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Does Employment-Based Insurance Make the US Medical Care System Unfair and Inefficient?

In the United States, the interests of high-income individuals dominate decisions about what medical care is offered and how it is financed. The result is a less efficient and less equitable medical care system than in other high-income countries. Employment-based insurance plays a key role in determining the production and financing of US medical care.

Employment-based insurance started during World War II as a way for employers to attract needed employees without violating wartime wage controls. After World War II, employment-based insurance spread quickly because group insurance is less costly to administer than individual insurance, and it is less vulnerable to adverse selection of unhealthy patients. Employment-based insurance is particularly popular with high-income employees because the contribution made by employers to the premium is exempt from the employees’ taxable income. This exemption cost the US Treasury an estimated $300 billion in 2018.1

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