President Obama’s health care reform law survived its Supreme Court test and represents an important move toward universal coverage, but fails to address the problem of the high cost of US medical care. Outside observers often wonder why the US does not adopt the single-payer system used by almost all other industrial countries, especially since the US Medicare programme for the elderly is a single-payer system.
The principal reason is that a single-payer system would mean terminating the current system of employer-provided health insurance. Despite glaring flaws, beneficiaries have a morbid fear of abandoning the status quo. But how did the United States come to adopt an employment-based model for provision of health care? Cornell economist Robert H. Frank explains.
The United States probably would have adopted one of those [single-payer] models had it not been for historical accidents that led to widespread adoption of employer-provided plans in the 1940s. To control costs of World War II mobilization, regulators capped growth of private-sector wages, making it hard for employers to hire desperately needed workers.
But because many fringe benefits weren’t capped, employers spied a loophole: they could offer additional benefits, like health insurance. Its cost was deductible as a business expense, and in 1943 the Internal Revenue Service ruled that its value was not taxable as employee income. By 1953, employer health plans covered 63 percent of workers, versus only 9 percent in 1940. ….
Employer plans … are … deeply flawed. If you lose your job, you can lose your coverage. This problem has been cast into sharp relief by the persistent high unemployment in the wake of the financial crisis. In no other industrial country do we see communities organizing bake sales to help defray the cost of an uninsured neighbor’s cancer treatments.
Robert H. Frank, “Economic View: Giving Health Care a Chance to Evolve“, New York Times, 1 July 2012.
Because of unintended consequences of World War II wage controls, the United States faces enormous obstacles to health care reform, even though it has by far the world’s highest medical costs and has not been able to provide universal insurance for its population.
