Our Healthcare “system”: can history explain some of it?

by | Aug 21, 2020 | Uncategorized | 0 comments

Unfortunately, with COVID-19, a lot of people lose their health insurance with their loss of a job. The USA is one of the only countries where employers provide health insurance’ and a lot of us rely on employer-provided insurance. Why did this happen? There is a historical reason for that. They’re a series of good ideas that had unintended consequences.

The big events leading to this happened during World War II. During World war II, many eligible workers were diverted to military service, and 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, establishing the Office of Economic Stabilization which froze wages. Businesses were not allowed to raise pay to attract workers.  As a response, businesses began to use benefits to compete-specifically, they offered more, and more generous, health care insurance.

Another event happened in 1943- the Internal Revenue Service decided that employer-based health insurance expenses should be exempt from taxation. This made it cheaper to get health insurance through a job than by other means. Unfortunately, employers and employees didn’t have any incentive to cut or control costs since there was a tax benefit. In response to this (among other reasons) Medicare and Medicaid were created in 1965 to benefit the elderly and children ( a big reason was that a lot of elders retired, were no longer insured, and ended up in poverty).

Most economists think employment and insurance should be decoupled—our current system leads to “job lock”, people not getting pay raises-a wage freeze (since employers provide benefits). There are other countries with private insurance that are not employer-provided; how they do that may serve as a useful model.


(Source: the NY times)

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