History of Health Care as an Employee Benefit

Modern health care plans offer coverage for physician, prescription medicine and hospital expenses. The first such plan was negotiated in 1929 between 1,200 Dallas County, Texas, public school teachers and Justin Ford Kimball, an administrator at Baylor Hospital who had previously been a superintendent of public schools. In 1932, nonprofits Blue Cross and Blue Shield were organized, also for Texas school teachers, and for lumber jacks and miners in the Pacific Northwest. In 2009, there were over 100 million U.S. workers covered by Blue Cross and Blue Shield.

Early Private Health Insurance for Individuals Failed

• Early attempts at private health insurance failed due to unclear management strategies. Both Eagle Life and Health of New Jersey and Massachusetts Health Insurance were chartered in early 1847. Eight other health insurance companies were organized under Massachusetts law during the next 18 months. Massachusetts Health Insurance sold policies as direct benefit disability contracts varying from $4.50 for one year to $5.62 for five years, with a potential benefit of $4 per week for a young person. Rates and benefits varied with age. By the end of the year, the plan had 1,400 members. In 1863, National Union Life and Limb insured soldiers and sailors of the Union Army. The charter of the Travelers Insurance company was amended in 1864 to allow accident coverage.

Originated with Workers, Not Employers

• In the 19th century, health care insurance was offered to dues-paying members of benevolent societies, including fraternal organizations and lodges. The "Ancient Order of United Workmen" founded in Meadville, Pennsylvania, in 1868 by John Jordan Upchurch, was modeled on existing Masonic groups and was expanded in cities where industrial workers were far from their farm community hometowns. Health insurance offered by fraternal groups congealed to a national power base that contributed to the Progressive Movement's success in gaining the vote for women, the income tax and direct election of the Senate.

Malingering Controversy

• Mutual aid societies were not a new idea. Guilds had offered their members similar benefits in the Middle Ages, and mutual aid "friendly societies" were widespread in England beginning in the 1600s. In "The Social Transformation of American Medicine," Starr notes that during the Industrial Revolution, Sweden, Denmark and Switzerland contributed to the funds of their benevolent societies. Despite this tradition, debate on health insurance in the United States did not focus on health of labor as a commodity. Instead, the debate centered on whether a worker who was ill but could still function in the workplace would be tempted by laziness to stay away from work if a day's pay were not lost by absence.

Sickness Insurance

• In the United States, where industrial wages were too low for workers to save, most workers who were offered industrial establishment (employer) sickness insurance chose to purchase the less expensive plans that merely reimbursed them for sick days rather than more expensive plans that paid medical benefits. In addition to members' dues, sickness plans mimicked the mutual aid groups by raising funds though entertainments and holding events such as dinners and picnics. In 1909, workplaces that offered "sickness" insurance averaged 1,652 workers total, with an average of 44 percent of the workforce insured.

Illness Reduces Productivity of Labor as Commodity

• In his 1983 Pulitzer Prize-winning "The Transformation of American Medicine," Starr noted that beginning with late 19th-century German Chancellor Otto von Bismarck, politicians understood that universal health insurance was "a means of turning benevolence into power" (see References). In the Industrial Revolution of that period, as extended families were replaced by nuclear families with one wage earner, health care became a critical issue for urban households. Even short of catastrophic illness, economic loss from health-related absences and the direct cost of health care were not merely private problems of the affected worker. By 1900, about 30 percent of the German workforce had some form of group health insurance.

Late 20th Century

• Health insurance as an employee benefit was offered through both unions and employers beginning in the 1930s. Wartime regulation froze wages in the 1940s but did not freeze benefits, so health insurance spread as an employment incentive. These plans paid directly to providers, but as costs increased, the plans placed restrictions on the amount they would pay for procedures. Physicians regarded this as an intrusion into the doctor-patient relationship. Employers seeking to further contain health care expenditures opted for managed care facilities that were both insurer and provider, so that by the end of the 1990s, most insured Americans were enrolled in managed care.