Way back in 2005 I wanted to better understand how the U.S. system of health insurance was established, as America clearly has an institutional apathy that once a system is in place, it seems nearly impossible to change. I wrote an awesome history of the employer-provided insurance system with some commentary about its evolution. Funny thing is, that little has changed since I wrote this in 2005. Over the next few days I will publish excerpts from the paper in this space, as the information seems as relevant now as ever.

The United States’ arrangement of health insurance provision is unique when compared to other industrialized countries.  The system has a highly complex interaction between largely private insurers and providers working with some public insurers and providers, as well as exceptionally higher total health spending.[1]  However, another factor that is unique to the American system is the role of the employer as the provider of access to health insurance for their employees and dependents as part of the workers’ total fringe benefits package.  The institution of employer-based provision of health care creates many issues that are overlooked or disregarded, in the basic debate of the merits of public versus private insurance.

An employer’s decision to offer health care benefits to their employees is voluntary and completely discretionary.  Despite that, two-thirds of Americans under 65 receive their health insurance through an employer, either as an employee, spouse or dependent of an employee, or a retiree—that is approximately 140 million people.[2]  Employers chose to offer health insurance benefits to their employees for many prudent reasons, and many, especially those in large and mid-sized companies, prefer their role in health benefits provision as an alternative to government intervention or a government take-over of the system.  Most employers who provide health insurance also subsidize the cost of the premiums, paying on average 86 percent of the cost for their employees, although this usually means a decrease in wage income.  However, employers today are expressing their concerns over the ever-rising cost of providing health care benefits for their employees and the negative effect these costs are having on their companies’ finances; many employers are actively seeking changes to the system.[3]

History of the Employer-Provided
Health Benefits System

Origins of Private Health Insurance

Health insurance systems were formalized early in the twentieth century because of the initiative taken on by providers—hospitals and physicians—trying to secure an income.  Before World War I, the federal government began considering legislation that would provide medical insurance to Americans on both the federal and state level, but the initiatives failed because of interest group opposition, and the country’s entry into the war.  By 1920, the American Medical Association, or AMA, the largest interest group of physicians, enjoying their control over the current system, forcefully opposed any legislation requiring compulsory or government-provided insurance.[4]  As a means of pre-empting what they considered a far worse alternative, organized medicine began to offer forms of voluntary insurance.  The American Hospital Association established the first Blue Cross group and the California Medical Association established the first Blue Shield.  Hospital and physician control over “the Blues” guaranteed them a generous reimbursement for their services.[5]

Successive attempts to pass legislation for a universal, government-based system all failed.  The provision was excluded from the Social Security Act of 1935 during the Roosevelt administration; attempts to pass national health insurance by the Truman administration failed because of a powerful public relations campaign led by the AMA, and their success at demonizing universal insurance as “socialized medicine.”[6]  At this time physicians also opposed employer-provided health insurance, because they perceived the collective establishment and purchasing power of the employer as a mechanism that could challenge their autonomy in health care provision, and thus ultimately their income, much the same as a government-run system.

[1] Anderson, Gerard F., Uwe E. Reinhardt, Peter S. Hussey, and Varduhi Petrosyan.  “It’s The Prices, Stupid: Why The United States Is So Different From Other Countries.”  Health Affairs Vol. 22, No. 3 (May/June 2003), 89.

[2] Statistics are from 1993.  Institute of Medicine, Employment and Health Benefits.  A Connection at Risk.  Marilyn J. Field and Harold T. Shapiro, editors.  (Washington, D.C.: National Academy Press, 1993), 1.

[3] Kaiser Family Foundation and Health Research and Educational Trust, “Employer Health Benefits: 2004 Summary of Findings,” 3.

[4] Institute of Medicine, 55, 58, 59, 63.

[5] Thomas S. Bodenheimer and Kevin Grumbach, Understanding Health Policy: A Clinical Approach, 4th ed. (New York: McGraw-Hill, 2005), 7 and Institute of Medicine, 187.

[6] Institute of Medicine, 64.