Accident Insurance

In the mid-1800s, health insurance largely did not exist in the United States. Instead, there was accident insurance, to help people financially who were injured. This accident insurance focused on compensating lost wages, rather than medical expenses incurred. Medical costs were expected to be paid directly by the patients. Still, this represents the beginning of providing financial protection for health-related events.

Sickness Insurance

Sickness insurance, designed to cover costs associated with illnesses, mostly began in the early 1900s when some hospitals began to offer services on a pre-paid basis. This practice allowed patients to prepare to receive medical care at individual hospitals if they became sick. Large insurance companies did not exist, rather hospitals and patients coordinated their payments and care, similarly to how managed care insurance plans work today (which we will talk about later).

The Rise of Employer-Based Health Insurance

Insurance plans shifted from hospital-based to employer-based programs around World War Two. With extensive wage controls across the country, and a limited workforce, employers needed new ways to attract employees to their companies. Benefits like health insurance were not limited under the new rules, so employers began offering benefits to entice workers. So, instead of raising a salary offer to potential employees, companies would offer the same salary, but with the addition of benefits like health insurance.

Hopes for a National Plan

Importantly, health insurance was not intentionally designed in the United States to be employer sponsored. Rather, the economic situation resulting from WWII led to the formation of this unplanned connection. Still, this relationship has continued to this day, and is strikingly different from many other countries whose governments provide health coverage to all citizens. ​

When health insurance is connected to employment status, people naturally worry about how they would pay for medical care when they are unemployed or retired. Arguments for a public, government-run health insurance program took off in the mid-1940s, under Harry Truman.

President Harry Truman's Plan for a National Health System

President Truman believed that the government should provide an optional health insurance and sick leave program to the nation. The idea behind his plan was that if a person were unable to receive insurance through their employer, they would have a viable option from the government. While there was significant support for the idea, still many organizations, and notably, the American Medical Association (AMA), denounced the plan. The AMA worried that political involvements would inhibit their ability to provide care. Truman’s plan was ultimately not adopted.

The Private Insurance Boom

Because no government-sponsored health plan was created, many private insurance companies formed to provide coverage, all with different policies and costs. A lack of regulation led to a complicated jumble of options for people to choose between. And the more options there are, the more confusing it is to compare them all, let alone choose one.

Still, more than 70% of people had some form of health insurance by 1960. Employers continued to offer health insurance as an appealing, tax-exempt benefit for employees.

Medicare and Medicaid

Lyndon B. Johnson established Medicare and Medicaid in 1965 to expand access for elderly and low-income populations, respectively. When Johnson signed these programs into law, former president Truman sat next to him, serving as recognition of the attempts years earlier to establish government-sponsored healthcare. These programs proved to increase access to millions of Americans; over 19 million enrolled in the first year. As enrollment increased, medical spending also increased, because millions of people were now able to receive medical care they had been avoiding.

From Managed Care to High Deductibles

Over time, Medicare and Medicaid shifted to cover a broader scope of people. Pregnant women, people with disabilities, and people with end-stage renal disease (ESRD) were included by the mid-1980s. With more people insured and receiving medical care than ever before, total health expenditures rose drastically relative to economic growth. Let's take a look at how insurance companies have structured their plans to try and keep costs low.

Health Maintenance Organizations (HMOs)

Concerns over health spending led to the creation of private health maintenance organizations, or HMOs. HMOs managed how care would be delivered to insurance enrollees. Enrollees would be limited to specific doctors, or hospitals, for the payments to be covered. This is similar to some of the original pre-paid insurance plans that were contracts between patients and specific care institutions. HMOs also would require prior authorizations for specialist visits, to decrease unnecessary spending. Most enrollees disliked HMO plans because they took away patient control in medical decision making. Private insurance companies responded by shifting away from HMOs, to high-deductible health plans (HDHP).

High Deductible Health Plans (HDHPs)

High-deductible health plans allow for enrollees to largely control their own medical spending. A deductible is the amount of money an enrollee must pay before the insurance company covers costs. A high deductible means that there is a high amount of money someone must pay before receiving assistance from the insurance company. This forces enrollees to make decisions about the care they receive and prioritize cost-effectiveness. However, with the immense advancements in medical technology, prices have skyrocketed. Even with insurance, people were concerned about paying for healthcare, especially prescription drugs. The term “underinsured” refers to people who have insurance, but it is not enough to cover their health expenses.

The Patient Protection and Affordable Care Act

The Patient Protection and Affordable Care Act (PPACA/ACA), signed in 2010 by President Obama, was designed to improve health outcomes across the country while simultaneously reducing spending. One element of the ACA ruled that insurance companies could not deny coverage to people who were dealing with per-existing health conditions. Since 60% of adults in the United States have at least one chronic condition, this mandate protected millions from discrimination in healthcare coverage.

The ACA also established online marketplaces for people to purchase insurance, to allow for a non-employer-sponsored insurance option. These marketplaces helped increase competition between health insurance companies, which encourages companies to lower their prices and offer higher quality services to their enrollees.

The ACA has so far provided insurance coverage for 20 million people.