Government health care in America - part 1 — VOICES for REASONVOICES for REASON

Americans have been increasingly hostile towards President Obama and his fellow health care reformers. It’s a sign that the frustration with Big Government that sparked the Tea Party movement hasn’t eased and may be spreading. There’s a certain irony in the protests, however: thousands of citizens are jamming town-hall meetings and clamoring that they don’t want Washington bureaucrats intervening in their health care—without realizing just how much the bureaucrats already interfere.

The U.S. government has its hands in every aspect of medicine—regulating and dictating everything from the insurance we receive to the drugs available to us. To explore the extent of government involvement already taking place, my next few posts will consider some of the ways in which government influences the quality, cost and availability of medical care in the United States.

To begin, let’s take a look at one of the prominent features of our health care system: employer-sponsored health insurance. Businesses large and small struggle with the cost of providing health insurance for their employees. Employees begrudge a lack of options and volatility in coverage caused by employers looking for cheaper plans. People everywhere fear losing their job—or alternatively, feel trapped in jobs they dislike—for fear of losing coverage. So why do we have employer-sponsored health insurance? Employers don’t pay for our car or homeowner’s insurance, so why does over 60 percent of the population—including over 90 percent of the privately-insured under age 65—rely on their employer for health insurance? Essentially, it is because the U.S. government has incentivized and forced that outcome for more than sixty years.

The prevalence of employer-sponsored health insurance is rooted in government action during the 1940s and 50s, beginning with the Stabilization Act of 1942. This bill, which remained in effect throughout World War II, gave the government enormous control over the economy and imposed sweeping wage and price freezes across the U.S. Although it forbade wage increases, the law did not prohibit the expansion of employee benefits, and businesses began to offer health benefits as a means of attracting and retaining employees. In a country with a workforce depleted from the war, offering health benefits was a way of circumventing the wage freeze to gain a competitive advantage in the battle for scarce labor.

A further incentive for employers to provide health benefits came in the form of a 1943 tax court ruling, later codified in the Internal Revenue Code in 1954. This ruling stated that insurance premiums made by employers on behalf of employees were not taxable, meaning it was now economically advantageous for businesses to offer tax-exempt health benefits in place of taxable wages. Such an exemption, however, was not—and never has been—extended to individuals purchasing health insurance on their own. Thus through tax policy, the U.S. government created not only a strong incentive for employers to offer health insurance as a benefit, but also a strong incentive for individuals to seek insurance through their employer.

These tax incentives, perhaps more than any other government intervention, have ensured that employer-sponsored insurance has become the fixture of the U.S. health care system that it is today. But they alone are not the whole story. Where these incentives are not enough to induce a business to offer health benefits, legislation often forces businesses to provide them. Such legislation includes federal laws such as the Taft-Hartley Labor Relations Act of 1947, which requires businesses to negotiate with unions for health benefits, and state laws such as those in Massachusetts, where businesses are fined unless they provide coverage for their employees.

What consequences has this government-engineered dominance of employer-sponsored insurance had on health care in the U.S.?  As I’ll discuss in my next post, it has not simply influenced the way in which we purchase health insurance, but has also driven up the demand for—and cost of—medical care.