During World War II, the federal government was wary of post-war inflation. The administration wanted to avoid the hyperinflation Germany experienced after World War I, so they instituted wage and price controls to manage the economy.
However, these wage controls didnt sit well with many labor groups, and they threatened to go on strike. In response, the War Labor Board exempted employer-paid health benefits from wage controls and income tax.
This historical accident created a tax advantage that drove enormous demand for employer-provided health insurance plans over the previously more-common individual health insurance. Employers received a 100% tax deduction while the benefits employees received were exempt from federal, state, and city taxation.
https://www.peoplekeep.com/blog/the-complete-history-of-employer-provided-health-insurance