An Accident of History

A fascinating article entitled, “The employer-health insurance connection an ‘accident of history’” by David Balat appeared in the November 9, 2019 edition of The Hill.

The article briefly traces the history of healthcare in the United States and how it evolved into an employer-sponsored benefit. “Most early prepaid medical care programs in this country began in the private sector. In the late 1800s, it became common for employers and unions to sponsor mutual aid programs or provide on-site medical care. After the stock market crash in 1929, people struggled to pay their hospital bills, and hospital occupancy fell. In response, hospitals started prepaid hospitalization plans that spread throughout the country.

“This collaboration between hospitals and a company that sold prepaid hospital service plans later became know as Blue Cross. The innovative payment arrangement was instrumental to meeting the rising demand for hospital care amidst an economic downturn.”

Mr. Balat notes that Blue Cross plans often operated as non-profits pursuant to state law exemptions. “By 1940, approximately half of the states had passed such legislation and six million people were covered by Blue Cross plans — approximately 4.5 percent of the population. By 1950, 57 percent of Americans had hospital insurance. Blue Cross benefitted significantly from governmental overreach that allowed the company to compete — with a competitive advantage over other private organizations.” Next, the author focuses on the impact of World War II price controls. “On April 11, 1941, President Franklin D. Roosevelt issued an executive order establishing the Office of Price Administration and Civilian Supply (OPA) ‘for the purpose of avoiding profiteering and unwarranted price rises, and of facilitating an adequate supply and the equitable distribution of materials and commodities for civilian use, and ... the stabilization of prices … in the interest of national defense.’

“The order granted the OPA unlimited authority to control the prices of materials and commodities. On Oct. 2, 1942, an amendment to the Emergency Price Control Act was passed, authorizing the president to freeze wages, which he did via executive order on Oct. 3, 1942. The wage freeze, however, did not apply to employer-provided insurance and pension benefits.”

The result, according to Mr. Balat, was that with wages frozen, and a tight labor market, employers resorted to offering benefits, including health insurance, to attract workers. “By 1953, 63 percent of Americans had employer-based health insurance, compared to only 9 percent in 1940.”

David Balat currently serves as the Director of the Right on Healthcare initiative with Texas Public Policy Foundation. He has a broad base of experience throughout the healthcare spectrum with special expertise in healthcare finance. He is a former Congressional candidate in Texas’ 2nd Congressional District and a seasoned hospital executive with more than 20 years of healthcare industry leadership and executive management experience.

Categories: Articles