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Health Insurance


France, 1850, 1898 (voluntary except for miners).

Belgium, 1851, 1894.

Italy, 1880.

Sweden, 1891.

Denmark, 1892.

Holland (authorized private societies and poor relief).


Germany, 1883, 1911 (voluntary for others with earnings of $500).

Austria, 1888 (voluntary for some classes).

France, for miners, 1894.

Norway, 1909.

Great Britain, national system 1911 (was voluntary 1875-1911).

§ 12. Need of health insurance in America. Contrary to the usual opinion in America, the sickness insurance in Ger many is, both in amount of contributions collected and in im portance to the welfare of the workers and their families, of more importance than is either accident compensation or the system of invalidity pensions. Yet, thus far, our interest and efforts in America have been directed almost entirely toward the reform of accident compensation, and almost every thing remains to be done in the matter of social insurance against sickness. It is true that in recent years there has been a rapid development, in some of the larger cities, of medical insurance clubs conducted by private companies, with dues of ten cents weekly. They give medical care in ordinary cases, but require extra payments for surgical treatment and for medical supplies. They as yet touch only the outer fringe of the problem ; but they testify to the need and to the increasing desire of the wage workers for insurance of this kind. It is believed that at least 4 per cent of the income of wage workers now is expended for the care of sickness and for burial insurance. The losses of wages meantime re main unequalized by insurance indemnities. An Illinois commission reported in 1919 that the loss in wages and medi cal bills averaged 5% per cent or more of the family incomes.

A large proportion of the cases of temporary destitution in ordinary self-supporting families is due to sickness, at least 25 per cent, as shown by various investigations. The German ex. perience shows that 4 per cent of wages, collected in part from employers and in part from wage workers, is sufficient to give a far better medical service than can be had through private effort, to give some indemnity for loss of wages, and to carry on a very useful hygienic work for the families and for the public health.

§ 13. Unemployment insurance.

The most difficult of all the problems of social insurance is that of unemployment. There the amount of the risk in most cases is largely de pendent on the personal qualities of the worker. There are obvious objections to making the competent, steady, sober members of any trade pay the penalty for the faults of their fellows. But, on the other hand, as we have a large part of the problem of unemployment is charge able to social maladjustments rather than to individual faults.

At present, development in this field is along two lines, that of subsidized trade-union relief (the Ghent system), and that of compulsory state insurance in certain industries. By the Ghent plan the public pays a certain proportion (from one sixth to one half) of the amounts of the benefits paid by the unions or other associations. This plan, originating in Belgium, had been adopted before 1914 in many cities and by some countries in Europe, and in the war period was ex tended to other countries. Great Britain is the first country to adopt a compulsory state system, and it virtually incor porated the Ghent system by providing for grants out of state funds to associations that grant out-of-work benefits. It began operation in 1912, and applied to 2,500,000 per sons, or one sixth of all the wage-earners. The contribu tions are made as follows: % by employers, % by wage-earn 8 Ch. 23, ft 12-19.

ers, and % by the state. The application of the law was ex tended in 1916 to workmen engaged in any of the war indus tries. There are several original and interesting features of the act, such as rewarding, by the refunding of dues, those employers who provide regular employment, and older work men who have received benefits amounting to less than their contributions. Its administration in close connection with the labor exchanges is giving valuable experience in this field. The working out of the many minor problems of clas sification, assessment, and administration of unemployment insurance will require many years of experimentation.

§ 14. Need of ideals in social insurance.

The world has had forty years of experimentation of a remarkably varied kind in the field of social insurance, since the German system was inaugurated in the eighties of the nineteenth cen tury. America stands almost at the beginning of a develop ment along those lines that is certain to be of enormous ex tent and importance. It would be folly for us to repeat the costly errors of other countries by failing to recognize certain principles that have been clearly established by experience. If these could be grasped and firmly kept in mind, our prog ress in this field in America would be faster, more certain, less costly, and farther reaching than it promises otherwise to be. We can here attempt no more than merely to outline these principles that must be embodied in an ideal system of social insurance in America.

§ 15. Insurance rather than penalty. The principle of social insurance rather than that of legal penalty should be universally recognized. At present, in all countries where the several kinds of insurance are found side by side, accidents are indemnified on plans that are still rooted in the notion of employers' liability for negligence; whereas, necessarily, the indemnity in case of sickness and of old age has no such explanation. The unfortunate result of this difference of view is that, whereas all cases of sickness and invalidity entitle to benefits, only those accidents suffered "in the course of em ployment" are indemnified, and the worker is left unprotected in a large share of the accidents to which he is liable. The worker's need and the social need are thus not adequately met. We have started along the same line of development in America, and it is to be feared that only through a long series of legal fictions and contradictory judicial decision shall we be able to work out toward the practical need in this matter. Another unfortunate result of this difference is that accident' compensation, being made peculiarly the task of the employers, does not develop the spirit of responsibility on the part of the workers and of cooperation between them and em ployers that other forms of insurance call forth, where repre sentatives of 'both parties sit together in the administration of the system.

§ 16. The compulsory principle. Insurance must be gen eral in its application to all the persons within broad wage earning classes, and in order to be general it must necessarily be compulsory, not voluntary, in its application. To leave any form of insurance optional or elective, with either em ployers or wage workers, is to fail of the main purpose in a large proportion of the individual cases where it is most needed, and to increase the expense to those that are included.

Within a compulsory system, however, there should be given wide opportunity for the voluntary principle by admitting to the system others that are not compelled to insure, and to enable any insured person to increase his paid-up, non-forfeit able insurance at any time by extra payments made at times of unusually high wages, from legacies, or from any other exceptional income.

§ 17. State insurance and a unified system. The state, through the public insurance office, must ultimately be the sole agency for social insurance. Only in this way can the maximum of simplicity and economy be attained. Experi ence thus far has shown the much greater economy (among other advantages) of giving to the state fund a monopoly of compensation insurance: the ratio of management expense to premiums in commercial stock insurance companies is 35-40 per cent, in competitive state funds 6-9 per cent, and in the Ohio state fund (exclusive) 1.6 per cent. However, state management calls for a better appreciation of expert training and a broader sentiment in favor of the merit system in the public service than is frequently found in America.

There should be a unification of various kinds of insurance in one general plan and under one general administration for the whole state. This should be done with full regafd to the actuarial differences in costs as among various kinds of in surance, various trades, various establishments, and, to some extent, even the various individuals, so as to ascertain the costs and to distribute them equitably. On13f in this way can provision be made for entire mobility of labor, so that men may not be bound, as a condition for obtaining bene fits, to continue in the service of any one employer. To this end there should be interstate comity and cooperation, so that the insured could at any time transfer his actuarial equity from one state to another.

§ 18. The contributory principle. The contributory prin ciple should be adopted, employers and wage-earners contributing to the cost in equal amounts. But, further, the general public interests may be recognized through the payments in aid of the funds (subsidies, subventions). Both employers and employees usually seek to escape the burden by getting the state to bear the whole expense* or by getting the other party to pay all or the larger part. But it is much to be desired that in large part the finances of a system of social insurance should be disassociated from the ordinary budgetary system of taxation and public expenditures. The fundamental reason why the premiums should be divided be tween employers and employees is that this is most favorable to the equal participation and cooperative efforts toward re ducing the risk, and developing right industrial and political 4 See examples in the lists of laws above cited, § 11, relations. Everywhere it is the practice to provide for rep resentation nearly in proportion to contributions.

It is usually assumed by employers, by wage workers, and by others in the discussion of the subject, that the burden remains and is borne by those who directly pay the premi ums, and just in proportion to their payments. This is an almost utterly mistaken view. There is, on the contrary, every reason to believe that the general principles of shifting and incidence of taxation apply fully Wages are not arbitrarily fixed; they result, as we must believe, from an adjustment and equilibrium of the various classes of labor in a general economic situation ; therefore, after a time, com pulsory insurance premiums become a part of that general situation. If premiums are paid by employers (by all, with out exception) they will ultimately result in lower wages, and if paid by the workmen will ultimately result in higher wages than if paid by the other party. Of course, there is some delay and friction in making the adjustment; but, under any settled policy, the adjustment, once made, will be main tained.

The true benefit of social insurance to workingmen is not that their wages are increased by the direct contributions of employers to the premiums, though there are doubtless some cases of "parasitic" industries and parasitic employers that now escape their due share of payments for risk, that would have to pay more to cover these risks under an insur ance system. The great benefits are that total wages and losses are apportioned economically to the points of maximum utility; that accumulation of capital by and for the wage workers is made regular, automatic, safe, and in great amounts ; and that financial aid, physical care, and mental re lief from some of the most tragic anxieties of life are given effectively and economically to the masses of the people.

But, as has been indicated in another connection above, it 5 See ch. 16, § 14.

is far from being a matter of indifference, psychologically, where the first, immediate burden of premium payment falls. The persons paying the premiums, in whole or in part, are far more keenly aware of the cost, and alive to reducing and removing the evil conditions. Moreover, their interest is stimulated by the fact that they are the first to gain by any temporary economies, and the more so because of the illusory belief, sure to persist, that they are the ultimate as well as the immediate bearers of the costs.

The development of a complete system of social insurance along these lines promises to do more than any other single measure of practical social reform now under consideration to change the conditions and the outlook of the wage-earning class.


Adams, 7'. S., and Sumner, H. L., Labor problems. Ch. XII, secs 6-8. N. Y. Macmillan. 1914.

Commons, J. R., and associates, History of labor in the United States. 2 vols. N. Y. Macmillan. 1918.

Commons and Andrews, Principles of labor legislation in the U. S. Ch. VIII. N. Y. Harper. 1920.

Forster, R. F.. The British national insurance act. Q. J. E., 26. 275-312. 1911-1912.

Frankel, L. K., and Dawson, H. M., Workingmen's insurance in Europe. Charities pub. corn. 1910.

Henderson, C. R., Industrial insurance in the United States. Univ. of Chic. Press. 1909.

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State insurance. Bost. Houghton. 1909.

Miller, G. R., Social insurance in the United States. N. Y. Mc Clurg. 1918.

Rubinoto, I. M., Standards of health insurance. Spectater Co. 1915.

United States Bureau of Labor, Annual reports, 1908, 1909. Warren, B. S., and Sydenstricker, Edgar, Health insurance. U. S. Pub. Health Supt. of Does. 1916.

system, social, employers, wages and workers