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It is interesting to note that the American free market health insurance paradigm consists mostly of employer-provided insurance, which employees have come to expect as a benefit to a reasonable work environment. Health insurance for business has become a staple of American industry; few good employers are without it. However, it is strange that health insurance, along with vacation time, is the only truly consistent benefit that employers carry; the remaining benefits range typically range widely, and employees are left to select their own services from their salaries and wages.

How did this start? Originally, health services were paid for out of pocket, largely due to the limit of medical technology available at the time. As new advances started becoming available, new forms of payment had to be create. Pre-paid hospital service plans were available during the 1930’s, which were purchased individually. During the second world war, however, the government enacted the Stabilization Act of 1942, which greatly prohibited the increase of employee wages so that employers would not compete over scarce labor. What they were allowed to do, however, was offer fringe benefits, such as health insurance. As the practice became more popular, in 1943 a tax court ruling allowed employer-provided medical benefits to be tax-exempt, and over time other factors, such as some state laws which make the provision of health insurance mandatory for businesses, helped make health insurance for business the common cultural practice that it is today.

Health insurance for business seems to be in decline today. Health care costs have continued to rise greatly and as businesses begin tightening up in the economy and the push for universal health care becomes stronger, it is becoming apparent that the costly practice of employer-provided health insurance may not be around as extensively as it is in its current form for much longer. What paradigm will take its place, however, remains to be seen.

This Economics & Policy article was written by Mark Karavan on 11/11/2009