Why So Many Americans Get Their Health Insurance Through Work — and Why It Might Be Time to Rethink It

For more than half of working-age Americans, health insurance doesn’t come from the government, or from a national health service – it comes from their employer. It’s so embedded in the way we think about jobs that few people even question it. But the truth is, the U.S. employer-sponsored health insurance system was never carefully designed. It was built through historical accident, economic incentives, and political inertia,  and it continues to shape our workplaces, our economy, and our lives in profound ways.

So how did we end up here? And what would it take to change course?

A System Born by Accident: The Origins of Employer-Based Health Insurance

The story begins in the early 20th century, when hospitals and companies experimented with prepaid medical care. One of the first examples came in the 1920s, when a group of Dallas schoolteachers agreed to pay fifty cents a month in exchange for future hospital services. That small plan eventually became Blue Cross.

Back then, health insurance wasn’t designed to cover every doctor’s visit or prescription. Rather, it was a financial safety net for serious illness and a way for hospitals to secure steady revenue during hard times.

The real turning point came during World War II. With strict wage and price controls in place, employers couldn’t raise salaries to attract workers, but they could offer benefits. Health insurance, which was not counted as wages,  became a popular way to recruit employees legally. After the war, Congress reinforced the model by making employer contributions tax-free for workers and tax-deductible for companies.

That single policy decision changed everything. By the 1950s and 60s, having a job with “good benefits” meant one thing above all: a job that came with health insurance.

How the U.S. Took a Different Path Than the Rest of the World

After the war, other countries made a different choice. In the U.K., the National Health Service launched in 1948 to provide care for everyone, regardless of employment. In Canada and across much of Europe, governments created national or single-payer systems that guaranteed universal access.

The U.S., however, stuck with a private, employer-based model. By the time anyone considered alternatives, the system was too entrenched. It persisted, supported by business groups, insurers, and policymakers who saw no need to overhaul something that seemed to work.

What was once a wartime workaround had become the backbone of American health care. One tied not to citizenship or residency, but to whether you had a job. Decades later, the link between employment and health insurance has become so enmeshed in the fabric of the U.S. economy, it seems impossible to untangle the two. Is it? We will come back to that question.

Who Benefits from the Current System – and Who Doesn’t

Today, about 155 million Americans – nearly 60% of people under age 65 – get their health insurance through an employer, according to the Kaiser Family Foundation. It remains the single largest source of coverage in the country, dwarfing the individual insurance market and even government programs like Medicaid and Medicare.Employers and employees both benefit in some ways. Workers get subsidized coverage, usually at lower group rates, and employers can deduct the cost from their taxes. Health insurance helps companies recruit and retain talent.

But this system also sustains a massive ecosystem of middlemen like brokers, consultants, insurance carriers, pharmacy benefit managers (PBMs), and even specialty medical providers,  all of whom take a cut of the money flowing through the system. Every layer adds administrative costs, profit margins, and friction.

It’s one reason U.S. healthcare costs are so high. And because many insurers and PBMs profit from keeping claims down, they often design systems that delay or deny coverage for procedures and medications. That may make sense for the bottom line but perhaps not for patients. In countries like the U.K. or Canada, where a single public payer sets prices and reimburses providers, these layers of profit-taking simply don’t exist. The U.S. model, by contrast, is structured so that the “business of health care” sometimes works at odds with the goal of keeping people healthy.

How Employer Coverage Fits into the Broader U.S. Health System

The Affordable Care Act (ACA) of 2010 expanded Medicaid and created insurance marketplaces, but it didn’t disrupt the employer model. In fact, it strengthened it. The ACA’s “employer mandate” required large companies to offer coverage, effectively locking in the system even further. So while ACA subsidies help millions of individuals buy coverage on their own, the majority of working Americans still depend on the coverage their job provides — and risk losing it if they lose that job.

Employer-sponsored insurance remains one leg of a three-part American model: government coverage for the elderly and poor, individual coverage for the self-employed or unemployed, and employer coverage for everyone else. Pull one leg out, and the system wobbles.

The Employer Challenge: Rising Costs and Creative Workarounds

The average cost of employer-sponsored family health coverage now approaches $27,000 per year for 2026, according to KFF, with costs expected to continue to rise faster than inflation or wages.

To cope, many employers are trying new strategies. Some are shifting to Individual Coverage Health Reimbursement Arrangements (ICHRAs), giving employees a set allowance to buy their own plans. Others are embracing high-deductible plans with Health Savings Accounts (HSAs), hoping to make employees more cost-conscious. Large employers are increasingly self-funding their plans — paying claims directly rather than buying insurance — to gain flexibility and control.

Employers are also exploring value-based care, telehealth, and narrow networks to manage costs while improving outcomes. These innovations show progress — but they still operate within the constraints of the employer-based model, not beyond it.

What Would “Medicare for All” or a Single-Payer System Mean?

Imagine, for a moment, that the U.S. moved to a “Medicare for All” system with universal coverage, decoupled from employment, and administered through the Federal or State governments.

For employers, it would remove a massive administrative and financial burden. Health insurance would no longer be a recruiting tool or a cost driver. Compensation packages could focus on salary, flexibility, and other benefits instead.

For insurers and PBMs, it would be a seismic shift. Many would shrink, merge, or transition into offering supplemental coverage. Providers would see more standardized payment rates, potentially lower, but also more predictable. And for workers, the biggest impact would be freedom: the ability to change jobs, start a business, or take a career break without losing access to care.

For workers, the biggest change would be peace of mind — knowing that their health coverage wouldn’t vanish when they switch jobs, retire early, get fired or laid off, start their own businesses, or go freelance. 

Of course, a transition like that would be complex and politically difficult. It would mean new taxes, new systems, and the loss of entrenched profit streams. But it would also mean that your access to a doctor or life-saving medication would no longer depended on whether your employer offered a good plan, or offered coverage at all.

Time for Change: What HR and Business Leaders Can Do Now

I believe it’s time for the U.S. to move toward guaranteeing basic health care for all residents as a fundamental human right. And while sweeping reform may take time, HR and business leaders have a role to play today.

They can design benefits that are more flexible and equitable, by extending coverage to part-time and contract workers, supporting portability, and simplifying access. They can advocate for policy changes that make healthcare more universal, even within a private system. And they can prepare their organizations for a future where health coverage may no longer be tied so tightly to employment.

Our current system wasn’t built with intention, rather it evolved by accident. And while it has served many people reasonably well, it also leaves millions exposed, not insured, underinsured, and facing rising costs. If we want a healthier, more resilient workforce, and a stronger economy, we need to start decoupling health care from employment and treating it for what it should be – not a perk or a privilege, but a promise.

The Bottom Line

he U.S. system of employer-based health insurance began as a wartime workaround and grew into a national institution. But today, it’s straining under the weight of complexity, cost, and inequality.

As long as every player in the chain including employers, brokers, insurers, PBMs, and providers needs to take a cut of the revenue/profits from healthcare, affordability will remain out of reach for too many Americans. And as long as coverage depends on employment, millions will remain vulnerable when they lose a job or change careers.

For HR leaders, understanding this history is essential. Because the future of benefits, work, and workforce health may depend on whether we keep clinging to the system we inherited, or finally build one designed for everyone.

NOTE: A version of this article ran on the Workplace Minute show which you can listen to here