coverage or their inability to afford it.
Donald Trump's Administration
President Donald Trump campaigned on a promise of universal healthcare. While he did not ultimately deliver on this promise, the issue remained a focus during his administration.
Despite these efforts, the US continues to rely heavily on employers to provide health insurance for their employees, with more than 175 million people gaining coverage through their jobs. This unique system has left millions without insurance or facing high out-of-pocket costs, especially when transitioning between jobs or being self-employed.
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How the US system compares to other countries
The US system of tying medical insurance to jobs is a result of World War II and the wage freezes and tax policies that emerged from it. In 1942, with many eligible workers diverted to military service, the nation faced a severe labour shortage. Economists feared that businesses would keep raising salaries to compete for workers, and that inflation would spiral out of control as the country emerged from the Depression. To prevent this, President Roosevelt signed Executive Order 9250, freezing wages. However, businesses began offering benefits such as health insurance to attract workers.
This is in contrast to most other Western nations, which offer universal health coverage. The US has the highest healthcare costs per capita across similar countries. In 2023, health expenditures per person in the US were $13,432, over $3,700 more than any other high-income nation. The US also spends more on administrative costs, with spending on running governmental health programs and insurer overhead amounting to $925 per capita. This is almost five times more than the average of other wealthy countries.
Despite this higher spending, Americans live shorter lives and often face more barriers to care. They have worse outcomes in common health metrics like life expectancy, infant mortality, unmanaged diabetes, and safety during childbirth. Higher healthcare spending can be beneficial if it results in better health outcomes, but this is not the case in the US.
Some of this disparity can be attributed to aspects of the US health system, but socioeconomic and other factors also play a role. For example, the US has a significantly higher rate of years of life lost due to heart disease, transport accidents, and accidental poisoning (including drug overdose) than other nations. While cancer is a common cause of premature death in the US, most other countries have a similar rate of years of life lost due to cancer.
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Frequently asked questions
No, the United States is the only country where health insurance is tied to employment.
This system was established during World War II, when the nation faced a labour shortage and economists feared that businesses would keep raising salaries to compete for workers, leading to inflation. President Franklin Delano Roosevelt signed Executive Order 9250, freezing wages. Businesses then began to use benefits to compete, offering more generous health care insurance.
Americans are divided in their opinions of their healthcare system. In a 2022 Gallup poll, 47% were negative about it, while 40% were positive. While people may not be happy with their insurance, they are wary of change, and attempts at reform have failed.
The US system is unusual in that it leaves many people outside of it. Other countries, like Taiwan, South Korea, and Australia, have more efficient systems that provide universal coverage and emphasize prevention.
