Healthcare

EMPLOYER BASED HEALTH INSURANCE: A HISTORICAL PERSPECTIVE

         The development and growth of employer based health coverage has a long history in the United States dating back to the 1930’s.  Health insurance has come a long way from the days of “sickness” insurance to provide income replacement in the event of illness and the belief by commercial insurance company’s that health was not an insurable commodity.  Failed attempts at compulsory health insurance in the 1920’s were primarily due to low demand and doctors, pharmacists and insurance companies opposed to the idea - the latter opposition remaining unchanged today.

          The advent of medical technology, population shifts from rural to urban centers, and higher incomes, lead to the birth of Blue Cross and Blue Shield insurance programs.[8]  To overcome issues of adverse selection, employer based health coverage began to take hold and gain momentum.  “Offering insurance policies to employee groups not only benefited insurers, but also benefited employers.”[9] 

          During WWII several events occurred dramatically spurring the growth of employer based health coverage.  During WWII, the 1942 Stabilization Act limited wage increases that could be offered by firms. As a result, the adoption of employee insurance plans became a highly successful way to attract workers.  In 1945, the War Labor Board ruled that employers could not modify or cancel group insurance plans during their contract period, and in 1949, the National Labor Relations Board ruled in a dispute between Inland Steel and U.S. Steelworkers Union that “wages” included pension and benefits.  This allowed unions, when negotiating for wages to also negotiate benefit packages on behalf of workers.  This ruling was later affirmed by the U.S. Supreme Court further reinforcing the employment based system of health coverage. [10]

         Even more influential on the employer based system was the tax treatment of employer provided contributions to employee health insurance plans.  Employers did not have to pay payroll tax on their contributions and employees did not have to pay income tax on their employer’s contributions increasing the demand for health insurance further throughout the 1950’s.[11]