American Employer-Provided Healthcare Insurance

Last night, in the sixth Democratic Presidential debate, Hillary stated that she was in favor of keeping the "American Way" in healthcare. That is a code for employer-provided healthcare insurance. She stated that America had done it that way since the 1940's.

Specifically what she said is this:

And we are not England. We are not France. We inherited a system that was set up during World War II; 170 million Americans get health insurance right now through their employers.

So let's talk about this. Because Secretary Clinton implies that the system we have was "designed" specifically for the American economy. There is nothing further from the truth.

Healthcare costs were minor in the early 1900's. People paid cash for what little healthcare they needed. But there was a group of Americans who wanted some kind of protection because of their meager pay: teachers.

While its origins can be traced back to 1929, when a group of Dallas teachers contracted with a hospital to cover inpatient services for a fixed annual premium, the link between employment and private health insurance was strengthened by three key government decisions in the 1940s and 1950s. First, during World War II the War Labor Board ruled that wage and price controls did not apply to fringe benefits such as health insurance, leading many employers to institute ESI (Employer Sponsored Insurance). Second, in the late 1940s the National Labor Relations Board ruled that health insurance and other employee benefit plans were subject to collective bargaining. Third, in 1954 the Internal Revenue Service decreed that health insurance premiums paid by employers were exempt from income taxation.

The first decision, by the War Labor Board, was made totally in isolation and without much consideration of the impact. It was during the middle of the war. Wages were fixed. Control of what plants and cities critical workers chose could not be done by offering premium pay, so the War Labor Board decided that ESI could be a bargaining chip to hire workers. No thought at all about the long term impacts.

The second decision by the NLRB was done in a time of far higher unionization. And it was a mistake (in my opinion). Because it touched off the competition amongst unions that ultimately brought the disgust many Americans have today for unions: the appearance that unions cared more about getting anything they could than working.

And the IRS decision simply made it economically beneficial for companies to offer ESI, in a time where healthcare costs were low because many Americans didn't use all that many healthcare services.

So there was nothing designed or planned about it.

The quote above is taken from Employer-Sponsored Health Insurance and Health Reform . It has a bunch of interesting information about the economics of ESI. Including this:

Since economists typically assume that workers pay for health benefits through reductions in wages, why do workers choose to purchase insurance through their employers rather than on the individual market? The answer is that there are significant savings associated with ESI. First, there are substantial economies of scale when purchasing insurance through a group. Second, the problem of adverse selection (sicker individuals being more likely to sign up for coverage) is reduced in an employer-sponsored group, since a large group is likely to have something approaching the population average level of risk. Third, the fact that health insurance premiums are not subject to income taxation effectively reduces the price of insurance purchased through the employer.

Interesting:

1. Economies of scale. Gee, if the federal government, or a single insurer, was handling healthcare costs for everyone, would they have the best economy of scale?
2. Adverse selection. If the whole population is in the group, adverse selection is eliminated by definition.
3. Taxation. It's already tax-free, isn't it?

Universal health coverage, single payer, whatever you call it, seems to fit the same economic advantages that ESI does, and in spades. Maybe it boils down to whether you believe in continuing to support the Healthcare Insurance Industry.

But the fact that Congress prevents the Federal Government from negotiating the price of drugs for Medicare is just a tip-off that those Pharma donations really do buy something. And perhaps it is time we separated capitalism from healthcare. Sure, you might be willing to pay every penny you got to be better, but why should you?

I went to Medical School for a bunch of reasons, not one of which was to get rich. There are a class of medical students and physicians that do so, but maybe they don't belong in medicine. There are lots of bright young men and women trying to become doctors and nurses and PA's and NP's. Maybe they should have a chance, for reasons not related to money.

Oh, and the argument that we have done it this way since the 1940's, so it's good enough for me?

Bullshit!