The History of Health Insurance In The United States

Should the United States government give everyone free health care?  Millions of Americans have lost their health insurance.  In Canada, and many countries in Europe, health insurance is guaranteed. Some experts here argue that universal health insurance can be successful. Other equally well qualified people counter that it would be too expensive or claim that the care would be poor.  They believe that market forces will fix any shortcomings of the U.S. health care system.

Health insurance in the United States is a relatively new phenomenon.  The first insurance plans began during the Civil War (1861-1865).  The earliest ones only offered coverage against accidents related from travel by rail or steamboat. The plans did, however, pave the way more comprehensive plans covering all illnesses and injuries. The first group policy giving comprehensive benefits was offered by Massachusetts Health Insurance of Boston in 1847. Insurance companies issued the first individual disability and illness policies in about 1890.

In 1929, the first modern group health insurance plan was formed.   A group of teachers in Dallas, Texas, contracted with Baylor Hospital for room, board, and medical services in exchange for a monthly fee.  Several large life insurance companies entered the health insurance field in the 1930’s and 1940’s as the popularity of health insurance increased. In 1932 nonprofit organizations called Blue Cross or Blue Shield first offered group health plans. Blue Cross and Blue Shield Plans were successful because they involved discounted contracts negotiated with doctors and hospitals.  In return for promises of increased volume and prompt payment, providers gave discounts to the Blue Cross and Shield plans.

Employee benefit plans proliferated in the 1940’s and 1950’s. Strong unions bargained for better benefit packages, including tax-free, employer-sponsored health insurance. Wartime (1939-1945) wage freezes imposed by the government actually accelerated the spread of group health care. Unable by law to attract workers by paying more, employers instead improved their benefit packages, adding health care.

Government programs to cover health care costs began to expand during the 1950s and 1960s. Disability benefits were included in social security coverage for the first time in 1954. When the government created Medicare and Medicaid programs in 1965, private sources still paid 75 percent of all of the health care costs. By 1995, individuals and companies only paid for about half of the health care with the government responsible for the other half.   

During the 1980’s and 1990’s, the cost of health care rose rapidly and the majority of employer-sponsored group insurance plans switched from “fee-for-service” plans to the cheaper “managed care plans.”  As a result, most Americans with health insurance were enrolled in managed care plans by the mid-1990s.

In 1993 President Bill Clinton presented to the U.S. Congress a health care reform plan that would have guaranteed health insurance for all Americans. Congressional leaders opposed the plan as it was too expensive and excessively regulated.  In 1994, members of Congress introduced a series of alternative proposals, but no compromise was ever reached. In 1996 Congress passed the Mental Health Parity Act, to require some employers to offer health plans with psychiatric benefits. Congress also passed the Health Insurance Portability and Accountability Act in 1996. This protected individuals from losing their health insurance when they moved from one job to another or became self-employed. Unfortunately, it did not ensure the overall quality or comprehensiveness of insurance offered by employers.

The Bush administration and Congress have pledged to reform health care but even the proposals have been delayed by more urgent financial concerns and issues related to Iraq.  It is unlikely that the Federal Government will change the foundation of the current system anytime soon.  It would be wise for all people to check their insurance benefits, make sure that their policies serve their needs, and simultaneously shop for the best plans as they also try to select the best doctors.