Putting aside single-payer, what's the rationale for doing health insurance through employers, rather than individuals paying for it out of their income?
It's a hold over from World War 2 wage controls. Offering to pay health insurance on the side got around them. It no doubt continues because of the pre-tax benefits. That is, if your employer pays for it then it isn't subject to federal and state income taxes as well as FICA taxes. Depending on your income level and state, those could be around as 30-35% at a programmer's salary range.
I know someone who while working for Citbank was paying around 25% that just for his insurance (for him self his partners some FBI officer) - makes the UK's NI at 13.8% seem very good value.
For one, it reduces the effects of adverse selection[1]. The idea is that everyone reaps economic benefits through such programs, as an average company will have a pool of workers, some who are "healthy" although others may have medical problems.
Compare this to a individuals wanting health insurance - if they're young and healthy they're less likely to want to pay much for insurance, which leaves older and sicker people to pay higher and higher premiums. Of course this is really only an issue with privatized insurance and is a great argument for having a single-payer solution.
Compare this to a individuals wanting health insurance - if they're young and healthy they're less likely to want to pay much for insurance, which leaves older and sicker people to pay higher and higher premiums.
That's NOT what adverse selection is. That's simply actuarial pricing - everyone pays for their own risk.
Adverse selection is caused by information disadvantage - the party buying insurance has information the insurance company does not have or is unable to incorporate into the price. https://en.wikipedia.org/wiki/Adverse_selection
The main cause for adverse selection in health insurance markets are regulations against pricing in various forms of pre-existing conditions.
It's absolutely an adverse selection problem - insurance companies, as you say, can't necessarily price based on your existing health condition (not only because of regulations, but also because of asymmetrical information which is too costly, if not impossible to obtain).
As a result, healthy people will choose not to purchase health insurance, since due to the adverse selection problem, there doesn't exist a mutually beneficial transaction for both parties (insurance policies have to price for the average due to the lack of health data, which is economically disadvantageous for the healthy to take). And thus begins the adverse selection death spiral[1]
Taxation is a huge part of it. Employees don't have to pay taxes on the benefit.
I think with the ACA, some small business can claim a tax credit for providing health insurance to their employees, but I'm not 100% sure about that part.
After WWII, with the start of widespread income tax, employers started giving health insurance to their employees as a way of giving a tax-free additional benefit.
Initially, it wasn't obvious this was a legal tax loophole, but the law was amended to explicitly allow it.
Now it's very hard to change, because getting health insurance from your employer makes you tied to your job. Even with the new health insurance exchanges, getting insurance through your employer is a pre-tax benefit, but if you buy on your own, it's with after-tax money.
