Why Do Employers Provide Health Insurance?

Posted on May 27, 2009

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Two interesting blog posts from the past several days discuss the role of employers in providing health insurance in the United States.

Jonathan Weber, a business owner, writes the following in a blog post entitled “Why Should I Have to Pay for My Employees’ Health Care?”

As the national debate on health care reform ramps up, we’re going to hear all kinds of claims about what is or is not good for business. To me, though, it’s pretty clear-cut: a system that gets me, as a small-business owner, out of the health-insurance business will be good for business, and anything else will either be no help or will make things worse.

Another blog post on the topic appeared in the New York Times’ Economix blog. Entitled “Is Employer-Based Health Insurance Worth Saving,” Princeton economist Uwe Reinhardt writes:

Ask any group of health policy experts whether they would have put in place our employment-based health insurance system, had they had the luxury of designing our health system from scratch, the resounding answer most likely would be “No.” In fact, no other industrialized country has quite this arrangement. It is uniquely American in origin and in modus operandi.

Both blog posts discuss the origins of the employer-based system we have in this country: it was a response to World War II era wage controls. Employers, looking for a way to supplement wages in order to attract employees, provided health insurance as a fringe benefit.

But despite the system’s origins – and whatever its flaws – there is a great deal of pressure to keep the employer-based model in place. Indeed, President Obama has been criticized by many on the left who are angry that he appears to be focusing on reforming the current model instead of working toward replacing it with a single-payer, government run system.

No matter one’s political views, the question being addressed by both of these posts is quite legitimate: why should employers be responsible for providing health care? Not only is the system a burden on employers, but it can be quite unfair to employees (or, to be more exact, former employees) – why should the loss of one’s job mean the loss of one’s health insurance?

I hope to explore this topic further in future posts. In the meantime, I’d appreciate comments from those who strongly support the employer-based system. Why should it be preserved, and how does it add value?

Posted in: Health Benefits