Origins of our current healthcare system

Sunday, Jun 21, 2009

The heavy reliance on employer-sponsored insurance in the United States is, by many accounts, an accident of history that evolved in an unplanned way and, in the view of some, without the benefit of intelligent design. "If we had to do it over again," says economist Uwe Reinhardt, "no policy analyst would recommend this model."...

Two historic events prepared the way for the emergence of this system of insurance. The first was the decision by President Franklin D. Roosevelt after his election in 1932 not to pursue universal health care coverage. The second was a series of federal rules enacted in the 1940s and 1950s on how employer-sponsored insurance should be treated with respect to federal taxes and in labor negotiations.


President Roosevelt's decision left a pressing need for alternative forms of protection against the growing costs of illness. Private insurance emerged to fill this gap in the early 1930s in the form of the nonprofit Blue Cross and Blue Shield plans. Commercial insurers subsequently entered the business, once they saw that the Blues were successful. The resultant private insurance industry was therefore ready to sell insurance to employers when the opportunity to do so emerged during World War II.

This opportunity arose because, to control inflation in the overheated wartime economy, the federal government in 1942 limited employers' freedom to raise wages and thus to compete on the basis of pay for scarce workers However, the federal government allowed employers to expand benefits for workers, such as health insurance, which resulted in a rapid increase in employer-sponsored insurance. Several additional federal rulings followed that increased the attractiveness of the provision of employer-sponsored insurance to workers and their unions.

The New England Journal of Medicine, Employer-Sponsored Health Insurance in the United States — Origins and Implications, David Blumenthal, M.D., July 6, 2006,