ABSTRACT
By the end of World War II, a good number of workers had become quite familiar with and happy to have the employers paying some or all of their health insurance premiums, particularly since those payments were not counted as taxable income. The exclusion of employer-paid health insurance premiums from the taxable income base creates a subsidy for people who have part or all of their health insurance premiums paid by their employer. This chapter assesses the effect of the subsidy on the choice of health insurance, and then looks at how the changes in health insurance affect decisions about using health care itself. By keeping employer-paid premiums out of the income tax base, this system initiated what has since become a very large and counter-productive subsidy to the purchase of health insurance, a subsidy that has completely reshaped our health insurance and health care systems.
