Why We Have Such a Wacko Health Insurance System

Conservatives love to point out that our employer-based health insurance system is a result of wage controls under FDR. Since employers weren’t able to attract workers with higher wages, they started offering benefits instead — notably health insurance.

I recently read Frank Freidel’s biography of FDR, and the whole story became clear.

The post-Pearl Harbor economic surge was causing rapid inflation.

By March, 1942, food cost almost 5 percent, and clothing 7.7 percent, more than on the day of Pearl Harbor; the cost of living had risen 15 percent since September 1939. [Leon] Henderson predicted prices might rise 23 percent more by the end of 1942. The nation, as Roosevelt well realized, was reaching  the critical point where, as a result of price increases, demands for wage increases could force spiraling inflation.

Roosevelt was desperate to prevent that eventuality.

Heavier taxes to drain excess buying power were imperative. [This is not complicated; see Abba Lerner on “Functional Finance.”]

Conservatives in Congress (then as now) were rabidly anti-tax — gotta protect the monied class — but despite their supposed free-market ideology, they were willing to impose wage controls. (Big surprise.) Roosevelt was able to get this second- or third-best solution through Congress.

So the wage controls that resulted in our ridiculous employer-based health-insurance system were a direct result of conservatives’ hypocrisy.

And now, notwithstanding Ryan’s obviously-never-gonna-happen voucher feint, conservatives have demonstrated themselves to be dead-set on maintaining the status quo of employer-based private health insurance (they had six years of unfettered control, did nothing about it…) — the very “historical accident” that they so bemoan, and that they are responsible for inflicting on the nation.