The tie between health insurance and employment: It's the IRS stupid!

It's the most wonderful (?) time of the year

It's that time of the year. Change is in the air. There is that flurry of excitement that comes from new beginnings. You guessed it - open enrollment is here.

People are shopping for insurance plans,  which these days can mean looking at the health care marketplaces, assessing medicare plans, or looking at the options an employer provides during this open enrollment season. About half of us get our health insurance through an employer - but why?

The story that you most often hear is that it all started during World War II. Amidst stiff competition for employees, benefits were even more important due to the federally-imposed wage cap. That story is almost right, but not quite.

Really, the most important factor of why we receive our health insurance through our employers is the tax write off. Also, offering health insurance has been a strategy to hopefully keep employees - a way for employers to garner loyalty, especially in union-heavy sectors. In the years after WWII, employee-based health insurance plans became the norm. So why didn't Europe do the same?

Europe's post-war economies were devastated and a private sector health care system was not going to happen. The US came out of it with a very different healthcare system, but that's not because of the Founding Founders or the Constitution; it's a quirk of history and then IRS policy. 

Eventually, the US did establish Medicare for older Americans and Medicaid for Americans with disabilities or limited income. That still left much of the population dependent on a system built for a completely different workforce. Working the same job for decades is unfathomable for Millennials, and all the while healthcare costs keep rising. In his last term, President Obama signed the Affordable Care Act (ACA) into law. One of the goals was to relieve job-lock so we don't feel tethered to an employer just for the health insurance. People can't take gig economy-type jobs without having some other way to get health insurance. The ACA was written assuming more employees would get their health insurance through their employers, but in the last seven months, millions of Americans have lost their jobs and their insurance. This is the first true test to see if the ACA works as a safety net for people who lose their employer coverage. How well the ACA works in face of the pandemic and record unemployment, we are about to find out.

Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.