The development and growth of employer-provided health insurance

Monthly Labor Review, March, 1994 by Laura A. Scofea

Various BLS surveys track the development of health insurance plans provided by employers from the first plan covering only hospital services in 1 798 to the emergence of managed-care plans today

Approximately 35.7 million people under the age of 65 were not covered by health insurance in 1990, according to the Current Population Survey, conducted by the Bureau of the Census for the Bureau of Labor Statistics, an increase of 2 million persons since 1988. [1] That increase, with rising costs for health care services, have intensified interest in reforming the health care system. Over the past few years, the Congress has introduced numerous bills designed to improve access to, and reduce the cost of, health care, and modify the tax treatment of health care benefits.

Among the proposals currently being considered to change the health care system are,: establishing a national health plan and requiring all employers to provide health care coverage through regional health alliances. These efforts are directed at changing the current national health care system, which relies heavily on health insurance provided by employers.

In the late 1940's, BLS began regularly studying the incidence of health care benefits in various programs. In 1979, BLS began analyzing comprehensive information on health insurance it collected in the Employee Benefits Survey program. This article tracks the development and growth of employer-provided health insurance, from its beginning as sickness insurance to its current form.

Early coverage

The earliest coverage for health services in the United States dates to 1798, when the Congress established the U.S. Marine Hospital services for seamen. Compulsory deductions for hospital services were made from the salaries of seamen.

Early insurance policies frequently protected against lost income due to accidents, rather than covering health services. The first accident policy was written by the Franklin Health Assurance Co. of Massachusetts in 1850. For a 15-cent premium, the policy would pay the bearer $200 in the case of bodily injury as a result of an accident by railway or steamboat. If the accident resulted in total disability, the policy would pay $400. In 1863, the Travelers Insurance Co. entered the field, and is credited for developing accident insurance copied widely by insurers that organized a few years later. A typical policy provided a $1,000 death benefit and a $5 weekly disability benefit. By 1899, 47 insurers of accidents had issued 463,000 policies. [2]

During the 1870's and 1880's, companies in several industries, including mining, lumber, and railroads, developed plans that covered medical services. The first plan of this type was at the Western Clinic in Tacoma, WA, to provide their members with needed services. The clinic prepaid doctors a fixed monthly fee to provide their members with needed services. Throughout Washington and Oregon, 20 such group industrial clinics were established, providing medical care to employees for industrial accidents and common illnesses.

The growth in health insurance is tied by many historians to the growing industrialization of America.

Group health insurance initially developed in the United States in the early part of the twentieth century as a response to the growing industrialization in the Nation, the increasing degree to which people worked together in large groups, and to the employers' and labor unions' realization that employed persons needed economic protection against the unforeseeable losses, which result from premature death and disability. [3]

In March 1899, the Aetna Life Insurance Co. and Travelers Insurance Co. offered a new type of health plan. It provided the insured with coverage against "loss due to temporary total disability occasioned by all diseases except tuberculosis, venereal disease, insanity, or disabilities due to alcohol or narcotics." This coverage was issued to select and preferred risks to residents of towns with populations of 5,000 or more. The premium rate ranged from $8 per year at ages 20 to 29 to $50 at age 50. The $5 per week benefit was limited to 52 weeks, and began 7 days after the date of the disability. [4] By 1908, most of the restrictions on these plans were eliminated: most diseases were no longer excluded, the premium rate was abandoned, the 7-day waiting period was no longer in effect, and a medical examination was no longer required for insurance.

Growing support. In 1910, Montgomery Ward and Co., looking for the means to protect its employees from financial loss due to illness or injury, sought a plan for its employees. The plan covered illness and injury, and is regarded as the Nation's first group health insurance policy. It was written by the London Guarantee and Accident Co. in New York. The policy provided weekly benefits equal to one-half of the employee's weekly salary, with a minimum benefit of $5 and a maximum of $28.85 per week, if the employee was unable to work due to illness or injury. The company paid benefits directly to the employee; it did not reimburse for medical services.