The Origin of Employment Based Health Insurance in AmericaBy Capitalist in Chief
I recently got into a discussion with a liberal guy, who among other things, was complaining that it’s not good that health insurance is tied to a job. And if he looses his job, then he looses his health insurance as well, and that shouldn’t be so.
This brings up two important points. One specific and one more general. The general point is that it is so typical of liberals to invoke the necessity of government intervention to fix things that were caused by government intervention to begin with. And this brings me to the second more specific point:
Government intervention with the free markets is the reason why we have this distortion where health insurance is dependent on one’s job.
The beginning of employment based health insurance dates back to World War II. Back then it was thought unfair that so many soldiers risked their lives overseas for low government controlled wages, while those who stayed at home enjoyed high wages. Therefore those not fighting the war should also share the burden of war by having their wages controlled. In addition, shortages in labor due to increased wartime production and so many workers shipped to war, drove the cost of labor up, and wage controls were deemed necessary to keep production up. And therefore the U.S. government set wage limits in numerous private industries.
Consequently, to attract good workers, employers got around wage restrictions by offering various benefits, such as health insurance, pension plans, paid holidays, etc., that were not subject to the government mandated wage ceilings. And this is how the employment based health insurance we have today was born.
U.S. tax laws then further skewed the market in favor of an employment based health insurance system by allowing employers to get tax deductions for the expense of paying for such a benefit, yet not taxing employees for receiving it, and not allowing taxpayers to deduct the cost of insurance if they get it on their own. This effectively means that health insurance obtained through employment is not taxed, while health insurance obtained independently is.
Therefore, market distortions that emerged as a result of government intervention in the free markets is the reason why we have employment dependent health now. What’s the typical socialist solution then? More government intervention! Just swell…