John Murray offers a superb description of the development and decline of “sickness insurance” for workers in the period from 1890 through the 1940s. Sickness insurance offered benefits that replaced lost earnings when a worker fell ill and had to miss work for extended periods of time. Generally, benefit payments started after the illness had kept someone out of work for a week or two and then could run for up to half a year to a year. A few policies also provided funds to pay medical bills. The medical profession had relatively few costly methods for effectively reducing illness at the time, so medical costs were not a major cost for most ill workers.

Prior studies by social scientists with relatively little economic training tend to tell the story of sickness insurance as a failure during the Progressive Era to adopt government sickness insurance programs. They agree with the institutional economists and reformers of the time who saw sickness insurance markets as chaotic and incomplete and thus something to be mended. Thus, nearly all of their narratives are written from the perspective that government sickness insurance was the natural progression in social insurance. In their view something went badly wrong, and they seek to root out the culprits that misdirected society.

Professor Murray takes a different tack. He masterfully combines narrative evidence, a deep understanding of insurance principles, and quantitative analysis of archival evidence and government reports from the period. As a result, he provides a cohesive description of the extent of sickness insurance and the political economic process that led to the demise of efforts to establish government sickness insurance. What others defined as chaos, Murray describes as a market in which a significant minority of workers obtained coverage through a variety of institutional forms, including cooperative insurance societies, union funds, and employer funds. He argues that workers who sought sickness insurance that would cover future illnesses could find coverage at premiums that were strongly related to the expected benefits (that is, the probability of illness multiplied by typical benefits paid when ill) that might be paid to the worker. Those who did not purchase benefits were in two categories: either younger workers who had very low expectations of becoming ill and thus did not want to pay the premiums, or older workers who typically had enough savings to adequately cover an extended spell of illness. Thus a significant number of workers were either reasonably satisfied with the sickness insurance or did not have a very strong demand to pay the premiums necessary to obtain it.

When the American Association of Labor Legislation (AALL) and other leading progressive reformers proposed government sickness insurance, they made a major mistake. They often provided only an outline of the idea of government insurance with the details to be left for later. However, the details in this context were very important and could make the difference between a successful program and an unsuccessful one. The government would face the same set of insurance problems with adverse selection and moral hazard that nongovernment insurers faced. If not designed properly, the government system would be forced to charge high premiums or to dip into general tax revenues to pay off claims. Thus a large number of workers did not necessarily see a big gain. Unions often had their own systems that they used to attract workers, as did major employers. As a result, the demand for government insurance was primarily limited to the progressive experts. They made an additional mistake by seeking to include burial insurance in the government sickness insurance, which naturally led to opposition by insurance companies. Further, government sickness insurance drew opposition from the American Medical Association because of uncertainty as to exactly how the government program would provide access to doctors under medical benefit features. This combination of a poorly written bill proposed by experts with weak support from workers and plenty of opposition from major interest groups caused the demise of the attempts to adopt government health insurance.

Murray does a fine job of describing the changes in sickness insurance during the 1930s and World War II and then outlines a brief history of the postwar era. By the 1940s sickness insurance became less important than the modern forms of health insurance that focused on paying medical bills. The development of new pharmaceuticals and medical procedures meant that doctors and hospitals could do much more to limit the length of illness. Some of the new technologies were expensive and people began to worry about medical cost coverage more than about wage replacement. Sickness insurance continues today in the form of short-term disability insurance. The federal government has developed a long-term disability insurance program under the Social Security Administration.

This is a marvelous book. I have two minor complaints. First, the title of the book is a little misleading because coverage of medical costs was not the central mission of sickness insurance. I consider short-term disability insurance to be the modern analog. That said, many of the same issues surrounding the debates over adopting government sickness insurance in the Progressive Era are still present in the modern debates over government health insurance. The book is therefore a must-read for anyone interested in the current health insurance debates, as well as anybody interested in the history of social insurance programs. My second complaint is that Murray only offers an outline of the transition from sickness to health insurance in the 1940s and 1950s. But this dissatisfaction arises only because I was hungry for the depth of information that Murray provided about sickness insurance. Such depth would require him to add a full-length sequel.

Economic historians with a quantitative bent have written a series of articles and books over the past decade or two that have added substantial new insights into the development of social insurance and labor market regulations during the Progressive Era. John Murray's book is a welcome and valuable addition to that literature.