Tax Policy and the History of the Health Insurance Industry

For the last six decades insurance coverage for health-related expenditures has been provided primarily by policies offered through one's place of employment. In 2006, employer-based insurance covered 161.7 million people, approximately 62.2 percent of the nonelderly population. Individually purchased policies covered an additional 6.8 percent of the nonelderly while public programs covered 17.5 percent. This left approximately 18 percent without any health coverage. By contrast, in 1940, before World War II, only 9 percent (12.3 million) of the population had any form of coverage for medical expenses. By any definition, the dominance of employer-based health insurance coverage means that it has played an important role in the economic performance of the health care sector with major influences on both the demand and supply of medical services and products. As a consequence, the role of private health insurance must be a central part of any serious discussion of health care reform, the kind of reform that the country now seems ready to discuss.

The purpose of this chapter is to explore the historical development of the private health insurance industry with special emphasis on the role of tax policy in affecting the economic performance of the industry and the health delivery system. While our approach is historical, our main objective is to consider the future role that tax policy might play in bringing about effective and efficient reform. We will explore the historical development of the health insurance industry, review some of the economic literature explaining this development, and consider the implications of changes in tax policy on the future of the health reform debate. . . .

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Robert B. Helms is a resident scholar at AEI.

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About the Author

 

Robert B.
Helms
  • Robert B. Helms has served as a member of the Medicaid Commission as well as assistant secretary for planning and evaluation and deputy assistant secretary for health policy at the U.S. Department of Health and Human Services (HHS). An economist by training, he has written and lectured extensively on health policy and health economics, including the history of Medicare, the tax treatment of health insurance, and compared international health systems. He currently participates in the Health Policy Consensus Group, an informal task force that is developing consumer-driven health reforms. He is the author or editor of several AEI books on health policy, including Medicare in the Twenty-First Century: Seeking Fair and Efficient Reform and Competitive Strategies in the Pharmaceutical Industry.
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    Email: rhelms@aei.org
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    Email: Kelly.Funderburk@AEI.org

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