The History of Health Insurance: From Bismarck to Blue Cross

Trace back through history and learn about how health insurance began with Bismarck's social security program in Germany in 1880s and evolved into what we know today.

The History of Health Insurance: From Bismarck to Blue Cross

The history of health insurance is a long and winding one, beginning with the first employer-sponsored plan in the 1920s and tracing its roots back to the social insurance programs of Germany in the 1880s. Bismarck is often credited as the creator of statutory health insurance, which was one of the earliest social insurance programs. This system was the product of commitments that left the national government with much less administrative power than Bismarck had proposed. Existing health insurance funds retained administrative responsibilities that persist to this day.

In 1907, only 21 percent of the German population was covered by health insurance, but by the end of World War II, most European countries had social health insurance or other government health programs for their main segments of their population. In 1929, Texas hospitals came together to create a means of helping patients pay for care, which was the first health insurance plan known as Blue Cross. Dallas-area teachers were among the first to benefit from coverage for hospital expenses in exchange for a monthly premium of 50 cents. In the United States, Medicare is a federal social security program that provides health insurance to people over 65, people with total and permanent disabilities, patients with end-stage renal disease (ESRD), and people with ALS.

Supporters also tried to limit opposition from the American Medical Association (AMA) by submitting proposals that only covered hospital services, which also prompted criticism that nationalized health insurance would encourage extensive and unnecessary use of medical services. This historic accident created a tax advantage that generated enormous demand for employer-provided health insurance plans compared to individual health insurance that was previously more common. Health insurance is a way to protect your future finances by paying monthly investments to an insurance company. With the exception of the HMO Act of 1973, which required most employers to offer their employees a federally qualified HMO if one was available, these initiatives did not affect employment-based health benefits in a very direct way. Before 1974, states generally regulated private health insurance, whether individual or employment-based, insured or self-insured.

Within these rules there were provisions that guaranteed that voluntary health insurance remained under the supervision of a doctor and was not subject to the control of persons other than doctors. Between 1920 and 1965, many of the basic elements of current strategies for managing the costs of health benefits were identified, even if they were not persuasively articulated or successfully implemented. Regarding this last point, while ERISA did not establish funding and entitlement requirements for health benefit plans as it did for pension plans, other statutes and general contract law may limit employers' freedom to reduce or cancel benefits in some cases. The central role of employment-based health benefits and the very substantial discretion afforded to employers are largely based on federal laws and regulations (in particular, the Employee Retirement Income Security Act of 1997), which did not explicitly plan or foresee such a structure. The AMA played an important role in defeating proposals to nationalize health insurance in 1935 (under the Social Security Act) and, later, in defeating the Murray-Wagner-Dingell (MWD) bill in 1949. Workers who receive employer-sponsored health insurance tend to receive less cash wages than they would without the benefit, due to the cost of insurance premiums to the employer and the value of the worker's benefit. They are less likely to cover higher-risk populations, which would cause an imbalance in the venture fund of other small business health plans that are part of the state venture fund for small groups.

Denise Eshlerman
Denise Eshlerman

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