Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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The lowdown...

  • Employers have offered health insurance from the earliest time that it existed
  • Employers offer health insurance as part of the compensation package
  • Health benefits help employers get and keep talented workers
  • Employer-sponsored health insurance protects its personnel, a vital business resource
  • Employer-sponsored health insurance is a major source of major medical health coverage

There may not be a certain date or company that was the first to offer health insurance. The current state of employer-sponsored health insurance had its popular growth start in a certain time frame.

The historical beginning of employer-sponsored health benefits came during the early 1930s. A mid-west community created prepaid group health agreements to support a local hospital; a west coast community developed a program to protect employees at a local business.

Health insurance has come a long way; today, you have more choices than ever before. Enter your zip code here and discover all your state’s best options for free.

Wage Controls in WWII

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The insurance business gradually began working in health insurance had an expansion in the early months of World War II. It came as a result of government controls on wages and prices. Part of the national war effort, the government froze prices and wages and took control of the economy to help prepare for the global struggle against Japan, and Germany and the Axis powers after December 1941.

The Stabilization Act spread the use of health benefits as a feature of employment. Companies offered coverage similar to the essential benefits of the ACA.

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Traditional Indemnity Insurance

The insurance industry used indemnity insurance to cover risks in most areas of business. This was the initial industry approach to health insurance. They worked with employees and employers to establish coverage agreements.

  • Indemnity insurance lets employees choose the services and the service providers.
  • The insurance company paid the agreed amount for the service to the medical service provider for the benefit of the employee.
  • If the agreed payment was too low to cover the entire bill, the employee had to pay the balance.

Early Efforts of Hospitals and Doctors

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The early efforts at group health insurance came from hospitals that sought to bolster their patient population by setting up simple prepayment agreement. Baylor University Hospital was one of the first at this approach. They set and agreement with a group of Dallas school teachers. Later other hospitals followed, and some began to compete.

The Hospital Association persuaded them to work together and created a loose organization called the Blue Cross Association. Doctors created a group of providers but did not set prices. This was called the Blue Shield. These groups had some growth and success. The following years led to greater government activity, and after WWII, the US made a full-scale development.

The Insurance Industry Steps In

By the early 1930s, the nation was in a deep economic Depression and insurance companies began to assess the potential for health insurance. Like their experiences with disability, life, and fire insurance, the difficulty was in finding a way to get good business clients and avoid the pitfalls.

Health insurance poses the problem of getting too many sick people to support a healthy profit line.

They drew on their experience selling disability insurance. They sought ways to get groups of young healthy people as their client base. Employers were the solution. They had money and a large group of people that were healthy enough to work in sometimes very demanding physical labor.

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The Birth of Employer-sponsored Insurance

The beginning of modern health insurance came with the connection of insurance and business. Where Blue Cross and Blue Shield focused on service providers, the insurance investors focused on actuarial information.

They sought healthy people to insure and keep as long-term customers. They shared the employer interest in investing money in the workforce to keep productivity high and losses from lost work due to illness as low as possible.

When Businesses Compete for Labor

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WWII federal government controls had to ensure that the available supply of labor went to the sectors and industries needed to support the massive mobilization for conflict. WWII seems nearly forgotten today, but it involved more than 100 million combatants and populations on every continent.

A key for the US government was to control the wages paid to the worker to ensure that they were fair and would help sustain families. The regulations defined wages in a way that excluded health benefits and left them outside of the scope of the government wage regulations.

With this unintended exception, corporations that offered health benefits gained a substantial advantage over those that did not.

After World War II

Labor organizations flourished in many industries in the high-growth aftermath of WWII. As the US fed a devastated Europe and controlled Japan, most of the world was rebuilding from the destruction. In the US, labor unions used organizing powers gained in labor laws to expand.

Among the chief benefits that they offered workers were extras like high content health insurance coverage. These were like tax-free bonuses. The companies paid the bulk of the premiums, and the employees got health insurance coverage with little or no added costs to them. This spurred further competition among employers.

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Health Insurance was a Big Attraction

Corporations that offered an array of health services and cost supports could gain an advantage over those that self-insured with narrow employee benefit programs.

In some industries, the health coverage arrangements were costly, and they lavished free benefits on the employees. They became known as Cadillac plans.

Medicare and the Federal Contributions Tax

Employers pay part of the tax coverage that workers need to qualify for Medicare on the best terms. Medicare beneficiaries get the best terms when they have 40 covered quarters. A covered quarter is a three month period in which the employee and the employer each pay the Medicare Tax.

When workers get forty covered quarters, they qualify for premium-free Medicare Part A. Employers played a role in tax collection that supports Medicare and Social Security. The Federal Contributions Act or FICA requires the below-listed taxes and payments

  • Medicare Employee Tax at 1.45 percent of wages paid
  • Medicare Employer tax matches the employee at 1,45 percent of wages paid
  • Medicare Surcharge starts at $200,000 requires 0.9 percent withholding rate.

The HMO Act and Choice

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Employers got a big assist when the Nixon Administration pushed the HMO Act in the early 1970s. This law required companies that offered indemnity plans also to offer HMO plans. Employer-sponsored plans were part of the rising costs of healthcare.

Generous employee plans created opportunities for corporations to cut back on benefits without losing a competitive advantage in recruitment. Since the HMO approach was to ration healthcare, the employer maintained compliance with the law and the employees were left to choose.

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Hospital or Outpatient Care

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The focus of the HMO is on outpatient care, and to a large extent the HMO focuses on prevention. Before the HMO Act, there was a centered focus on hospitals and hospital care in health insurance.

Hospital care is much more expensive than outpatient care and medications. Medicare passed in 1965; it had a strong focus on hospital care. The Congress Amended it to add more flexibility and outpatient care. They added the Medicare Advantage Part C and, in 2003, they added Part D Prescription Drug benefits.

Employee Choices and Managed Care

The growth of employer-sponsored managed care began a new type of competition. Health care providers tried to attract employees by offering better benefit packages while still keeping costs low.

The PPO approach was distinct from the HMO. The PPO approach left an area for employee choice. PPO systems gave employees a free choice of network resources and some cost-sharing when using outside resources.

Promoting Prevention and Wellness

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HMO or health maintenance organization was an early advocate of group health insurance. They were also advocates for health care reform. Unlike most health service providers, the HMO movement focused on wellness and prevention as the keys to long-term health. They also urged this approach for costs controls.

They did not foresee lower costs, rather through increased wellness and prevention, they planned for fewer charges. It is much easier to prevent disease by screening and vaccines than to cure an illness.

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The HMO Act and Rising Costs

The HMO Act was a national legislative response to the effects of rising health care costs. HMO health networks reduce choices available to consumers when compared to indemnity plans.

The HMO act was also meant to head off attempts to create a national health insurance system or universal healthcare. The HMO did not reduce costs because it reinforced for-profit insurance into the healthcare system that had been established and dominated by non-profit entities.

From the Thirties to the Present

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It appears that employers first offered health insurance during the Great Depression in the early 1930s. Insurance companies organized health plans in the early 1930s. The practice spread in the years before WWII and took off in the war years. After WWII, unions provided a push, and employer plans multiplied.

Medicare and the HMO Act spread sponsored healthcare and companies played a key role. Currently, large and medium employers provide insurance as required by Obamacare. Smaller firms do so voluntarily to protect their employees and get tax credits and incentives.

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