The Origins and Growth of Employer-Provided Insurance

Employer-provided insurance in the United States has stood the test of time. For over three-quarters of a century and through different administrations and periods of economic uncertainty, employer-provided coverage remained the single largest source of health insurance for Americans, supported by the same foundational pillars that have kept it strong since its inception during World War II.

Employer-provided coverage is not only efficient for the more than 160 million Americans who rely on it but also tremendously valuable to both businesses and workers.

When the program began, it was designed to help retain and attract workers in the aftermath of World War II. Employers were incentivized to provide health insurance benefits to employees, and many did. Since the 1950s, Treasury regulations have affirmed that amounts paid by an employer to cover health insurance premiums for its employees are generally deductible as ordinary and necessary business expenses, reducing the cost of providing this critical benefit to workers and their families. By reaffirming that employer-provided coverage would maintain its tax-favored treatment for employers, the system quickly became the backbone of American health insurance.

Furthermore, since the addition of section 106 to the Internal Revenue Code in 1954, employees have been allowed to exclude the value of employer-provided health insurance coverage from their taxable income. This provision has led to significant tax savings, making comprehensive coverage more affordable and accessible to middle-class workers and their families. In turn, this has encouraged employers to offer health insurance as a competitive benefit and played a key role in establishing the widespread employer-based system that defines American health care today.

These tax-preferred benefits have persisted decade after decade. The mutually beneficial arrangement between employers and employees is a key pillar of the U.S. health care system’s longstanding success and high-quality delivery of medical treatment.

In 1974, this system was strengthened again when Congress passed the Employee Retirement Income Security Act (ERISA), which guarded against a 50-state patchwork of regulations. This stability helps employers create innovative, affordable plans that meet the needs of their workers.

Although this coverage has experienced minor changes throughout its history, the cornerstones of the health insurance system, including its tax-advantaged status, have largely remained unchanged.

For more than 75 years, employer-provided coverage has worked for Americans and their families, and its preferential tax treatment has contributed to the system’s overarching success. Changes to this status would have significant negative consequences on American businesses and the way American workers receive health coverage. Simply put, altering the tax status for employers and employees could represent a tax increase on American businesses and hardworking taxpayers. Undoing these benefits would threaten the accessibility and affordability of health plans across the nation. It’s critical that this coverage remains tax-preferred, just as it has since its inception.