A brief history of health insurance

556 words | 3 minute read


A few events have inadvertently shaped the role of US health insurance:

Pre-1920s: Individuals paid for care with cash, out of pocket, since the price of care was relatively affordable
1920s & 1930s: To address the escalating price of care, a few large companies introduced the concept of "prepaid healthcare" to attract employees - these companies eventually became the health insurance giant Blue Cross Blue Shield (BCBS)
1942: During World War II, the government implemented wage controls to manage inflation - as a result, companies started offering "fringe benefits," including health insurance, to compete for employees
1943: The IRS ruled that employer contributions to employee healthcare plans would be tax-free, creating a tax break for employer-sponsored health insurance
1974: The Employee Retirement Income Security Act (ERISA) was enacted to regulate the increasingly popular employer-sponsored health plans
2010: The Affordable Care Act (aka “ACA” or “Obamacare”) was implemented, enforcing many healthcare regulations including mandating many employers offer employee health benefits
Present day: The price providers charge for care has risen exponentially, while insurance options have become limited - consequently, employers and employees increasingly pay significantly more money for far less coverage

The longer version

In the early days of healthcare in the US, individuals paid for their care directly, as providers set reasonable prices. It operated as a free market, governed by supply and demand
As medical costs started to rise, organizations like the Baylor Health System (now BCBS) and the Hospital Service Association of the Pacific Northwest (also now a BCBS affiliate) introduced healthcare benefits to support employees. They implemented a system where employees contributed a small monthly amount to a fund covering their medical expenses. This model, known as "prepaid healthcare," was one of the earliest forms of health insurance in the US
During World War II, wage controls were imposed by the government to manage inflation, limiting employers' ability to attract workers with higher salaries. To remain competitive, employers turned to fringe benefits, including healthcare coverage
In 1943, a significant development occurred when the IRS declared that employer contributions to healthcare plans would be tax-free. This tax benefit made employer-sponsored health insurance even more appealing
In 1974, ERISA was enacted, introducing regulations for employer-sponsored employee benefit plans, including health insurance. This act aimed to protect employees and provide guidelines for managing these plans
The link between employment and healthcare coverage became deeply entrenched over time, with many companies offering health insurance as a standard part of their employment packages. Additionally, the Affordable Care Act (ACA) introduced in 2010 implemented various reforms, including the employer mandate, which required certain large employers to offer affordable health insurance to their full-time employees

Increasing price of care


Everyone’s favorite graph^ - the prices providers charge for care have skyrocketed, far outpacing inflation. Obviously not the proverbial rocketship growth startups are aiming to achieve…

Increasing insurance premiums

Annual premium for employer-sponsored family health coverage over time, according to the KFF:

1943: $141 (inflation adjusted: $2,476)
2022: $22,463

The bottom line

The prices providers charge for care has risen exponentially and insurance options are expensive yet low quality, hurting employees and employers

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