The Original Mistake That Distorted the Health Insurance System in America

Republicans and conservatives have had twenty years to explain to the American public how health care was distorted decades ago — and they have failed. Here is the Myron Magnet writing at the Manhattan Institute:

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.

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, from health-maintenance organizations, which added administrative costs, to employee wellness programs, which helped keep workers alive long enough to develop the diseases of aging. Employer costs, in short, went up instead of down. Behind closed doors, executives remarked that it might be better if workers died before they retired, to ease the strain on the corporate pension fund.

Read more: Manhattan Institute