The History of Health Insurance in the U.S.

The History of Health Insurance in the U.S.

Eileen St. Pierre, The Everyday Financial Planner

As I was preparing my health care reform update columns, there was one question that I could not get out of my head.  When did employers start becoming the main provider of health insurance?  To answer this question, I decided to research the history of health insurance in the U.S.  Here is what I uncovered.

The Early Years

It was not until the 1920s that medical technology evolved to a point where consumers felt comfortable seeking outside medical treatment; before this time they just remained at home if they were sick or injured.  Consequently, early forms of individual health insurance plans functioned more like modern day disability insurance.  The first commercial cases of individual health insurance plans became available during the Civil War as accident insurance plans with coverage for injury related to travel by railroad or steamboat.  These plans evolved into sickness insurance which provided supplementary income for lost wages due to illness.

The Creation of Blue Cross Blue Shield

The first group health insurance plan was originated by Baylor Hospital in Texas in 1929 offering Dallas teachers a set amount of sickness and hospitalization days in exchange for a fixed, prepaid fee (as little as 50 cents per month).  Prepaid hospital plans increased during the Depression, being mutually beneficial to both consumers and hospitals during difficult economic times.  Hospitals and community care organizations joined forces, leading to the creation of Blue Cross.  To compete with hospitals and offer consumers another choice, physicians organized their own prepaid plans leading to the creation of Blue Shield.  These two organizations merged in 1948.

The Impact of World War II

Another significant shift in health insurance policy took place during World War II.  Government-imposed price and wage controls meant that companies had to look for other ways to compete for workers.  Companies began adding benefits, including health insurance.  Following the war, strong labor unions supported the proliferation of employer-sponsored health plans.  In 1954, employer and employee contributions to health plans became exempt from federal income taxes.  Nearly 75% of Americans had some form of private insurance coverage by 1958.

Significant Post WWII Legislation

There have been significant pieces of health insurance legislation following World War II that have dramatically affected consumer choice and access to health care:

  • Social Security began offering disability benefits in 1954.
  • The first steps towards creating nationalized health insurance began in 1965 with the creation of Medicare and Medicaid.
  • The Health Insurance Portability and Accountability Act (HIPAA) was passed in 1966, ensuring protection of patient medical information and continuation of health insurance coverage during job changes or periods of self-employment.
  • The passage of the Consolidated Omnibus Budget Reconciliation Act (COBRA) in 1986 requires companies to allow former workers to stay on the company health plan for up to 18 months with workers bearing the cost.
  • The Children’s Health Insurance Program (CHIP) was established in 1997 to provide coverage for children in families whose incomes are too high to qualify for Medicaid.
  • Prescription drug coverage (Part D) was added to Medicare in 2003.

This leads us to the passage of the Affordable Care Act in 2010.  The health care reform law has sparked an impassioned debate about the future of health insurance in the U.S.  The next chapter in this history should be interesting.