History of Health Insurance in the United States

Health insurance, as we generally think of it in the United States, began with the Great Depression in the 1930s. In this chapter, we review the history of health insurance and demonstrate how that history is linked to current health insurance developments. Predating private health insurance were efforts at government-sponsored coverage for workplace injury and a tradition of industrial sickness funds. The Great Depression led hospitals and then physicians to implement forms of insurance as means to ensure payment for services. Interestingly, conventional insurance and managed care were developed at this same time. The advent of World War II, the growth of the labor movement, and the federal tax code all fostered the growth of employersponsored coverage. Medicare was introduced in 1965 to provide coverage to older citizens; it mimicked the private coverage common at the time. Commercial insurers aggressively competed with others by offering lower premiums to larger employers, based on their lower claims experience. Federal preemption of state insurance laws led to dramatic growth in self-insured employer plans. The 1980s saw the development of managed care, prompted by rapidly increasing healthcare costs and the emergence of self-insured employer plans. Managed care’s ability to selectively contract revolutionized healthcare markets by introducing price competition and led to a backlash against managed care. In the 2000s, healthcare costs are again rising rapidly, and efforts are under way to encourage insured individuals to pay more outof-pocket through the use of high-deductible health plans with tax-sheltered health savings accounts. In 2010, the Patient Protection and Affordable Care Act (ACA) was enacted, which promises to substantially change the US health insurance markets.