HISTORY IN CONTEXT | Blaming the Unknown: The Origins of U.S. Health Insurance

In his work "The Body Keeps the Score: Brain, Mind, and Body in the Healing of Trauma," Dr. Bessel van der Kolk observes, "Blaming is a universal human trait that helps people feel good while feeling bad, or as my old teacher… used to say: 'Hate makes the world go round.'" And one does not need to look very hard to see blaming throughout our society — from our politicians, random individuals on social media, or (if we are being honest) oneself.

Yet the more one understands a problem or a person, the more difficult it is to easily pass judgment — as nuance prevents a simplistic explanation. In recent events that led to and continued the lengthiest federal government shutdown, blame centered on each party's position on health insurance subsidies. Despite interacting with health insurance and health care regularly, the reasons for higher costs in the U.S. relative to other developed nations are nebulous and the history behind our system is not commonly understood.

As noted in a prior article, life expectancy has more than doubled over the past 120 years — largely because of medical innovation and the utilization of new technologies (coupled with greater regulation of food and sanitation, stemming from a better scientific understanding).

The Children's Hospital of Philadelphia states that despite the first vaccine for smallpox being developed in 1796, most vaccines have been developed within the past 120 years, and it was not until the 1940s that large scale vaccine production and disease control efforts began. And as noted by Life Expectancies, the development and success of the first antibiotic (penicillin) in 1928 led to the development of other antibiotics.

Medical imaging, with the discovery of X-rays in 1895 and the subsequent technologies of MRIs and CT scans in the 1960s, has also aided diagnoses and treatments that have extended lives. The development of pharmaceutical drugs (such as insulin in the 1920s), advancements in surgical techniques, cancer treatments, and prenatal and pediatric care also transformed health outcomes. In a 1999 report, the Centers for Disease Control and Prevention observed that "Since 1900, infant mortality has decreased 90%, and maternal mortality has decreased 99%."

While the comparatively high cost of health care (and insurance) in the U.S. is a subject for future articles, such medical advancements and greater utilization of care clearly pose a cost to patients. It was in the context of increasing medical costs during the Great Depression that the first health insurance plan was developed at Baylor University Hospital in 1929 — where Dallas area teachers could prepay for 21 days of hospital care at a rate of 50 cents a month (or $9.50/month in today's dollars). In the 1930s, other private insurance models emerged that provided coverage for all hospitals in a region.

However, it was not until the 1940s that employer-based insurance benefits gained prevalence and health insurance became popular. Per History.com: "The federal government had set employer wage controls to help stave off inflation during wartime — but they didn't consider health insurance a wage. So, employers could compete for scarce labor by offering employees health care. Plus, the Internal Revenue Service (IRS) issued a ruling that exempted employer-sponsored health insurance from federal income taxation."

Following World War II, the percentage of Americans with health insurance went from around 25% in 1945 to 50% in 1950 to almost 80% in 1965 — prior to the introduction of Medicare and Medicaid in that year, which further expanded coverage.

Up until 1973, the health insurance market was technically not-for-profit and very fragmented. However, the Health Maintenance Organization (HMO) Act in that year promoted HMOs and enabled for-profit insurers to enter the market. According to Insurance Informant, these organizations "selectively catered to younger, healthier patients to maximize profits, implementing varied rates based on age."

Consequently, it is unsurprising that many of the major health insurance corporations today emerged following this Act, and that through various mergers and acquisitions over 50% of the U.S. market share is now concentrated in four publicly traded companies (according to the AMA's 2024 Report) — United Health Care, Elevance Health (formerly Anthem), CVS (Aetna), and Cigna. Following 1973, the most recent major health care legislation was the 2010 Affordable Care Act which increased health insurance coverage through Medicaid expansion and income-based subsidies for private insurance, while providing more consumer protections.

In the past 100 years, health insurance has emerged and evolved significantly in the US. However, as author Samuel Schaal notes, "The concept, in a primitive way, has not changed all that much. What we're trying to do is prepay for health care."

Justin Aiken is the director of Reporting and Analytics at RW Supply & Design. He has been a West Plains resident for the past 17 years after graduating from Grove City College in Pennsylvania with a Bachelor of Arts in History. Prior to living in the U.S., he grew up in Turkey and Germany.