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Why do Employers Pay for Health Insurance, Anyhow?

Nobody expects employers to provide groceries, housing or clothing, but for odd historical reasons American employers have evolved into providers of health insurance. Nearly two-thirds of Americans under 65 rely on health coverage from an employer.

There is no good reason for any of this, aside from historical accident. During World War II, federal wage controls prevented employers from wooing workers with higher pay, so companies started offering health insurance as a way around the law. Of course, this form of nonmonetary compensation is still pay. When the war ended, the practice stuck. For nearly all small buisnesses, health care costs are worse than taxes as it typically takes more than 15 percent of their budget.

Here is a summary of some of the problems with the current, seriously flawed system:

  • Makes it difficult or sometimes even impossible for people to change jobs.
  • Suppresses the creation of new businesses.
  • Handicaps traditional industries like auto and steel, whose medical burden for retirees is staggering.
  • Unfairly excludes the unemployed, the self-employed and low-skilled workers.
  • Seriously obscures who is paying what, making cost controls difficult.

New York Times November 2, 2003

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