Health Insurance and Inefficiency

I wouldn't even trust you
I've not got much to give
We're dealing in the limits
And we don't know who with
--New Order

Interesting paper discussing the origins and growth of health insurance in the US. The author begins with the 1930s when hospitals (Blue Cross) and docs (Blue Shield) developed tax favored products to help cope with revenue loss during the Depression.

NOTE: While this may have constituted the beginnings of a commercial health insurance industry, I don't think that this was the beginning of forms of health insurance in the US. Prior to the 1930s, I believe that local groups local groups such as church memberships pooled financial resources to manage health care as well as others risks among members and people that memberships served.

Returning to the author's review, by the end of the 1930s, many commercial insurers were looking into health insurance products of their own, although they did not enjoy the same tax favored status of the Blues.

During WWII, the massive central planning effort here in the US included IRS rules that allowed employers to take offer health benefits to employees without having to pay related taxes.

This tax subsidy, argues the author, was a big driver of group health plan growth and today's high health care costs and inefficiencies. The argument is a simple one. Subsidize a particular economic behavior and you'll get more of it. Tax subsidies created booming demand for corporate health care products. From the 1940s to 1970, employees covered via corporate plans outnumbered individual plans approximately 5 to 1 according to data presented by the author. These corporate insurance products distorted the market, and removed responsibility from individuals individuals to shop for value. Conditions of moral hazard were thus created, and producers were consequently relieved of pressure to become more productive.

I am not fully on board with this conclusion. After all, government sponsored programs such as Medicare and Medicaid have done plenty to bloat the health care system on their own. But the role of historical corporate tax policies is a new angle for me that merits more thought.