What is Health Insurance?
Let’s start with the most basic part of an uninteresting topic: What exactly is health insurance? In the simplest of terms it is a contract between a company (The payor) and you (The patient) to pay some or all of your health care costs. In return for a monthly or annual payment (a premium), the insurance company contracts with the patient and the providers and facilities who perform the services. Insurance can cover things as simple as a medication or office visit or as complicated as surgery.
History of Health Insurance in the US
In the modern US healthcare system, the costs of providing healthcare have risen significantly over the past several decades. Unforeseen healthcare costs could financially ruin the patient. Conversely, the patient’s inability to pay could financially impact the doctor or hospital providing the care. Thus out of necessity health insurance was born.
In 1929 a group of teachers from Dallas, Texas came to an agreement with Baylor Hospital to cover 21 days of hospital care for 50 cents a month. This became the fore-runner of Blue Cross, the first insurance plan to cover hospitalization. Blue shield was then developed as a sister plan to pay doctor’s bills. Eventually Blue Cross and Blue Shield organizations began to pop-up in multiple states around the country. It wasn’t until 1982 that the two organizations merged to create the Blue Cross Blue Shield Association.
Growth of Health Insurance in the US
At the start of World War II the US economy was desperate for workers as many men and women left to fight in Europe and the Pacific. This made labor scarce and as a result of economic forces led to increased wages to meet the dwindling supply of workers. Congress acted quickly to try and limit these wage hikes (and the inflation that could follow) by passing the Stabilization Act of 1942 (also known as the Inflation control Act). This put a cap on wages. As a result employers had to get resourceful to attract workers. One of the ways in which they accomplished this was by starting employee health benefit plans. Today, approximately 50% of the US population receives employer sponsored health insurance.
Introduction of Government Sponsored Plans
While private health care plans flourished during the 1940s and 1950s, it became clear that certain groups were at a significant disadvantage in terms of access to affordable plans. Insurance by definition and design is a form of risk management. As a result, insurance companies charge higher premiums for patients who are at higher risk in order to compensate for the higher chance of significant payout. This leads to health insurance becoming unaffordable to many, specifically the poor and those without benefits provided by their job (among these are the retired).In response, Congress (with the support of President Johsnon) passed the Social Security Act in July 1965. Embedded in this legislation was the creation of Medicare (to provide healthcare coverage to those over 65) and Medicaid ( to provide coverage to the poor).
Medicare and Medicaid are complex topics which I plan to discuss in more detail in future posts. For now…in an effort to make this less boring…I will try and keep all of my posts to around 500 words. Thanks for reading and please sign up to receive updates when I publish new content.