A Brief History of Private Insurance in the United States

Costs and Coverage, Student Health

In the simplest terms, insurance is protection from a risk in exchange for some form of payment.

If you think about it, the concept of insurance has been around for thousands of years. However, only (somewhat) recently have large insurance companies come into play.

The precursor to our modern health insurance system began in the 1920s when hospitals began to offer services on a pre-paid basis. What is widely considered the first employer-sponsored plan started with a group of teachers in Dallas. The teachers joined together to create a program where they would agree to pay, what would now be considered an insurance premium, to Baylor University Hospital for future medical services. The monthly rate was 50 cents. If you adjust this amount for inflation, it is equal to $7 per month. A 1,000% increase, yet it still pales in comparison to today’s costs. This program later became Blue Cross.

A major downfall of the teacher’s plan was that it only covered hospital services. This is where Blue Shield comes into play. In the 1930s, a group of employers in the lumber and mining industries joined together to provide physician services to their employees. This plan developed into the National Association of Blue Shield Plans. As you can guess, many Blue Cross and Blue Shield companies merged and became the Blue Cross and Blue Shield insurance companies we know today.

The Great Depression was a major influencer in the adoption of these insurance plans. In the case of the Baylor plan, “between 1929 and 1930 Baylor University Hospital, then in Dallas, Texas, saw its receipts drop from $236 to $59 per patient. Occupancy rates dropped from 70 to 60 percent, and contributions were down by two-thirds.” The insurance plans were then developed to give the hospital a steady stream of revenue.

Over the years, as the costs of healthcare increased and more employers saw the need to provide greater benefits to their employers, the health insurance industry ballooned. UnitedHealthcare was created in the 1970s and is currently the largest provider of health insurance in the U.S. The precursor to Aetna started as a life insurance company, which specialized in fire insurance, in the 1850s. Through multiple acquisitions, including the purchase of Prudential HealthCare, Aetna became one of the largest and most well-known providers of health benefits in the U.S. in the 1990s.

Today, health insurance is a billion-dollar industry and healthcare expenditures are in the trillions. These industries are expected to continue to grow. With the boom of healthcare costs, it is becoming more and more important that your students have access to a competitive health insurance plan.