April 12, 2012
An Historical Comment on Health Care Benefits

As discussion of the Obama health care law heats up again, now that the primary seems decided for the Republicans, I thought I’d throw out a piece of information that not a lot of people appear to know, but that seems relevant to the issue:

Have you ever wondered why you get health care benefits from your employer, rather than buying them on your own (like you do your house and your car) or getting them as part of a national package of benefits (like pretty much every industrial/postindustrial democracy other than the United States)? It turns out the answer is an accident of history.

Prior to WWII, basically no one had a health care benefit plan in America. If you got sick, you paid your bill out of your savings and earnings. In rural areas, doctors took barter—the infamous chicken, for example. After all, there wasn’t all that much doctors and hospitals could do for you in the days before penicillin, and you weren’t going to linger for weeks and months in a hospital before you died. Paying for care was “manageable,” to use that loaded term.

That changed during WWII. As men got drafted in their millions, vast labor shortages broke out across the nation—at exactly the time labor needs increased to produce the weapons of war. In part, the labor shortage was met by the infusion of women into the paid workforce, but regardless of women’s contributions to the labor pool, labor shortages were endemic throughout the war.

Elementary economic theory notes that anything scarce tends to go up in price; the same is true for labor. When labor is scarce, employers seeking workers raise their salary offerings to attract labor from other jobs.

However, in WWII wages were frozen. Employers couldn’t compete for labor with salaries. So they competed on benefits—including, notably, health care benefits. They couldn’t pay you more directly, so they gave you more indirectly.

The principle of employer-provided health care benefits stuck after WWII. Unions negotiated generous packages; white collar workers wanted at least as much; and the modern system of employer-provided health care benefits became the established norm—just a few decades after a time when no one would have had any health care benefits at all.

Note that this was never the case in the rest of the industrial/post-industrial democracies.They decided to make national health care benefits part of their national mission after WWII because just as they had borne the suffering of the war together, they believed it was right to provide care in a collective, state-centric way. Hence they built national, non-profit health care systems, not employer-derived, for-profit systems.

In the US, of course, we now live in a world where there is so much health care, and that health care is so expensive, that we are frightened of living as my grandparents basically did, and my great-grandparents certainly did: paying for our own medical care on an as-needed, fee-for-service basis. Instead, as an accident of history, we are all just a job loss or poor job opportunity away from being without good insurance for health care. Which ought to scare pretty much, well, everyone in the United States.