Private health insurance

The American way for nearly 100 years

Insurance has been a part of American life since revolutionary times, but it wasn’t until the early 1900s that insurance gained wide acceptance as a means of helping people protect themselves from illness and injury.

The need for health insurance emerged in the 1920s, fueled by increasing costs of hospital care. Those costs, driven by significant investments in facilities, equipment and physician training, drove up medical bills for patients and at the same time ballooned the budgets of hospitals, which began exploring funding mechanisms.

Baylor Hospital, in Dallas, Texas, introduced the first pre-paid hospital insurance in 1929, offering to provide medical services to a group of Texas teachers for a premium of 50 cents a month. The plan worked on the principle of paying for the costs of care for a small group of sick individuals by spreading them out over a much larger pool. The concept caught on, and by the late 1930s, nearly 3 million Americans were enrolled in “Blue Cross” hospital plans.

It wasn’t long before commercial – or private – insurers extended the health plan to large workplaces, which began using the health benefits as a way to draw and retain employees. (The U.S. government boosted the popularity of those benefits by making them exempt from income tax.)

Continued prominence

Nearly a century later, private health insurance continues to dominate the U.S. health care landscape. Despite attempts by U.S. Presidents, including Harry S. Truman, John F. Kennedy and Bill Clinton, government-sponsored universal health care never materialized. And, although President Lyndon Johnson signed Medicare into law in the 1960s to provide a safety net for citizens over age 65, the majority of 255 million or so Americans under 65 continue to get their health care from private insurers.

Employer-sponsored health coverage continues to dominate the ranks of the insured, with approximately 62 percent of non-elderly Americans receiving insurance provided as a benefit of employment. Another 5 percent of the non-elderly group bought coverage outside of the workplace on the individual health insurance market.

Access to private health coverage

As mentioned above, the majority of Americans who have insurance obtain it through employer-sponsored or group health insurance plans. The coverage has numerous advantages – among them cost (including the government income tax exemption for health benefits), ease of enrollment, and a wide range of plan options. (In addition to HMO or PPO plan, employees may have the option to purchase insurance for dental, life, short- and long-term disability.) Read here for more details about group health insurance plans.

For those who no longer have access to employer-sponsored plans, coverage on the individual market is an option – but one that’s not nearly as appealing. Individual coverage tends to cost more, with a smaller range of plan options. In addition, getting individual coverage is typically more difficult than qualifying for than a group plan offered by an employer; policies are individually underwritten, which means that the insurance company will closely scrutinize your complete medical history. Read here for more details about individual health insurance plans.

The future of private health insurance

Right now, the future of private health insurance is uncertain, though it doesn’t appear to be in danger of decreasing in influence any time soon. The nation’s recently passed health reform legislation includes provisions intended to increase competition in the private health insurance market by setting up state health insurance exchanges, giving millions more Americans access to affordable, quality health insurance coverage.

The legislation stands to improve private coverage by holding insurance carriers accountable in a number of ways, from halting excessive premium increases to preventing industry abuses such as denial of care based on pre-existing conditions.

Read the Kaiser Family Foundation’s tutorial on private health insurance.

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