A World War II-era mistake distorted the U.S. health insurance system. Reformers tried to fix the problem with patchwork solutions until Obamacare dumped yet another layer of misguided policy onto what was already a mess. Now the tangle is so perplexing that a Republican Congress, under a Republican president, could not even bring a health-insurance reform bill to a vote last week. But legislators will no doubt try to tackle the issue again, and when they do, they should consider erasing the original error instead of merely papering it over.
“Future reforms ought to get employers out of the healthcare business entirely, since they add nothing of value to the health of the nation.”
As World War II raged, competition for scarce labor grew fierce, what with so many able-bodied men in the military. Legislators, worried about possible runaway inflation, imposed wage controls in 1942. In response, employers began enticing workers by offering rich benefits in lieu of increased wages, and, as these benefits were not income, they were exempt from income and payroll taxes, a subsidy to workers and employers alike. Chief among these benefits was health insurance, whose cost was originally modest.
But as the cost of healthcare rose in the 1950s, retirees and the poor found insurance unaffordable, and President Johnson, who never saw a problem he didn’t think big government could solve, injected Medicare and Medicaid into the health-insurance business. Prices continued to rise, in part because of spectacular advances in medicine, such as the development of coronary bypass surgery in the late 1960s. By 1980, corporations found their medical-insurance costs increasingly burdensome. They tried all sorts of schemes to bring those costs under control....
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Myron Magnet, City Journal’s editor-at-large and its editor from 1994 through 2006, is a recipient of the National Humanities Medal. His latest book is The Founders at Home. This piece was adapted from City Journal.
This piece originally appeared in Los Angeles Times