Health Insurance History in the US: Key Milestones and Reform Efforts

The history of health insurance in the US is a long and complex one, marked by key milestones and reform efforts that have shaped the industry into what it is today. The concept of health insurance dates back to the late 19th century, when the first health insurance policies were offered to workers in the manufacturing industry.

In 1929, the first major health insurance law was passed, requiring employers to provide workers' compensation insurance to employees who were injured on the job. This law set a precedent for future health insurance legislation.

The Great Depression and World War II led to significant changes in the healthcare landscape, with many Americans relying on government programs and private insurance companies for coverage. The 1940s and 1950s saw the introduction of group health insurance plans, which allowed employers to offer health insurance to their employees as a benefit.

The first major health insurance reform effort was the 1965 Medicare and Medicaid Act, which established two government-run health insurance programs for the elderly and low-income Americans. This marked a significant shift towards government involvement in the healthcare system.

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During the late 1800s to 1912, the US government essentially left healthcare to private and voluntary programs, with no federal or state-sponsored public programs.

The federal government took no action to subsidize voluntary funds or make sick insurance compulsory, leaving matters to the states.

In the Progressive Era, reformers were working to improve social conditions for the working class, but there was limited support for broad social insurance in the US.

This was in contrast to European countries, where powerful working-class support drove the debate for health insurance and sickness funds.

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The first health insurance resembling what we think of today began in the 1930s during the Great Depression.

Prior to the 1930s, it wasn't so much "health insurance" to pay for medical treatment costs, but rather disability income insurance.

The cost of obtaining healthcare was relatively low due to limited medical technology, and most surgeries were performed in people's own homes.

Hospital bills were rare, and people were more concerned about missing wages if they were sick and couldn't work.

Sickness insurance products started popping up to help people cover living expenses when they couldn't earn an income due to illness or injury.

Sickness funds, either set up by banks or by employers for employees, were another early form of health insurance.

These funds arranged by financial institutions came first, around the 1880s, followed by industrial sickness funds that remained popular throughout the 1920s.

The concept of an industrial sickness fund also played a role in the labor movement and later, healthcare through unionization.

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Prior to the 1930s, the American public largely paid its own way where medical costs were concerned.

Most surgeries were performed in people's own homes, so hospital bills were rare. This made the cost of obtaining healthcare relatively low.

In the early 20th century, Americans who worked in dangerous professions like mining, steel, and railroads had access to company doctors in industrial clinics or union-operated infirmaries.

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These company-sponsored clinics were some of the earliest precedents of businesses becoming involved in their employees' well-being.

Sickness funds, established by employers, unions, and fraternal organizations, served the needs of as many as 30 to 40 percent of non-agricultural workers employed in America.

These funds provided the type of benefits Americans felt was most needed: salary replacement, not healthcare.

Here's a brief breakdown of the early forms of health insurance:

These early forms of health insurance paved the way for the development of modern health insurance in the United States.

By the 1940s, health insurance plans were becoming more common, but only about 9 percent of the U.S. population had some form of private health insurance in 1940.

Employers began offering health insurance plans in 1943, after the War Labor Board declared benefits, like health insurance, did not count as wages. This was a game-changer for companies competing for workers during World War II.

As a result, health insurance plans grew rapidly, and by 1960, over 68 percent of the U.S. population had some form of private health insurance.

Employers continued to offer health insurance as an appealing, tax-exempt benefit for employees, and by 1960, more than 70% of people had some form of health insurance.

The COVID-19 pandemic caused economic strain, complicating the challenges employers face when managing their employee benefits program and forecasting health care costs for their employees.

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By the 1940s, health insurance plans were becoming more common, but still only about 9 percent of the U.S. population had some form of private health insurance in 1940.

The War Labor Board's 1943 decision declared benefits, like health insurance, as non-wage, which allowed employers to offer health insurance plans without raising wages.

This decision combined with favorable tax laws and a growing number of unionized employees, made the 1940s and 1950s a period of extreme growth for health insurance.

By 1960, over 68 percent of the U.S. population had some form of private health insurance, a significant increase from the 1940 numbers.

Employers began offering health insurance as an incentive to attract workers during World War II, when the labor market was tight and wage increases were limited.

The 1942 Stabilization Act, which aimed to limit employers' freedom to raise wages, had the unintended consequence of encouraging employers to offer health benefits instead.

As a result, employers started to make health insurance arrangements for their workers, marking the beginning of the modern era of employer-sponsored health insurance.

By 1943, employers had a strong incentive to offer health insurance, and the industry experienced rapid growth in the following decades.

The COVID-19 pandemic has caused economic strain and complicated the challenges employers face in managing their employee benefits program and forecasting health care costs.

Employers with self-funded group health plans are particularly vulnerable to the variability in predictions from experts and the potential for pent-up deferred care.

Some research suggests that the lack of management of chronic conditions and delayed care may already be manifesting in escalating claim costs.

Self-funded employers should take steps to prepare for any shifts in claim costs, including adjusting claim reserves.

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PPO plans started popping up in the 1980s after the Employee Retirement Income Security Act (ERISA) gave employers the freedom to self-insure.

This newfound freedom meant that the HMO model didn't work as well for employers, so PPOs became a popular option.

PPOs are more like contract coordinators than insurers, helping with logistics between providers and insurance plans.

In the case of fully insured health plans, the insurance company uses the PPO model, even though they aren't an insurance company.

PPO plans have become a popular option for group and individual health insurance over the last 40 years.

Typically, PPO networks are broader than HMOs, giving consumers more choice over where to go for their care.

Plan members are still limited to coverage at participating providers, but it's not the same level of limitation as an HMO.

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In the late 20th century, Americans were left with limited options and high insurance premiums. Most people were forced to choose between expensive insurance plans that covered little or nothing.

As a result, many Americans were without health insurance or had to rely on limited coverage. This led to a growing need for reform.

The creation of Medicare and Medicaid was a significant achievement in making healthcare more accessible to Americans. However, many were still left behind, and the system remained largely dictated by insurers looking out for their bottom line.

The first health insurance plan was actually a prepaid plan where a Dallas school system paid for their teachers' care at Baylor University Hospital. This pioneering approach to healthcare costs is still influencing managed care options today.

Insurance companies have been trying to control costs by creating provider networks, just like they did in the past. By setting up specific hospitals that members can go to, they can keep costs in check.

A key part of managed care is the type of plan you choose, which can be an HMO, PPO, or POS plan. These plans all involve managing care through provider networks, but they differ in how much freedom you have to choose your own doctors and hospitals.

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HMOs, or Health Maintenance Organizations, are one type of managed care plan that requires you to get a referral from your primary care physician to see a specialist. PPOs, or Preferred Provider Organizations, give you more flexibility to choose your own doctors and hospitals, but may cost more.

POS, or Point of Service, plans offer a mix of HMO and PPO features, allowing you to choose your own doctors and hospitals, but with some restrictions.

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The Clinton Plan 1992 was a major attempt at healthcare reform.

It was introduced by Bill Clinton in 1992 as part of his presidential campaign, with a goal of making healthcare more affordable and accessible to regular Americans.

Clinton aimed to pass healthcare overhaul legislation within his first 100 days in office, but it didn't work out that way.

The bill, known as the Health Security Act, was introduced to a joint session of Congress on September 22, 1993.

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It called for universal coverage for every American, along with mandating that employers pay 80 percent of the average cost of each employee's health plan.

The act also included government assistance for health plans at small businesses and for those who were unemployed or self-employed.

It provided for the addition of mental health and substance abuse coverage into health plans.

Although the bill didn't pass into law at the time, many of its concepts resurfaced in future healthcare reform attempts.

The Affordable Care Act (ACA) has been a contentious topic in American politics, with many attempts to repeal it over the years.

Despite its unpopularity among some politicians, the law has proven impossible to repeal due to its popularity among the American public, particularly the ban on pre-existing condition limits.

The U.S. Supreme Court has weighed in on the ACA, striking down the individual mandate in 2019, but ultimately ruling in favor of the law in 2021 by throwing out a lawsuit from states trying to argue the entire ACA was invalid without the individual mandate.

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Repealing the ACA would have resulted in 24 million Americans losing their insurance, a prospect that no politician wants to be associated with.

The ACA has shifted the landscape of healthcare in America, making it impossible to ignore its impact.

The law has provided insurance coverage for 20 million people and protected millions from discrimination in healthcare coverage by ruling that insurance companies cannot deny coverage to people with pre-existing health conditions.

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The rise of telemedicine has been a game-changer for the healthcare industry.

The concept of telemedicine has been around since the early days of the telephone, but it wasn't until the COVID-19 pandemic that it gained widespread adoption. Prior to 2020, telemedicine was a relatively small part of the US healthcare system.

In fact, in January 2020, telemedicine accounted for less than 1 percent of all care. But by a few months later, it had skyrocketed to 32 percent of office and outpatient visits.

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The pandemic accelerated the adoption of telemedicine, and 22 states changed their health insurance regulations to require broader and more equal coverage of telemedicine. This was just one factor that contributed to the dramatic increase in telehealth adoption.

By July 2021, research from McKinsey found that telehealth use had stabilized at a rate 38 times higher than pre-pandemic. Telemedicine is no longer a pipe dream, and its potential to expand access to care in rural and low-income areas, increase appointment compliance, and reduce costs is clear.

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The private insurance industry was strongly opposed to the AALL proposal. They saw it as a threat to their business model.

Their main concern was that the reformers' plan to cover funeral expenses would pull the rug out from under the multi-million dollar commercial life insurance industry. This was a big deal because the commercial insurance industry relied heavily on policies that paid death benefits and covered funeral expenses.

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The working class had a term for this - a "pauper's burial." This was a stark reminder of the harsh realities of life without adequate insurance coverage.

Reformers believed that by covering death benefits, they could finance a significant portion of the health insurance costs, reducing the burden on policyholders. However, this idea was met with fierce resistance from the private insurance industry.

Opposition from various groups, including doctors, labor, insurance companies, and business, significantly contributed to the failure of efforts for universal national health insurance. These groups had a strong interest in maintaining the status quo.

The inclusion of a funeral benefit in the Progressive's plan was a tactical error, as it threatened the commercial life insurance industry. This industry was a major player in the economy, making it a formidable opponent.

The reformers' lack of experience in dealing with interest group opposition was a significant factor in their failure. They didn't fully understand how to navigate the complex web of interests and ideologies that shape public policy.

Ideological differences, anti-communism, and anti-socialism also played a role in the failure of these efforts. These factors created a hostile environment for reformers, making it difficult to gain traction.

The entrepreneurial character of American medicine and the tradition of American voluntarism also hindered the success of these efforts. These factors led to a fragmented approach to healthcare, making it challenging to implement a universal system.

The association of public programs with charity, dependence, and personal failure further complicated the issue. This perception made many middle-class Americans hesitant to support universal healthcare, as they saw it as a handout rather than a right.

The Affordable Care Act (ACA) was a major overhaul of the US healthcare system, passed in 2010 with President Obama's signature. It was designed to improve health outcomes and reduce spending.

One of its key provisions prohibited insurance companies from denying coverage to people with pre-existing health conditions, protecting millions of Americans from discrimination in healthcare coverage. This was a major win for patients and a significant change from the previous system.

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The ACA also established online marketplaces for people to purchase insurance, increasing competition between health insurance companies and encouraging them to lower their prices and offer higher quality services. This helped increase access to healthcare for millions of Americans.

The ACA has provided insurance coverage for 20 million people since its implementation. Despite its successes, health care prices continue to rise without a worthy cause, and health outcomes in the US remain worse than in comparable countries.

The ACA's passage was a historic moment, with the bill passing in the House by just five votes and in the Senate with the bare minimum of 60 votes needed to avoid a filibuster.

The history of health insurance in the US has been marked by numerous challenges that have shaped the industry into what it is today. One major challenge has been the lack of universal coverage, with only 53% of the population having health insurance in 1965.

The Affordable Care Act, signed into law in 2010, aimed to increase coverage to 95% of the population by 2016. Despite this progress, many Americans still struggle to access affordable care.

The Blue Cross and Blue Shield Association, founded in 1929, has been a major player in the health insurance industry. However, it has faced criticism for its lack of transparency and high administrative costs.

The Medicare program, introduced in 1965, has been a crucial component of the US healthcare system, providing coverage to millions of seniors and disabled individuals.

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The US healthcare system has undergone significant changes over the years, with major reform efforts in the 1990s and 2010s.

Bill Clinton's election in 1992 brought healthcare to the forefront of the national debate, with his wife Hillary Clinton leading the charge on his Health Security Act. This plan would have required virtually all Americans to enroll in a health policy managed by regional purchasing cooperatives.

The Health Security Act died in Congress in 1993 due to its radical overhaul of the healthcare system, leaving employers in control of healthcare. This led to the rise of HMOs, which were initially met with dissatisfaction from employees who wanted more autonomy over their health decisions.

Patient "bills of rights" were created in response, and HMOs became more liberal with the introduction of open-access plans. However, healthcare costs continued to rise despite these changes.

The Affordable Care Act, also known as Obamacare, was signed into law in 2010 by President Obama in response to the crisis state of American healthcare.

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During the Progressive Era, reformers aimed to improve social conditions for the working class. This movement led to the creation of workers' rights laws and the introduction of workers' compensation laws.

The first federal law resembling workers' compensation was the Federal Employers Liability Act (FELA) in 1908, which applied only to railroad and interstate commerce employees. Employers who purchased workers' compensation insurance through their state could avoid civil liability for accidents, while still providing healthcare and compensation to injured employees.

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In the early 20th century, sickness funds established by employers, unions, and fraternal organizations served the needs of up to 30-40% of non-agricultural workers. These funds provided salary replacement, not healthcare, and proved to be a powerful lobbying group against universal healthcare.

The American Association of Labor Legislation (AALL) led the campaign for health insurance in 1906, drafting a model bill in 1915 that limited coverage to the working class and others earning less than $1200 a year. The bill included services like physician visits, hospital stays, and sick pay, as well as a death benefit to cover funeral expenses.

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President Harry Truman's plan for a national health system in 1945 proposed an optional health insurance and sick leave program, but it was ultimately not adopted.

In the early 20th century, workers' rights movements were gaining momentum, leading to the creation of workers' compensation laws. These laws aimed to put the financial responsibility of injured workers onto employers instead of employees.

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Employers found that workers' compensation laws would allow them to care for injured workers at a lower overall cost, without the frequent court cases. This was a win-win for both parties.

The first federal law resembling workers' compensation was the Federal Employers Liability Act (FELA) in 1908. It only applied to railroad and interstate commerce employees, and only paid if an employer was found to be at least partially responsible for the accident.

Between 1910 and 1915, 32 states passed workers' compensation insurance laws that allowed employers to buy insurance through the state. Employers who purchased workers' compensation insurance through the state could avoid civil liability for the accident.

Here are the three ways an employer could be absolved of their duty in the early 20th century:

The American Association of Labor Legislation (AALL) also played a crucial role in the development of health insurance during this time.

During the late 19th and early 20th centuries, the US government largely left healthcare matters to the states and private programs. The federal government didn't subsidize voluntary funds or make sick insurance compulsory, instead leaving it to states and private organizations.

The labor and socialist parties in the US had fragmented support for health insurance or sickness funds and benefits programs, unlike in European countries. This meant that the first proposals for health insurance in the US didn't come under anti-socialist sponsorship like they did in Europe.

In the Progressive Era, reformers were working to improve social conditions for the working class. However, the US did have some voluntary funds that provided for their members in the case of sickness or death, but there were no legislative or public programs during this time.

The American Association of Labor Legislation (AALL) finally led the campaign for health insurance in 1906. They created a committee on social welfare in 1912, which held its first national conference in 1913. The committee decided to concentrate on health insurance, drafting a model bill in 1915.

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Here are the key features of the AALL model bill:

These early attempts at healthcare reform laid the groundwork for future efforts, but ultimately didn't succeed in establishing universal healthcare in the US.

Healthcare sharing ministries are not health insurance, but rather a model that's gained popularity as people seek alternatives to employer-sponsored health insurance.

They're often sponsored by religious organizations and work by having members pay monthly dues to reimburse each other for healthcare needs.

Members pay monthly dues, which are then used to reimburse other members for healthcare needs, similar to a self-funded health plan.

Healthshare ministries operate outside of state and federal insurance regulations because they're not classified as insurance.

This can cause issues, but some people see them as an alternative approach to the traditional health insurance system.

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The Progressives' efforts to achieve compulsory national health insurance were thwarted by opposition from various groups, including doctors, labor, insurance companies, and business.

Their inclusion of a funeral benefit was a tactical error, as it threatened the commercial life insurance industry.

Doctors, labor, insurance companies, and business all had a vested interest in blocking the reform.

The Progressive reformers underestimated the power of interest group opposition and failed to consider the overall political context.

Ideological differences, anti-communism, and anti-socialism also played a significant role in shaping the opposition to the reform.

The fragmentation of public policy and the entrepreneurial character of American medicine further hindered the Progressives' efforts.

The association of public programs with charity, dependence, and personal failure also contributed to the opposition.

The alternative of Blue Cross private insurance plans removed the middle class from the coalition of advocates for change.

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In the post-war era, the US healthcare landscape underwent significant changes that would shape the country's health insurance system for decades to come. Lyndon B. Johnson established Medicare and Medicaid in 1965 to expand access for elderly and low-income populations.

The creation of Medicare and Medicaid was a response to the growing need for healthcare coverage, particularly among retirees and low-income Americans. Over 19 million people enrolled in Medicare in its first year, with medical spending increasing as a result.

The expansion of healthcare coverage options in the 1950s laid the groundwork for the establishment of Medicare and Medicaid. Strong labor unions began to bargain for better benefit packages, leading to the inclusion of vision care and dental benefits in major medical plans.

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The 1940s were a pivotal time in American history, and it's fascinating to see how World War II led to the dawn of employer-sponsored health insurance. The 1942 Stabilization Act was passed to combat inflation, but it had an unexpected consequence.

Employers began to offer health benefits as incentives to attract workers, rather than raising wages. This was a game-changer, as health benefits could be considered part of compensation without counting as income, which meant workers didn't have to pay income tax or payroll taxes on those benefits.

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By 1943, employers had a strong incentive to make health insurance arrangements for their workers, marking the beginning of the modern era of employer-sponsored health insurance. This shift was largely driven by the economic situation resulting from WWII.

The connection between employment status and health insurance was unintentional, but it has continued to this day, setting the United States apart from many other countries with government-provided health coverage.

Lyndon B. Johnson established Medicare and Medicaid in 1965 to expand access for elderly and low-income populations.

Over 19 million Americans enrolled in Medicare in the first year, greatly increasing access to medical care.

The creation of Medicare and Medicaid was a response to the issue of healthcare for retirees and those working in low-paying jobs for companies that didn't offer healthcare benefits.

In 1958, Rhode Island congressman Aime Forand introduced a proposal to cover hospital costs for the aged on social security, which marked a turning point in the national health insurance campaign.

The AMA countered with a voluntary insurance plan, but the government expanded its proposal to cover physician services, ultimately leading to the creation of Medicare and Medicaid.

In 1965, Johnson signed Medicare and Medicaid into law as part of his Great Society Legislation, capping 20 years of congressional debate.

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The modern era of employer-sponsored health insurance began in 1943, as employers started making health insurance arrangements for their workers to incentivize them and avoid paying income taxes on those benefits.

Employers were suddenly in the health insurance business, and this shift marked a pivotal point in the history of healthcare in America.

The Stabilization Act of 1942, designed to limit wage raises, inadvertently led to employers offering health benefits as incentives, and this practice has continued to shape the US healthcare system.

In 1943, employers had an increased incentive to provide health insurance to their workers, and this change had a lasting impact on the healthcare landscape in the US.

Today, employers continue to play a significant role in providing health insurance to their employees, and this relationship is a key aspect of the US healthcare system.

Employers must carefully manage their employee benefits programs and forecast health care costs for their employees, especially during times of crisis like the COVID-19 pandemic.

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As of September 2020, employers were waiting on renewal figures from carriers to set contribution levels for the 2021 plan year, and they were hoping for favorable renewal rates due to historically low claim costs.

Employers have been bracing for higher claims, but many carriers are offering only modest increases, likely due to the possibility of pent-up deferred care and potential second or third waves of coronavirus cases.

Self-funded employers can take steps to prepare for any shifts in claim costs, such as adjusting claim reserves, and may have the opportunity to recap the reward of two concurrent years of lower claims if carrier fears about higher claims do not materialize.

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Employer Sponsored Plans in the Age of Coronavirus have been complicated by the economic strain caused by the COVID-19 pandemic.

Employers, particularly those with self-funded group health plans, must be mindful of the variability in health care costs and the wide swings in predictions from experts.

Historically low claim costs were seen in April through June 2020, mainly due to preventative and elective care deferrals, people's reluctance to seek medical care, and the increased use of telemedicine.

The reduction in claims was a welcome relief for employers, but it's uncertain whether this trend will continue in the future.

Some research suggests that delayed care is already manifesting in escalating claim costs, which could impact the financial viability of health plans.

Self-funded employers should take steps to prepare for any shifts in claim costs, such as adjusting claim reserves.

Fully-insured employers, on the other hand, will be at the mercy of their carrier partners' predictions.

Carrier RFP volume has reportedly decreased by more than 50% from 2019, and some carriers are offering aggressive pricing to win business.

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