Prior to the 1920’s Medical Insurance did not really exist in the United States.  People were treated in their homes and there were very few hospitals.  Even surgery was performed at home.  The one kind of Medical Insurance that people did buy was called “sickness insurance”.  Sickness insurance was sort of like modern day disability insurance.  Think the “duck”.  The main problem folks had back then was when they got sick and couldn’t work, they also didn’t get a pay check because there were no such things like sick days that we have today.  They would pay a small monthly fee and if they got sick the insurance company would send them money.

In 1929 a group of teachers in Dallas formed a partnership with a local hospital.  In exchange for a fixed, prepaid fee the hospital agreed to provide a set amount of sickness care and hospitalization days.  The idea appealed a lot to the hospital because it provided a steady stream of cash.  Soon, other hospitals started competing for the business and the hospitals, with the assistance of The American Hospital Association (AHA) joined together and Blue Cross was born.  Medical Insurance had come to America.

Blue Shield was given birth by the doctors.  It’s very interesting to me that the plans the doctors came up with are still in place in some BlueCross/BlueShield Medical Insurance plans today.  The doctors did not want the government or the insurance company telling them what they could charge.  When Blue Shield started the patient paid the difference between what Blue Shield compensated the doctor for and the doctors actual fee.  As stated earlier that’s exactly how some BlueCross Medical Insurance plans work today except that back in the thirties the doctors didn’t have contracts and they could charge whatever they wanted.

The government and the unions began encouraging participation in group Medical Insurance plans.  During World War II employers were under wage controls because the labor market was tight due to increased demand for goods and a decreased supply of workers during the war.  The Federal government imposed wage and price controls which prohibited manufacturers and other employers raising wages high enough to attract the amount of workers they needed. The War Labor Board stated that fringe benefits like sick leave and Medical Insurance did not count as wages. Group Medical Insurance purchased through your employer really took off.  In 1954 employer and employee contributions to Medical Insurance plans became exempt from taxes under the Internal Revenue Code.

As of this date of November 5, 2011 Medical Insurance carriers are not regulated by the Federal government – yet.  Medical insurance providers have fought Federal regulation since 1928.  On April 23, 2009 congress passed the health care reform bill.  That bill carries a mandate that all Americans carry Medical Insurance.  That mandate, specifically, is being challenged by 28 states and is headed to the Supremes for a decision.  Stay tuned…

Medical Insurance

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