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February 15, 2021

Employer-Sponsored Insurance Amid the Pandemic: Lessons From History

Author Affiliations
  • 1Department of History, University of Rochester, Rochester, New York
  • 2Department of Medicine, University of Rochester, Rochester, New York
JAMA Health Forum. 2021;2(2):e201526. doi:10.1001/jamahealthforum.2020.1526

The Great Depression could have ushered in nationalized health insurance. Instead, policy makers, leery of opposition from physicians as well as a backlash against progressive goals, narrowed their legislative focus to ensure success. The landmark Social Security Act of 1935 enshrined many of the benefits we are accustomed to today, including unemployment insurance and retirement and disability benefits. Yet notably, it did not address health care.

In the early 1930s, the rising costs of medical care during the Great Depression left many people in the US unable to pay for health care expenses, rendering hospital beds empty and physicians’ incomes plunging. Powerful stakeholders, including the American Medical Association and the American Hospital Association, recognized the benefit of private voluntary insurance plans to pay for medical services.1

These circumstances set the stage for the rise of employer-sponsored insurance. Originating from small prepaid hospital plans for employees, Blue Cross and Blue Shield exploded across the nation. In the absence of a government-sponsored health insurance plan, private employment-based insurers flourished.

This model was successful for several reasons. First, employees were generally young and healthy, thus creating a less costly risk pool. Second, President Roosevelt’s wage freeze during World War II did not apply to work-related benefits, which were also exempt from taxation. Thus, employers could entice and retain workers with the promise of generous health insurance benefits. Finally, insurers used targeted advertising to encourage people in the US to view health insurance as a benefit earned through hard work rather than a right.2

By filling the void left by the absence of national health insurance, private insurance undercut middle-class support for such a program. As the needs of relatively healthy middle-class families were met, it became increasingly difficult to mobilize a political constituency for change. Ultimately, the rise and success of private health insurance helped ensure its continued existence.

Sociologist Paul Starr has described this process as a policy trap, referring to the creation of a costly, inefficient system of health insurance that satisfies enough individuals and powerful stakeholders to neutralize an effective constituency for change.3 Key to this “trap” is that employer-sponsored insurance conceals its true costs in tax-subsidized premiums, lost wages, and lost tax revenue and instead is cloaked in an aura of merit—an earned benefit for those who work and are thereby responsible for their health. Targeted government programs, such as Medicare, Veterans Affairs health care, or Tricare military health coverage, serve well-circumscribed groups that society has deemed “deserving.”

As a result, our current health care system is inconsistent and rife with narrow exemptions—for example, providing nationalized health insurance through Medicare for individuals with end-stage kidney disease but not for those with failing livers. At each reform juncture, piecemeal solutions and stopgaps have been developed. To address some limitations of employer-sponsored insurance, Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) in 1985, allowing for continued coverage after job loss under a narrow set of circumstances. The Affordable Care Act (ACA), passed in 2010, also built on the employer-sponsored insurance model while creating a regulated health insurance marketplace.

How will the coronavirus disease 2019 (COVID-19) pandemic and its attendant fiscal crisis influence health insurance? Initial estimates were alarming, suggesting widespread losses. Although data are lacking, losses of employer-sponsored insurance appear to lag far behind reported job losses. Many lost jobs were in sectors that may not provide health insurance, such as in hospitality and food services. Some early job losses were followed by job gains. Anticipated losses of insurance coverage are lower than initial estimates, as many individuals accessed public insurance or purchased health insurance on the exchanges. Through the CARES (Coronavirus Aid, Relief, and Economic Security) Act, Congress increased the federal Medicaid match rate by 6.2% for states that agreed to maintain coverage for current Medicaid enrollees during the COVID-19 public health emergency. However, other Congressional proposals for expanding health care access have not been enacted. The Trump administration also declined to approve a special enrollment period on the federal ACA exchanges.

The incoming Biden administration has prioritized the pandemic response. Its current pandemic response proposals perpetuate the current system supported by powerful industry stakeholders favoring employer-sponsored insurance. President Biden has favored a plan for federal funding of COBRA premiums, an inefficient solution that would benefit the same private insurance companies that are already benefiting from the pandemic as a result of reduced expenditures on medical care. Expanding eligibility for subsidies on the ACA exchanges is another popular and common-sense proposal, which would benefit many. However, it would not address a significant barrier for the newly insured: paying out-of-pocket premiums, with a subsidy eligibility calculated based on prepandemic income.

To address health care coverage during the ongoing pandemic, it is critical to rethink access to health insurance outside the lens of employer-sponsored insurance and rapidly expand eligibility for existing programs without immediate out-of-pocket expenditures for newly unemployed individuals. Furthermore, these measures could serve as prototypes for future policy interventions to expand insurance eligibility.

What can policy makers learn from the recent and more distant history of health insurance? Avoiding the policy trap of employer-sponsored insurance requires novel thinking to find rapid solutions to expand access to health insurance. With federal funding, states could expand Medicaid to all newly unemployed or uninsured people in the US, without means testing, as an emergency measure. This approach would be far more cost-effective to insure millions of people than subsidizing COBRA premiums. Alternatively, if such Medicaid expansion meets insurmountable political resistance, unemployment aid could be matched by immediate premium relief for ACA marketplace bronze and silver plans, regardless of income reported on prior tax returns. Individuals receiving unemployment benefits could receive a voucher to access premium-free coverage on the existing ACA’s exchanges without requiring an immediate out-of-pocket payment. This could also help stabilize the exchanges by ensuring ongoing enrollment.

Major challenges call for big policy solutions. The enactment of the Social Security Act during the Great Depression was a missed opportunity to provide health insurance for all people in the US. During this unprecedented pandemic and fiscal crisis, the US should seize the opportunity to innovate, expand access to health insurance, and rethink the nation’s reliance on employer-sponsored insurance as the primary and preferred way to obtain health insurance.

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Article Information

Open Access: This is an open access article distributed under the terms of the CC-BY License. © 2021 Raz M. JAMA Health Forum.

Corresponding Author: Mical Raz, MD, PhD, MSHP, Departments of History and Medicine, University of Rochester, 500 Joseph C. Wilson Blvd, Rochester, NY 14627 (micalraz@rochester.edu).

Conflict of Interest Disclosures: None reported.

References
1.
Starr  P.  The Social Transformation of American Medicine. Basic Books; 1982.
2.
Rothman  DJ.  The public presentation of Blue Cross, 1935-1965.   J Health Polit Policy Law. 1991;16(4):671-693. doi:10.1215/03616878-16-4-671PubMedGoogle ScholarCrossref
3.
Starr  P.  Remedy and Reaction: The Peculiar American Struggle Over Health Care Reform. Yale University Press; 2011.
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    2 Comments for this article
    What About Single Payer?
    Alan Meyers, MD, MPH | Boston University School of Medicine
    "Major challenges call for big policy solutions." Indeed. So why does the author fail to mention single-payer "improved Medicare for all" national health insurance, as manifest in HR 1384, S 1129, and numerous state legislative initiatives? For more information, visit the websites of Physicians for a National Health Program and National Nurses United.
    CONFLICT OF INTEREST: None Reported
    National Health Insurance
    Harald Aanning, MD | Retired General Surgeon
    When I asked several small business owners in our small town in South Dakota if national health insurance would encourage their hiring of employees their response was an unequivocal yes!
    CONFLICT OF INTEREST: None Reported
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