In the United States, chances are that when you look for a job, you will consider not just your potential salary, work environment, and duties, but one other crucial factor: benefits. In this country, the mark of a “good” job has long been that it offers health insurance (and usually other benefits, such as a pension or retirement plan, or dental insurance). While Americans tend to view employer-provided health coverage as an innate part of our health-care system, in most other rich countries no such system exists. So how did this system develop in the United States, and what are the alternatives, as practiced in other countries?
First, in any comparison with other countries, it is important to note that the United States has not one, but several different types of health-care systems. Employer-provided coverage may dominate, but substantial numbers of people are insured through either self-purchased private insurance or government programs like Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP). According to data from the Centers for Disease Control and Prevention (CDC), 53% of US children under age 18 are covered through private insurance, while 41% are covered by public programs like Medicaid, the joint state–federal insurance program for the poor, and CHIP, which is similar to Medicaid but covers children whose families are not poor enough to qualify for Medicaid. The remainder of children, about 7%, are uninsured. Among adults ages 18–64, 64.2% have private health insurance, 15.9% have public health insurance, and 21.3% are uninsured. Starting next year, the number of uninsured will most likely drop — and the number with both private and public insurance, rise — as a result of the Affordable Care Act (“Obamacare”). All adults ages 65 and above are, of course, covered by Medicare, a public program administered by the federal government.
The origins of widespread employer-based health insurance in the United States can be traced to World War II, when wage and price controls were in place across the country. As a 2009 story from NPR describes, companies offered health insurance during the war as a way to lure workers whose wages they could not legally raise. The Internal Revenue Service (IRS) ruled in 1943 that employer-based health insurance should not count as pay, confirming that it was both legal under wage controls and tax-free — which it has remained ever since. As a result of this tax-free treatment, it is in the interest of companies to offer it (they get to deduct it as a business expense) and employees to receive it (part of their income, effectively, is not taxed). Participation in job-based health insurance rose from 9% of the population in 1940 to 63% of the population in 1953, and it has remained high since then.
So what other systems are out there? The first country to adopt government-funded health insurance was Germany, in 1883. Unlike many countries with universally available government-funded health insurance, however, Germany allows people above a certain income level (€4,237.50 per month), as well as some other groups like students, to opt out of the public system and buy private health insurance; which about 15% of the population has. For the 85% of people in the public system, a fixed percentage of their income is taxed to help pay for their insurance; coverage continues regardless of employment status. Like many countries, Germany has a mix of both private and public medical practices and hospitals, nearly all of which accept both public and private insurance.
Another early adopter (in 1912) of universal public insurance, Norway is a classic example of a “single-payer” health insurance system. This means that the government covers everyone in a single program, although in Norway the system is administered by region rather than centrally. All funding for the system, however, comes from tax revenue from the central government, and doctors must accept government payment rates if they wish to participate in the system. Other examples of single-payer systems include Medicare in the United States, as well as Canada’s health insurance system, also called Medicare (which covers all Canadian residents, not just seniors). Similar systems exist in Australia, Japan, Italy, and several other European countries.
Some critics of the Affordable Care Act, like early critics of Medicare in the 1960’s, have referred to the program as “socialized medicine.” To see an actual example of socialized medicine, however, one need look no further than the National Health Service (NHS) in Britain. All residents of the country are covered in the program, which acts not just as a “single payer” but also, effectively, a “single provider”: Most doctors are either salaried employees of, or have a service contract with, the NHS. This integration of payment with care means that doctors have little incentive to perform frivolous tests or procedures; they are generally not paid on a per-visit or per-procedure basis. It also means that doctors can be paid bonuses for fostering healthy habits in patients, such as helping them quit smoking, which saves money overall. Another example of an integrated payment/provider system is the Veterans Affairs (VA) Clinic system in the United States.
For a glimpse of what their health insurance system may look like in the future, Americans may want to look to tiny Switzerland. Here, all residents are required to buy private insurance (although in Switzerland, unlike in the United States, all basic insurance providers are nonprofit), and the government provides subsidies to those who would otherwise have trouble affording insurance. This mechanism is virtually identical to the insurance marketplace created by the Affordable Care Act in the United States. In Switzerland, however, subsidies start at the very bottom of the income scale, since there is no separate insurance program for the poor. (Under the Affordable Care Act, people below a certain income level are not eligible for subsidies, since the law was designed to make them eligible for Medicaid; however, due to a US Supreme Court ruling, states can opt out of covering these people under Medicaid, leaving many poor people with no affordable insurance option.) Perhaps not surprisingly, given that its system is more privatized than those in most rich countries, Switzerland consistently ranks high on lists of health-care spending as a share of a country’s economy — in some years, it is a distant second behind the United States, which consistently outspends every other country by a long shot.
Next week’s post will examine spending and outcomes in different countries’ health insurance systems. But for now — what do you think of employer-provided health insurance? Do you see any inherent advantages to the system? If the tax incentives were removed, would you prefer to shop for your own policy rather than get insurance through your employer? Or would you prefer a standard policy offered by the government to everyone, i.e. a single-payer system, like Medicare? Leave a comment below!