How did healthcare come about in the United States?

To understand our current healthcare system, you need to understand the history and how healthcare started and evolved in the United States.

The healthcare system we have now didn't always exist. In fact, before 1920, most people had no healthcare coverage.

So how did the United States become one of the few industrialized countries without national healthcare? Understanding U.S. healthcare history will help you understand the dynamics that built the system that - for good or bad - we struggle with today. And with this information, you'll be better equipped to join in the discussion about possible solutions to the call for healthcare reform.

All Americans should have affordable, quality healthcare coverage

Most Americans agree our healthcare system needs reform. That's primarily because 45.7 million Americans are without health insurance. That's roughly 16 percent of Americans who sometimes have to forego healthcare, or face crippling financial obligations. The primary issues are access to healthcare, and affordability of healthcare.

The burden of healthcare change should be fairly shared among all stakeholders

Government, the private sector, individuals, and the groups that represent them each must share in the responsibility for finding an affordable solution to healthcare reform.

A brief history of American healthcare

Before 1920, doctors didn't know enough about diseases to really provide much useful care to sick people and therefore they didn't charge very much. Only a few big employers offered health insurance; everyone else paid out of their own pockets. Most patients were treated in their homes.

When doctors began learning more about diseases and effective treatments, they started charging more - more than most people could afford. They also needed to treat people in hospitals to take advantage of new medical technology, which further added to the costs. Couple that with the start of the Great Depression, and the situation was even worse.

The birth of a healthcare solution

To help ease the healthcare problem, Baylor Hospital in Dallas created a system - which eventually became Blue Cross - to help people pay their hospital bills. As science, medicine, and hospitals grew more sophisticated and more successful, more people turned to hospitals and doctors for care - and costs continued to rise. Blue Shield insurance for doctors' services started gaining ground in the late '30s as a way for doctors to protect their interests and their payments.

Competition and government intervention

The success of the Blue Cross and Blue Shield model encouraged other insurers to enter the healthcare market. And the shortage of labor during World War II encouraged employers to offer health insurance as an added benefit to the employment package. Soon it was a commonplace for employers to provide health insurance - and the government to provide tax incentives to do it. This happened at a time when many other countries were moving toward national health insurance - where the government pays for and regulates healthcare services.

The Blues turn course

In the early days, the "Blue" system - a nonprofit organization - charged everyone the same premium. However, when private, for-profit insurers entered the market, they charged premiums based on:

  • Age
  • Gender
  • Health status
  • Pre-existing medical conditions

These private insurers ended up insuring the healthiest people and avoiding the sickest ones, which meant more profit for the company. The Blues had no choice but to follow their lead.

Interestingly, each time the subject of national health insurance was mentioned, it was soundly trounced, even though most other developing countries were heading that way. Doctors, through the American Medical Association, were able to stave off government control of health insurance.

Establishing the commercial health insurance system

From 1940 to 1960:

  • The supply of health insurance increased as commercial insurance companies entered the market
  • The use of healthcare increased as medical technology became more sophisticated
  • The government encouraged employers to offer health insurance as part of employee compensation packages

Union negotiations during the 1940's also reinforced the employment-based health insurance system. By the 1960s, it was clear the system of private health insurance in the United States was well established and in no danger of being dismantled. However, there were glaring problems. The poor, day laborers, workers for small companies that didn't provide insurance, the self-employed, and those who had no job also had no health insurance. And once workers retired from their jobs - usually at age 65 - they lost their health insurance and moved into old age without a healthcare safety net.

After John F. Kennedy was elected president in 1960, the climate toward national health insurance was somewhat more favorable. But the American government realized the only way to successfully enact government-sponsored healthcare was to start slowly; the elderly was a natural target segment.

Medicare and Medicaid History: Providing Healthcare for the recently retired, the elderly, and the poor

The elderly and the poor were among the most medically needy in society and were the least likely to be covered by an employer's health insurance plan. To keep doctors from opposing a newly proposed legislation - which led to Medicare and Medicaid - legislators agreed that the government would reimburse doctors at their "usual, customary, and reasonable rate" for taking care of the elderly and the poor.

This means doctors stood to gain a great deal from Medicare. The bill was passed in 1965 and consisted of two parts:

  • Part A covered hospital services
  • Part B covered doctors' services

In addition to Medicare, Medicaid was enacted as a federal-state program to provide medical services for the indigent. Although both programs started small, expenditures in Medicare and Medicaid grew dramatically in the late 1960s as the programs began to gear up.

Since then, Medicare has evolved into Original Medicare - provided by the government - and Medicare Advantage - provided by private insurance companies that contract with the government to provide this insurance to seniors.

By 2001, Medicare and Medicaid made up 32 percent of all healthcare expenditures in the United States.


One of the most important issues facing our country is the explosive growth in the cost of Medicare.

This problem will likely continue to grow due in large part to the structure of the current Original Fee-For-Service Medicare program.

Original Medicare isn't designed to achieve outcomes beyond paying beneficiaries' claims and guarding against fraud and abuse in the program. Lawmakers built the Medicare program on this limited model in 1965 - and little has changed.

A Better Way for Medicare

The purpose of the Medicare Advantage (MA) program is to assess beneficiaries' health and coordinate appropriate care.

Medicare Advantage offers people with Medicare an important choice that puts their health first and offers a positive effect on the program's financial future.

Medicare Advantage offers proactive programs - including care coordination, disease management, and non-traditional wellness initiatives like senior-focused fitness programs designed to improve strength, flexibility, range of motion and cardiovascular condition.

This multi-faceted approach helps improve the health of beneficiaries while bringing down the cost of Medicare.

Healthcare Costs Continue To Rise

Not only do Medicare and Medicaid take a large chunk out of the federal budget, but because the United States never enacted national health insurance, the employer sector started to see some interesting changes.

After the success of Blue Cross and Blue Shield, private insurers were eager to get a piece of the business. But they only wanted to insure young, healthy people who were employed and less likely to use the coverage. Private insurers didn't want older, sicker individuals.

Because of Blue Cross and Blue Shield's status as a nonprofit company, they had to charge the sick and healthy the same premiums; private insurers did not. Private health insurers could offer employers better insurance rates than Blue Cross could, and the commercial health insurance business took off.

Fast forward to 1960, and the system of private health insurance in the United States was well established. But in the years ahead, a number of factors combined to drive costs way up:

  • Medical technology
  • Competition among hospitals
  • Self-insurance by larger employers
  • Increasing medication costs
  • Lawsuits and provider malpractice insurance
  • Problems with managed care systems

So now, in 2009 and beyond, the large numbers of Americans who don't have health insurance can testify to the fact that the healthcare system needs reform. The primary issues of healthcare reform are:

  • Access to healthcare - Nearly 16 percent of Americans are without health insurance
  • Affordability of healthcare - Many Americans, with and without health insurance, face crippling financial debt from their medical care

Government, the private sector, individuals and the groups that represent them each must share in the responsibility for finding an affordable solution.

Watch Healthcare Video: History of Healthcare