How Did US Healthcare Get Linked to Employment?

By Holly Hayes

In the 19th century, hospitals were shelters for the sick or dying supported by churches or other religious institutions. By the 20th century, medical care was more advanced and more expensive. Hospital administrators began to search for ways to pay for ever advancing costly medical procedures.

Marc Bard and Mike Nugent in their book Accountable Care Organizations, Your Guide to Strategy, Design, and Implementation, write about the birth of the US healthcare system. Rather than a well-thought out business, the US healthcare system was more a series of accidents. In the middle of World War II, most of the labor force was in the military, leaving businesses with few job applicants and no choice but to compete by raising salaries. The Roosevelt administration sought to control salary inflation by instituting a national wage control — with one loophole – fringe benefits were exempt from the wage controls. Health plans emerged as a way to recruit employees. In 1943, the IRS ruled that these health benefits were exempt from income taxes. South Africa is one of the few other countries that links healthcare coverage to employment.

Healthcare insurance had its birth when “An official at Baylor University Hospital in Dallas noticed that Americans, on average, were spending more on cosmetics than on medical care. ‘We spend a dollar or so at a time for cosmetics and do not notice the high cost,’ he said. ‘The ribbon-counter clerk can pay 50 cents, 75 cents or $1 a month, yet it would take about 20 years to set aside [money for] a large hospital bill.” (Read more here) At its beginning, a monthly payment of 50 cents a month could be exchanged for 21 days of free care at the hospital. The plan was marketed to teachers who signed up in masses. A PBR timeline of historical events in heatlhcare can be seen here.

In 1950, healthcare was 4.5% of GNP, in 2011, it was 17% of GNP. Lacking a healthcare system that imposes its own cost controls, accountable care organizations (ACOs) offer a new idea for controlling costs while improving patient care. In a series of posts, we will explore the components of the development of a successful ACO. For previous posts on the development of ACOs, see here, here and here.

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Holly Hayes is a mediator at Karl Bayer, Dispute Resolution Expert where she focuses on mediation of health care disputes. Holly holds a B.A. from Southern Methodist University and a Masters in Health Administration from Duke University. She can be reached at holly@karlbayer.com.