Milestones of the US healthcare: How health insurance began in the US

how insurance began

A modest watcher of the US healthcare system over the past decade would fairly state that developments within the US healthcare system was a net result of interplay between physicians and hospitals on one side, and the economic conditions that prevailed in the US over time. Physicians and hospitals had the upper hand earlier but economy prevailed later on that a conflict has risen between the two and seemingly hasn't stopped till the present time.

When was the birth of the first health insurers?

During the 19 th and early 20 th century, the term healthcare hasn't been even popular yet. It was only "medical practice" and it only included physicians and their patients. Physician services were simple, and their fees were confidential. Doctors were able to set their fees straight. They also were able to adjust fees according to the financial ability of their patients, and moreover, collected their own bills. All that led to a strong and long term relationship with patients, but all that was about to change.

What is health insurance?

One of the earliest changes to that "closed system" was the evolution of some methods of what was called "sickness insurance", where some amount of money was put to support a sick person whenever his/her income got interrupted by accidents, illnesses or disabilities. That social insurance was sometimes done through work, syndicates, unions or commercial insurance companies. First, it was provided for the person earning the wage, but later it included his/her beneficiaries and household. The need for such insurance increased around the time of World War I, when occupational hazards were going up, and poverty of many families with a single provider suffered a lot with the diseases or disabilities of its sole provider, not to mention that most of these families were not able to afford healthcare to begin with.

As with everything that starts as a passion and grows as a need, this health insurance coverage grew slowly in the US, was initiated in Europe and apparently grew faster in Europe than in the US, that a trend was growing fast to make it mandatory. Luckily, World War I reduced public pressure that was rising to make it so. Given the other fact that every action must have a reaction, the most offended people by such an intrusion to their closed system - the physicians - attacked the idea of mandatory health insurance. They feared it would affect their incomes, given that their financial security was already shaken by the economic depression of 1929.

When was the US health insurance authority unleashed?

In 1934, the American Medical Association (AMA) published this statement: "No third party must be permitted to come between the patient and his physician in any medical matter". It looked credible, but when the economy is suffering and your income is no longer enough to pay the bills, something has to be done. So, hospitals began to try insurance plans for the first time.

There is an old Egyptian saying that whoever succeeds in summoning the demon is the one who should be tasked to dismiss it. I guess if that saying can be applied to anything, it should be applied to whoever thought of health insurance plans. Although they started up as a social support to the poor and the unable, it grew to be a major consumer of the country's national domestic product. In the mid-60s, it consumed about 7% of it and in 2011 it consumed

about 17% of the US GDP (Gross Domestic Product), but let's go back to where it started to see what was involved in summoning the demon.

It all started during the great depression when doctors and physicians incomes were declining around the year 1929, that a system for economic support was needed to provide support for the sick and the disabled during their period of treatment when they had practically zero income, and at the same time would pump some money in the dry veins of hospitals that suffered from decreased patients as well. The solution was offered by society, but the opposition was from the physicians themselves, and the trend or the compromise was to let the government handle the proposal in its own way, and maybe that is what summoned the demon. What was the demon? We'll find out.

First, a plan was suggested from a Baylor who worked in the University hospital at the time. It was the most popular of the health insurance plans because it was the most comprehensive one. Under that plan, and for a few cents a month, you can be covered for a total of 21 days in a health care facility without paying a dime. Soon other hospitals followed, and by the time it was 1937, about 600,000 patients were enrolled in such plans, that the AMA at the time - which was composed of many physicians - declared an announcement saying that providing healthcare in such a manner wasn't healthy for the confidentiality of the doctor-patient relationship and was a threat to the medical profession as a whole. Physicians were willing to accept those plans if the government - not society - was to take the upper hand in its regulation.

From the 1930s onward, the trend towards making the government actually sponsor health insurance has had its ups and downs, till it finally paid off when Medicare and Medicaid legislations were passed in 1965, where government based insurance were granted to the elderly and the medically disabled. Moreover, to curb the ever rising health insurance proposals especially around World War II, and to emphasize the government role in providing the upper hand in health care, the government began to financially support physicians and hospitals' infrastructure. It built more healthcare facilities and improved doctors' research potentials. It gave a huge boost to the private health insurance industry by excluding health insurance benefits from wage and price controls and by excluding workers' contributions to health insurance from taxable income. The effect was to encourage health insurance for employees as fringe benefits rather than cash.

In the following blogs, we will discover together how the early solutions of the US government to the early healthcare problems played both direct and indirect roles in the shaping of the current US healthcare system.


(1). Numbers RL. The third party: health insurance in America. In: Vogel MJ, Rosenburg CE, Eds. The Therapeutic Revolution: Essay in the Social History of American Medicine. Philadelphia: University of Pennsylvania Press; 1979.

(2). Starr P. Transformation in defeat: the changing objectives of national health insurance, 1915-1980. In: Kindig DA, Sullivan RB, Eds. Understanding Universal Health Programs, Issues and Options. Ann Arbor, MI: Health Administration Press; 1992.

(3). Leland RG. Prepayment plans for hospital care. JAMA. 1933;100:113-117.

(4). Lee PR, Benjamin AE. Health Policy and the politics of healthcare. In: Lee PR, Estes CL, Eds. The Nation's health. 4 th ed. Sudbury, MA: Jones and Barlett; 1994.


Category: Insurance

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