Employee Health Benefits, Commercial Insurers, and The

ARTICLES The Business of Health Security: Employee Health Benefits, Commercial Insurers, and the Reconstruction of Welfare Capitalism, 1945–1960 Jennifer Klein Smith College Abstract The cash-indemnity health insurance system that emerged in the United States after 1945 represented but one trajectory among many. The late 1930s and early 1940s marked a period of innovation and creative experimentation in volun- tarist health care programs. Spurred by the Social Security Act of 1935 and the New Deal’s legitimization of the politics of security, unions, consumers, employers, and doctors began developing a range of health care programs that enabled patients to pool the risks and costs of sickness and injury, thus bringing medical care within the reach of more people. Employers and private insurers, too, acceded to the pervasive ideology of security. Invoking the New Deal language of security, life insurance companies competed with community and nonprofit organizations to meet a burgeon- ing market—the market for prepaid health services. While organized labor advo- cated noninsurance models, commercial insurance companies, aligning with large employers, dramatically expanded their reach during the 1940s, bringing in large groups of subscribers. By the time substantive collective bargaining over health benefits commenced between unions and management in 1950, commercial group health insurance had become well entrenched in many workplaces, and, as a result of this growth, had undercut the competitive and political conditions that enabled other, more equitable, communal-based health insurance alternatives to thrive. Today, the notion of economic security is in eclipse, but as a right of citizenship and employment, it occupied a central place in American cultural and political life at mid-century. New Deal legislation created a social entitlement to a mini- mum standard of living—if not for all workers, then as a model to which the nation should aspire. Yet the New Deal did not simply create a limited welfare state; it launched a new economy of welfare in which the ideology of “security” on the job, in retirement, even in world affairs proved a powerful construct. Giv- en the ideological power of “security,” the New Deal set in motion a rapid ex- pansion of the insurance, health care, and income maintenance options offered by private-sector institutions. As the public welfare state expanded, it had a ma- International Labor and Working-Class History No. 58, Fall 2000, pp. 293–313 © 2000 International Labor and Working-Class History, Inc. 294 ILWCH, 58, Fall 2000 jor competitor in the social welfare field: American business firms. Over the next two and a half decades, large business firms, like the state, came to offer pensions, disability wages, and unemployment benefits. Employers also provided paid sick leave, hospital insurance, medical insurance, and, less often, retiree health benefits. To this day, job-based health insurance remains the primary door to health coverage for Americans under age sixty-five. While over two-thirds of the US population under age sixty-five depends on employer-sponsored health plans,1 we know little about the historical development of this private social welfare “system.”2 This essay seeks to place the development of commercial health insurance plans within a broad context of industrial relations and the politics of security prompted by the New Deal. The politics of the 1930s and early 1940s opened social-democratic possibilities, as in many European countries; New Dealers identified economic security as a grand national project, “a great coop- erative enterprise [among] the citizens, the economic system, and the government”—although this new set of social rights extended only to the white citi- zenry.3 But in the United States, this impulse was quickly commercialized by big business. Welfare-capitalist employers responded to the establishment of a national old-age pension system by racheting up the rewards of welfare capitalism. Commercial insurers and employers successfully channeled the development of both government and private health provision away from the universalist, community-based, or service-oriented options that New Deal labor-liberals and trade unionists demanded. Welfare capitalism did not simply end with the Great Depression; it was a perpetual strategy for negotiating pressures from the state and the workers.4 In 1939, Thomas Parkinson, the president of the Equitable Life Assurance Society of America, celebrated the opening of his company’s New York World’s Fair Exhibit, “The Garden of Security,” by proclaiming, “Security! The modern world is in constant search of security.”5 Indeed, observers from all quarters, from the National Association of Manufacturers (NAM) to the Congress of In- dustrial Organizations (CIO), agreed that “as a nation, we have become security conscious.” This palpable concern with security arose out of the discourse gen- erated by the Social Security Act of 1935.6 All forms of private insurance benefits that proliferated in the late 1930s and 1940s built on the public social security foundation laid by Progressive Era reformers and the New Dealers. In- surers had quickly adapted to and essentially taken over the market for occu- pational injury reimbursement created by Progressive-era workmen’s compen- sation laws in the 1910s and 1920s. A generation later, insurers began referring to their new pensions, disability benefits, and nonoccupational health policies as supplemental social security, for as Equitable’s Thomas Parkinson insisted, “We in the life insurance business are selling security and preaching security.”7 By the 1940s, life insurers believed that Social Security had been a tremen- dous boon to the sale of insurance and old age pensions. Insurance executives instructed their agents to incorporate the new Social Security program in their sales pitch, emphasizing that federal old age pensions would meet only the barest subsistence needs. As one Metropolitan Life supervisor said, “Now we sell an The Business of Health Security 295 insurance program that will fit in and add to the social security protection the prospect already has.”8 Equitable’s group insurance directors exhorted employers “to complete the protection afforded under the Social Security Act,” re- minding them that Equitable “specializes in all forms of group insurance: group life, group accident and health [disability], group accidental death and dismem- berment, group hospitalization with surgical benefits, and group annuities.” With federal pensions in place, individuals or employers could more easily pur- chase a retirement annuity worth one year’s full salary for a small outlay.9 While willing to extend the scope of Social Security coverage to new groups within the work force, the insurance industry vehemently opposed attempts to expand the types of benefits offered through Social Security. Its leaders decried Senator Robert Wagner’s health insurance bills of the 1940s in all their mani- festations, as well as state and national temporary disability insurance propos- als. Yet life insurance companies avoided actively lobbying against governmen- tal programs in the early 1940s, fearing that their agitation might lead to greater government scrutiny, regulation, or taxation of their own industry. As one insurance leader advised, “If the trend is toward extensive liberalization of social insurance measures in this country, it is more important to know that and to at- tempt to guide it into sensible channels rather than merely futilely trying to hold back the tide . by fighting every manifestation.”10 In 1941 and 1942 insurers stepped up their efforts to market group health insurance to employers. Commercial insurance policies were based on a cash- indemnity, fee-for-service principle. Insurers paid the patient for each service he or she obtained, at whatever price doctors or hospitals independently charged. It was the insurance companies, more than anyone, who saw the potential in the National War Labor Board’s (NWLB) ruling that employer contributions to insurance premiums did not violate wage stabilization guidelines. Insurers had an- other incentive for aggressively promoting such group policies. Even during the war, liberal policymakers continued their efforts to expand New Deal social programs, regularly introducing new social welfare legislation. By the time the NWLB issued its decision on fringe benefits on March 23, 1943, group insurance sales had already increased during the war by 80.5 percent.11 The number of per- sons covered by group hospital insurance increased from one million before the war to 8.5 million by 1944. Companies like Metropolitan, Aetna, Prudential, and Equitable made it easier for employers to put a program in place swiftly before “getting the employees[’] and perhaps the union[’]s approval.” During the war, insurers allowed employers to pay the first month’s premium, announce that the policy had been put in place, and then let employees “sign up.”12 Such exclusive relationships between insurers and employers would persist after the war had ended and complicate collective bargaining over insurance when unions made their big push for benefits in the late 1940s. In planning for the postwar period, insurers believed that workers who earned under $3,000 represented the largest untapped market for insurance of all kinds. As one Metropolitan Life executive proclaimed, “the great market ahead is the new aristocracy of America—the technical workers, those who

Load more