In 1940, less than 10 percent of Americans had group health insurance through their employer. Fast forward to 1955, and 70 percent had it. Today, 90 percent of Americans with medical expense insurance have it through their employer.
What triggered this rush toward employer-sponsored health insurance?
This is an example where the invisible hand of the free market – with a little nudge from the government — did bring social benefits to millions of people. During World War II, the U.S. economy was growing fast, and with so many men in the military, there was a shortage of workers. Employers had to hustle to attract workers to their businesses. Typically, employers will increase wages when there is a high demand for workers, but the government was enforcing strict price and wage controls to keep prices down. However, the government also exempted health benefits from taxation.
Employers realized they could side-step restrictions and increase the compensation of workers by providing them with health insurance benefits. These benefits continued to grow and have developed into more comprehensive and portable health insurance plans, which – ironically – are now strictly controlled and regulated by federal and state laws.
The fly in the ointment of this classic example of benevolent capitalism is that the cost of medical care has grown faster than wages and inflation. National health expenditure per person has increased by $9,000 since 1970 after adjusting for inflation (source).
The cost of healthcare is so expensive that 50 percent of American households have skipped some sort of medical treatment because they could not afford the cost. And yet the United States is still the developed country that spends the most on healthcare costs (source).
Also, many businesses have no problem filling vacancies and do not feel the need (and are not required) to provide competitive health plans. Then there are freelancers and self-employed workers with pre-existing conditions who did not qualify for group insurance.
These and other issues have forced health care providers and government agencies to look into ways to redesign health insurance benefits to control costs and provide coverage to those that require it.
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Individual vs. group medical expense insurance
Whether you can get medical insurance through your employer or have to purchase an individual plan, it is a good idea to understand the benefits of each option. Recent law changes are actually blending the features of individual and group plans.
What are the benefits of group medical insurance today?
There are many advantages to purchasing insurance as part of a group. Here are the main ones:
- Group plans are offered to all workers in the plan, even if they have pre-existing medical conditions. Before the Patient Protection and Affordable Care Act (PPACA) of 2010, employer-sponsored group medical plans were the only option for people with pre-existing medical conditions.
- Businesses can deduct the employer portion of group medical premiums as a business expense. Employers can also organize their health insurance benefits in a way that allows workers to pay for their premiums with pre-tax dollars, which further lowers the cost of insurance.
- Coverage is often better when you are part of a large group. For instance, large group plans often offer policyholders supplemental coverages, such as vision, dental, and prescription cards.
- Employer-sponsored plans are obviously cheaper for policyholders because the business pays for a portion of the plan. In many cases, the plan also provides coverage to the workers’ dependents.
- Workers may also receive additional support and advice from employers when they need to make a claim.
- These benefits are so valuable that many workers will stay in a job they hate because they fear losing health benefits they may not obtain elsewhere.
What are the benefits of individual medical coverage plans?
These are some advantages that come with individual plans.
- Since the enactment of the PPACA, individual plans are also guaranteed (although the cost can be prohibitive for some) and also renewable. This means your health insurance benefits will not end if you are fired or laid off.
- Individual plans also make it easier to move from one job to another without having to worry about how it will affect your health insurance benefits as there is no gap in coverage when you are unemployed or in between jobs. Your individual plan will remain in place (as long as you pay the premiums), whether you are employed or immediately starting a new job.
- Although employer-provided plans will typically provide better coverage at a lower cost, some workers prefer the flexibility of an individual plan. If you do choose to get an individual plan, make sure you compare multiple health insurers. Prices can vary dramatically from one insurer to another and you can save hundreds of dollars a year by just asking for a couple of quotes or checking your options on the health insurance marketplace.
About the Author:
Andrew is the managing editor for SuperMoney and a certified personal finance counsellor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.