History of Medical Insurance

The idea that sick people need help affording health care is centuries-old. It was this idea that drove guild members to create a fund to support one another when they could not work, and that drove insurance companies in the private sector to make insurance a product. The way that insurance is organized and the services it provides has changed a lot since its humble beginnings in the Middle Ages, but the concern for wellness and the intent to support the ill have always been the same.

The Guild System

• The very first form of health insurance was developed by European craftsmen's guilds during the Middle Ages. Guilds began collecting funds from their members and putting it in a pool called the "sick fund." The money collected was paid out when a member became too sick or injured to continue working. The Guild would use money from the sick fund to pay for medical care and funeral expenses, and to provide the sick craftsmen's families with financial support.

Public Care in Europe

• The German leader, Otto von Bismarck, also known as The Iron Chancellor, was the first politician to work for government involvement in health care. In 1883, he pushed through legislation which created a national sick fund. The legislation called for the government to collect funds from both the employer and the employee to be used to pay for health care when a worker became sick. He later expanded that legislation to develop accident insurance. By 1912, public health insurance was a policy in place in most European countries.

First Insurance in America

• In the mid-1800s the first private medical insurance policies were underwritten on the American continent. These policies paid out only to those policyholders who were injured as the result of a steamboat or train accident. The first employer-paid insurance policies were offered by the railroad at the very end of the 19th century. These were also accident policies and were purchased through private insurance companies by the railroad on behalf of railroad employees.

American Political Failures

• Theodore Roosevelt first introduced the idea of government-sanctioned health care in 1912. During his campaign, he argued that the government should require that industrial businesses provide medical insurance for employees. Government involvement in health care was again debated in 1915 and the 1920s, but nothing was done. National health insurance was written into the original legislation of Franklin Delano Roosevelt's New Deal in the 1930s as well as Truman's Fair Deal negotiations in the 1940s, but in both cases was cut before the final bill was signed.

Group Medical Insurance

• Because the American government did not provide medical insurance, the need to supply medical assistance was pushed into the private sector. The first group insurance was created by a group of teachers in Dallas, Texas, who contracted with Baylor Hospital to provide care to group members at a reduced cost. Members received services at a set price and paid a monthly fee toward their care. Programs such as this, which provided only hospital care, became popular during the Depression when people could not afford to pay for care outright, and hospitals were desperate for a steady income. This form of insurance, which became known as a "prepaid medical plan," created competition between hospitals to provide care for the lowest cost. In 1932, the American Hospital Association formed an organization called Blue Cross and Blue Shield, which oversaw the prepaid medical programs for all the participating hospitals. It was designed to reduce the amount of competition between hospitals and improve the quality of medical care.

Commercial Insurance

• With the success of the Blue Cross program, private insurance companies saw a void waiting to be filled and began selling medical insurance policies in the 1940s. Because the first health insurance policies only covered hospital expenses, doctors began losing patients who would go to the hospital, where services were covered, rather than seeking care in the doctor's office. Doctors soon partnered with insurance companies to provide expanded insurance policies, which covered basic medical care. More than 700 insurance companies were offering health insurance policies in the private sector by the 1960s. Insurance in the private sector has continued to become more expensive as the services provided were expanded to include preventative care, pharmaceuticals and a range of other services.

Governmental Successes

• President Johnson's administration managed to do what his predecessors had not when he signed the bill that created both Medicare and Medicaid. The bill provided insurance, funded by American tax dollars, for the elderly and those living below the poverty line. This first attempt at creating a governmentally-funded insurance program were only partially successful, however, because there were major holes in the coverage, and many that were covered retained private insurance to supplement the governmental program. Presidents Nixon, Reagan and Clinton all attempted to expand coverage and failed. President George W. Bush passed the Medicare Modernization Act in 2003, which expanded Medicare's benefits to include prescription drugs. In 2009, President Obama passed a bill that put government controls on private insurance companies and guaranteed coverage for all Americans.