How Did Health Insurance Begin?

Health insurance as defined in the U.S. today didn't come into being until the 20th century. Prior to 1920, lost wages for illness cost about four times that of medical care. Sickness insurance was used as an income replacement.

First Injury Health Plans

• During the Civil War, individual health plans covering injury during steamboat or rail travel became available. Early group insurance policies covering health care in cases of accidents were offered by Massachusetts Health Insurance in 1847, and by the end of the 19th century, disability insurance had evolved to cover wider ranges of injury and illness.

The Term "Health Insurance" is Coined

• In 1911, the National Insurance Act was passed by the British, and the term "health insurance" became popular. Many European nations adopted compulsory, nationalized types of insurance before 1920, but it never caught on in the U.S.

Technology Plays a Part

• As new medical procedures and medicines were developed in the 1920s, people were encouraged to visit treatment centers and hospitals for care. Costs rose significantly and were passed on to the patient.

Health Insurance Markets

• In 1929, a group of Dallas teachers negotiated with Baylor University Hospital for 21 days of hospitalization for a fixed payment of $6.00, leading to a practice that benefited both hospitals and patients during the depression of the 1930s.

Blue Cross and Blue Shield Lead the Way

• The American Hospital Association designed Blue Cross as hospitals organized to reduce competition for pre-paid hospital services plans. As a non-profit corporation, Blue Cross was exempt from insurance regulations. Blue Shield was born to organize in the same way for physicians, and the ensuing lucrative market enticed other insurers into the health field when they found commercial insurers could charge lower premiums to healthy people, luring customers away from non-profits obligated to charge the same rate for all.