Why We Have Such a Wacko Health Insurance System
My last post prompted me to revisit one from last May that I thought Bears might appreciate. For your delectation:
Conservatives love to point out that our employer-based health insurance system is a result of wage controls under FDR. Since employers weren’t able to attract workers with higher wages, they started offering benefits instead — notably health insurance.
I recently read Frank Freidel’s biography of FDR, and the whole story became clear.
By March, 1942, food cost almost 5 percent, and clothing 7.7 percent, more than on the day of Pearl Harbor; the cost of living had risen 15 percent since September 1939. [Leon] Henderson predicted prices might rise 23 percent more by the end of 1942. The nation, as Roosevelt well realized, was reaching the critical point where, as a result of price increases, demands for wage increases could force spiraling inflation.
Heavier taxes to drain excess buying power were imperative. [This is not complicated; see Abba Lerner on “Functional Finance.”]
So the wage controls that resulted in our ridiculous employer-based health-insurance system were a direct result of conservatives’ hypocrisy.
And now, notwithstanding Ryan’s obviously-never-gonna-happen voucher feint, conservatives have demonstrated themselves to be dead-set on maintaining the status quo of employer-based private health insurance (they had their “blank piece of paper” for six years of unfettered control, did nothing about it…) — the very “historical accident” that they so bemoan, and that they are responsible for inflicting on the nation.
Actually, there is a Congressional Research Study prepared for Congress, “The Tax Exclusion for Employer-Provided Health Insurance: Policy Issues Regarding the Repeal Debate” Nov. 21, 2008, which goes into the history of the tax exclusion of employer paid health care. The facts are that in the 1930s, group health insurance plans started to become more popular and its taxability as income was uncertain. In 1943, the IRS issued a ruling that group plans were not taxable income but individual plans were. Employers who gave money to their employees to buy health insurance found that their employees were taxed on that money, but employers who paid for the plans directly and offered their employees group health insurance plans found that their employees were not taxed on the money.
When the IRS noticed after the war how large the lost income from employer group health insurance was, the IRS wanted to reverse its 1943 ruling and include it as income to the employee. Congress stepped in and prevented the IRS from including the value of the group health insurance as employee income by passing in 1954 section 106 of the tax code that legislatively excluded employer paid health insurance from employee income.
The 1954 Congress is the key player. In the 1950s and 1960s, passbook savings account interest was also not included as income, the IRS decided to include it around early 1970, and Congress did not reverse the IRS at that time.
The trend in the 1930s and 1940s was to have more employers pay for health insurance. There is no indication that I have seen that the trend for group health insurance accelerated after Pearl Harbor as it was and still is a benefit given mostly by the larger companies. The 1943 IRS ruling was probably related to WW II as there was a tremendous need for war production labor in the US at the time.
The critical point is 1954 when Congress passes the law excluding the health insurance value from income against an IRS attempt to include it.
Why didn’t the Fed raise interest rates?
Milton, thanks that is great information. Now given that my last real job, not working for myself, was in 1981 — so my inability to deduct health insurance premiums has cost me tens of thousands of dollars over those decades — don’t even get me started on how I feel about that 1954 decision.
Spend a little money and incorporate……………?
The “FED” didn’t really exist as you know it now.
Plan an agenda covering three to five main topics. Try to set a time frame of 30 minutes or less, and stick to it. If meetings are running longer, that’s a signal that you aren’t meeting often enough. Thanks a lot.
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