The U.S. social safety net exacerbates labor market inequalities rather than ameliorating them. This paper traces this theme within an important historical case study: the emergence of the employer-based health insurance system. Employers became the dominant and tax-preferred provider of health insurance in the United States without any federal legislative action. Understanding how this happened may inform current reform efforts. This case study highlights two important factors. The first is path dependency, discussed by Skocpol (1992) and Pierson (2000). They argue that the ambiguous divisions of power and a pluralistic governance framework favor incremental processes of social policy formation in the United States. The second factor is the divisions within the American workforce (Esping-Andersen, 1990). Divisions by race ands sex have often led to disadvantage workers being left out or underserved by U.S. social welfare policy.