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1850 First Health Insurance - the Impact on Healthcare, Access, Technology, and Reimbursement

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One hundred years ago, in 1908, health care was virtually unregulated and health insurance, nonexistent. Physicians practiced and treated patients in their homes. The few hospitals that existed provided minimal therapeutic care. Both physicians and hospitals were unregulated. When patients saw a physician, they paid their modest fees out-of-pocket; they were more concerned about the wages they would lose if illness kept them out of work than about the cost of their medical care.

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Though responsibility for health care in the United States is, in unique fashion, both a public and private affair, in recent years, government—and most especially the federal government—has emerged as perhaps the single most important force shaping our health care system. This development has drawn attention to Washington and to what policymakers there are doing in health. Yet, as in other domestic policy areas, government's role in health is shared. No level of government—federal, state, or local—has its own entirely autonomous sphere of action, and all three levels interact in shaping policy, in financing and delivering health care, and in running programs. Students of intergovernmental relations are familiar with Morton Grodzin's now somewhat hackneyed metaphor for this state of affairs

The balance of government roles and responsibilities in America, he observed, looks much more like a marble cake than a layer cake with a clear separation of roles and functions. However, despite the current preoccupation with events in Washington, increasingly we are seeing a rediscovery of the importance of the role of state and local governments in the health care field.

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Passed in 1965, Medicare was a federal program with uniform standards that consisted of two parts

Part A represented the compulsory hospital insurance program the aged were automatically enrolled in upon reaching age 65. Part B provided supplemental medical insurance, or subsidized insurance for physicians’ services. Ironically, physicians stood to benefit tremendously from Medicare. Fearing that physicians would refuse to treat Medicare patients, legislators agreed to reimburse physicians according to their “usual, customary, and reasonable rate.” In addition, doctors could bill patients directly, so that patients had to be reimbursed by Medicare. Thus, doctors were still permitted to price discriminate by charging patients more than what the program would pay, and forcing patients to pay the difference. Funding for Medicare comes from payroll taxes, income taxes, trust fund interest, and enrollee premiums for Part B. Medicare has grown from serving 19.1 million recipients in 1966 to 39.5 million in 1999 (Henderson 2002, p. 425).

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In a word, although the concept of workers' compensation had become widely accepted and broadly accommodated in state laws by the second decade of the century and other social insurance concepts were adopted at the national level during the 1930s, insurance for medical care expenses did not follow these precedents. Opposition by important interests outside and inside government to an expanded government role has limited public health insurance programs to the elderly and a segment of the poor

Millions of individuals are not covered by either public or private programs.

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Henderson, James W. Health Economics and Policy, second edition. Cincinnati: South-Western, 2002.

The Insurance Monitor. Walter S. Nichols, editor. 67, no. 7. (July 1919).

Marmor, Theodore R. The Politics of Medicare, second edition. New York: Aldine de Gruyter, 2000.

McDavitt, T.V. “Voluntary Prepayment Medical Care Plans.” Journal of American Insurance, December 23, no. 2 (1946).

Numbers, Ronald L. Almost Persuaded: American Physicians and Compulsory Health Insurance, 1912-1920. Baltimore: Johns Hopkins University Press, 1978.

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