The History of Group Health Insurance

Prior to World War II, bartering was the way for one to obtain and pay for medical services. For example, a farmer may have offered a basket of vegetables in exchange for suturing up a wound. In 1929, Justin Ford Kimball, vice president of Baylor University in Dallas, Texas, established the first modern group health insurance plan.

History

• When Justin Ford Kimball discovered Baylor Hospital had a large quantity of unpaid medical bills from the local teachers, he came up with an idea. Kimball created a plan that allowed a teacher to pay in advance "fifty cents a month or six dollars a year, for twenty-one days of semiprivate hospitalization," according to The Handbook of Texas Online. By the end of 1929, the percentage of Dallas teachers who signed up for the plan was 75%. By 1931, the Dallas Morning News and a local Dallas radio station had also enrolled in the plan. This pay-in-advance hospital plan was the start of Blue Cross Blue Shield, the first insurance company to offer group health insurance.

World War II

• During World War II (1939-1945), employers were desperately seeking good and qualified employees. The U.S. government had implemented a wage freeze, so employers turned to offering benefits in lieu of high pay. The obligation to pay for employee benefits was the beginning of the connection between employers and employee medical insurance.

Government's Role

• Insurance companies were regulated exclusively by the states until 1944, when insurance became subject to regulation by Congress under the interstate commerce clause of the U.S. Constitution. However, the McCarran Ferguson Act was adopted in 1945 after extended controversy over the jurisdiction of state and federal governments in regulating the business of insurance. The Act empowers the states to regulate and tax insurance companies.

Controlling Costs

• The cost of health care has been a concern for over 40 years. Insurance companies attempt to control costs by a concept called managed care plans. According to the National Library of Medicine, "Managed care plans are health insurance plans that contract with health care providers and medical facilities to provide care for members at reduced costs." There are three different kinds of managed care plans: Health Maintenance Organization (HMO), Preferred Provider Organization (PPO) and Point of Service (POS).

HMO

• The first type of managed care plan created was the HMO. In 1969 a Minnesota pediatric neurologist, Paul Elwood, introduced the concept of a health maintenance organization (HMO). An HMO insurance plan only reimburses for medical care received by a specific group of providers who agree to accept a fee for service rate. If you see a doctor who is not approved by your HMO plan, your plan will not pay for any of your doctor visits. An HMO controls which doctor a person is allowed to see in an attempt to control the costs paid out by the insurance company.

PPO & POS

• Preferred Provider Organizations(PPO) and Point of Service (POS) plans were later creations. PPOs have a specific group of providers that accept a fee for service rate. However, unlike an HMO, a PPO insurance plan will pay a portion of your doctor's fee if he is not contracted by the insurance company, leaving you responsible for paying the remaining balance. A Point of Service plan is a combination of an HMO and a PPO. This plan allows members to choose which option, HMO or PPO, they use each time they see a doctor. A PPO plan offers you more flexibility than a standard HMO, but you will pay more if you see a doctor who does not accept the agreed upon fee for service amount.