History of Health Care Insurance

Health insurance provides individuals with affordable medical services when they become ill or injured. Insurance companies first started offering basic health insurance plans in the United States during the 1800s. Over time, as demand for health insurance increased, so did the number of plans available. More health insurance providers also started offering health coverage when health care costs soared and people needed health insurance to afford medical care.

Origin of Health Insurance

• Health insurance companies started selling insurance policies to people during the Civil War between 1861 and 1865. These insurance policies provided individuals with coverage from accidents involving rail and steamboat travel. It’s these plans, however, that later gave way to more comprehensive health care plans covering all afflictions and injuries.

Group Health Plans

• Massachusetts Health Insurance of Boston sold the first group health coverage plan providing its participants comprehensive benefits in the mid-1800s. Several years later, teachers in Dallas, Texas, banned together and set up an exchange program with Baylor Hospital. Under this arrangement, the teachers' group paid Baylor Hospital to provide them room, board and medical services. It, in effect, was the first employer-based group plan of this kind.

Expansion of the Health Insurance Industry

• During the 1930s and '40s the demand for health insurance grew. In response, life insurance companies started offering health insurance plans. Around this time, the first nonprofit organization, Blue Cross and Blue Shield, started selling insurance plans. It was the first health insurance provider to negotiate contracts with doctors and hospitals to deliver services at discounted rates. In return, Blue Cross and Blue Shield committed to prompt payment and a steady caseload for service providers in its network.

Health Insurance as Part of Employee Benefits Packages

• Government-imposed wage freezes during World War I pushed employers to offer health insurance as part of benefits packages. Health insurance was a way for employers to attract qualified employees to their companies. Unions also successfully bargained employers to add health insurance to their benefit packages as well.

Public Benefit Programs

• In 1965, when government created the public benefit programs, Medicare and Medicaid, 75 percent of the nation’s health care costs were paid by private sources. These programs provide health coverage to the elderly and disabled (Medicare) and poor adults and children (Medicaid). Following the creation of these programs, health care costs soared. Businesses responded by switching employees to less costly plans or dropping health coverage from benefit packages altogether.

  By 1995, about half of the nation’s health care costs were paid by private companies and individuals. Although Congress passed health care reform legislation signed by President Barack Obama in 2010, it remains to be seen whether these reforms will stem the rise of health care costs and allow more people to access health insurance.