Can you explain to a Non-American what forces this system of employer insurance onto the US? Why don't independent insurance companies emerge that offer other models of insurance?
The history: wage-price controls implemented during WWII as labour was taken up by the military and companies had to find some basis other than pay on which to differentiate. Benefits, including health care, were excluded from wage consideration.
Insurance itself is the business of assessing, managing, and sharing (or "pooling") risk. In the case of health care, the typical costs that a given population will face are predictable based on age, gender, and various exposures. Given a sufficiently large number of people, a group or policy cost can be assessed. Along with other groups, this results in pooled risk.
I'm not an actuary, but "large pool" risk is fairly low, I suspect it's on the order of 30 or so people. Smaller pools can be formed (or more likely: aggregated to form larger ones), down to a small number of members, as few as a handful or so.
The idea being that in any given pool, what's called "adverse selection" (people specifically looking for insurance due to high risks) are less likely -- you're dealing with the average population.
In individual markets, all of this becomes much less predictable, and/or the transaction and administrative costs of individual insurance simply add up.
Since a large share of the population works, or lives in a household with someone who does, allocating healthcare group insurance through employment has more-or-less stuck in the US.
The fact that it provides yet more leverage and control by employers over employees is another factor, of course.
Source: A long time ago in a galaxy far, far away, I studied this at uni. Plus more recent experiences / exploration.
Adverse selection is the big reason. An individual signing up for insurance can be used as a signal that means "individual is sick" or "individual is likely to need insurance soon". If a company policy covers all employees (or all employees above a certain level), the signal is "person works" which is orthogonal to "person will need insurance" (in fact, it's probably slightly anti-correlated, a.k.a. "person is fit enough to work").
"Small-group" coverage is generally 50 or fewer (in some states, 100) members:
https://www.healthinsurance.org/glossary/small-group-health-...
Otherwise, the socialised version already exists, in most industrialised countries, in some form or another. Within the US, Medicare for the elderly, Medicaid for the poor and children, and in many states, "high risk pools" which are state managed.
More generally, a problem is that the bulk of health benefits do _not_ accrue from direct or acute medical treatment, but from public health and preventive measures, _especially_ well-mother, well-baby, early childhood, municipal sanitation and environmental measures, and general (workplace and elsewhere) safety provisions. Insurance companies of and by themselves don't address much of this.
If your employer pays your insurance premiums, this doesn't count as taxable income for you. So you effectively have a choice that looks like:
- Your employer directly pays $200/mo for your insurance, or
- Your employer pays you $200/mo as cash, the government takes $40 (adjust as appropriate for tax bracket) out as income taxes, and you have $160/mo left over to pay for health insurance.
I can't really speak to the political forces that keep this subsidy in place, though.
https://www.taxpolicycenter.org/briefing-book/how-does-tax-e...
Also, for simplicity, I left out payroll taxes, which are invisibly paid by your employer directly to the government ( https://squareup.com/us/en/townsquare/payroll-taxes-defined ).
So the choice from earlier is actually more correctly stated as:
- Your employer directly pays $220/mo for your insurance, or
- Your employer pays you $200/mo as cash and pays $20/mo directly to the government in payroll taxes, totaling $220/mo. Then the government takes $40 (adjust as appropriate for tax bracket) out of your paycheck as income taxes, and you have $160/mo left over to pay for health insurance.
The payroll tax issue would apply even if you could fully deduct the $200/mo from your personal taxable income.
> seems easy to fix. Why isn't that part of the health care discussion?
I am as mystified as you are.
Payroll taxes are another matter to me, that's mostly window dressing. Either employer pays the tax to the government, or pays it to employees and they pay it to the government. The outcome is the same.
I think payroll taxes exist mostly to hide the amount of taxes they pay from the population.
Big business in the U.S. gets what it wants, and if they didn’t want employer provided healthcare it would be gone, but it’s not gone so it means they like it.
If there was universal healthcare in the U.S. there would be an explosion of small business. Most small business can’t afford to provide healthcare, and if you have an existing health condition there is no guarantee that the plan from your new employer, if they have a plan, will include your doctor, or that they agree with the old doctor’s treatment plan.
If insurance costs $500/mo, either your company can pay the premium for you directly, with no taxable event for you; or, they can give you $500 more as a part of your salary, but the government will take $150 of that (or whatever, depending on your tax bracket), and then you have $350 to cover a $500 expense.
Individuals can deduct medical/insurance payments on their taxes every year, but: 1) the rules are complicated with some payment minimums that mean a lot of people couldn't take the deduction at all, and 2) you have to come up with the extra $150 every month for 12 months before you get that money back (since the US tax system is pay-as-you-go with per-paycheck withholding), which is a real burden for many Americans.
Alternatively, your company can give you $715 per month, the government will take $215 of that in taxes, and then you have $500 left over to pay your $500 insurance bill, but: 1) your company would very much rather pay $500 instead of give you $715, and 2) that $715 is actually not a hard number, but will vary depending on each employee's personal tax situation, which can change throughout the year, and your company likely doesn't care to deal with that (this is less of a big deal, since it could be outsourced to a piece of software written by a payroll company).
Why do Americans put up with this? Many of them (most?) just don't understand how this all works, and so don't even know they're getting screwed. Many have no concept of systems in other countries that handle this better, in part because they don't travel and don't have friends or family abroad, but more because of concerted misinformation campaigns around any kind of changes to our health care system that would threaten the incumbents.
I guess big business doesn't "prevent" alternative insurance companies; there are plenty of available options for insurance that individuals can purchase on their own. But it generally costs more (because you're not an HR benefits person negotiating on behalf of your 500-, 1000-, 50000-person company), and you end up with the bad tax consequences described above.
If you're an enterprising individual who wants to set up an alternative insurance company that charges very low premiums for great plans, you run into the problem of having no negotiating power with health care providers, who are used to charging high prices because the traditional insurers will pay them.
Other (more concerning) items you itemize are the real blockers.
Regardless, there's a reason why I marked that issue as "not a big deal" -- because it isn't -- the other issues I mention are the meat of it.
Individual health insurance plans do exist, but few healthy people buy them, so the pool is sicker than average, so the insurance costs more, so even fewer healthy people buy the plans, and so on.
Employer group plans cost less in part because the pool is generally healthy.