Origins of American Health Insurance

Origins of American Health Insurance: A History of Industrial Sickness Funds

Copyright Date: 2007
Published by: Yale University Press
Pages: 336
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  • Book Info
    Origins of American Health Insurance
    Book Description:

    How did the United States come to have its distinctive workplace-based health insurance system? Why did Progressive initiatives to establish a government system fail? This book explores the history of health insurance in the United States from its roots in the nineteenth-century sickness funds offered by industrial employers, fraternal organizations, and labor unions to the rise of such group plans as Blue Cross and Blue Shield in the mid-twentieth century.

    Historians generally view the failure to establish universal health insurance during the first half of the twentieth century as an indicator of the political clout of insurers, employers, unions, and physicians who thwarted Progressive efforts. But the explanation is actually simpler, John Murray contends in this book. Careful analysis of the workings of industrial sickness funds suggests that workers rejected plans for compulsory state insurance because they were largely content with existing private plans. Murray revises our understanding of the evolution of health care insurance in the United States and discusses the implications of that history for the ongoing debates of today.

    eISBN: 978-0-300-15016-2
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-viii)
  2. Table of Contents
    (pp. ix-x)
    (pp. xi-xvi)

    • CHAPTER ONE Industrial Sickness Funds
      (pp. 3-15)

      In the years before paid sick leave and group health insurance became common, what happened to a worker who became sick and unable to work? The potential for financial as well as physical distress was considerable. Take, for example, the D. family, who lived in the Kensington section of Philadelphia in the spring of 1918.¹ The family, consisting of mother, father, and four children, was described by a visitor as “comfortably off.” The father earned $18 per week as a fireman, to which the oldest child added $6 from his job in a textile mill. After contracting erysipelas (a bacterial...

    • CHAPTER TWO Political Economy of Progressive-Era Sickness Insurance
      (pp. 16-37)

      Reformers who sought to establish government sickness insurance for industrial workers were part of a larger movement whose members hoped to reform much of the American economy and society.Progressiveis a convenient shorthand term for the advocates of state health insurance, not least because the Progressive Party platform, on which Theodore Roosevelt ran in 1912, promised “protection of home life against the hazards of sickness, irregular employment and old age through the adoption of a system of social insurance adapted to American use.” A huge number of reform movements of various sizes in some sense carried the Progressive banner....

      (pp. 38-62)

      Progressive reformers in America looked to Europe for models of social insurance. Such welfare programs took a variety of forms in turn-of-the-century Europe. Some countries forced all workers in a certain income class or industry to obtain insurance, others attempted to persuade workers to insure themselves by subsidizing its cost, and still others were content to leave nearly everything to the marketplace. This chapter considers the structure and workings of these European funds. Thanks to their heterogeneity, the American situation can be placed in some context. American sickness funds can be compared to voluntary European insurance systems, widely thought to...


    • CHAPTER FOUR The Rise of Sickness Funds
      (pp. 65-91)

      Around 1907 the three brothers who owned and operated F. C. Huyck and Sons investigated how a sickness fund might work at their company. Huyck and Sons (the three were the sons) employed about 275 workers in Rensselaer, New York, producing papermakers’ felts. Through personal connections they were able to hire a well-known consulting actuary from New York City, Miles Dawson, who had designed and established such funds in several other plants. Dawson would later travel to Europe to examine social insurance institutions there on behalf of the Russell Sage Foundation, and still later he became an officer of the...

    • CHAPTER FIVE How Establishment Funds Worked
      (pp. 92-122)

      Industrial sickness funds operated in a relatively simple fashion, collecting premiums regularly and paying benefits to members with certified illnesses. That brief description masks many critical decisions that funds and their members made when initially structuring the fund. Whether the fund was to secure its income primarily from initiation fees or ongoing dues, how generous benefits should be, whether to offer medical benefits, and whether workers or company management should make daily decisions were all questions that needed to be addressed. If the fund collected too little in revenue relative to expenses, it would dissolve, and if it collected too...

    • CHAPTER SIX How Labor Union Funds Worked
      (pp. 123-144)

      The progressive coalition that fought unsuccessfully for nationalized health insurance faced formidable opposition. Along with businesses, physicians, and commercial insurers, Samuel Gompers led organized labor in support of voluntary sickness insurance, conducted by and for workers. The role of Gompers and the American Federation of Labor (AFL) more generally in these political battles is well known.¹ What has been much less thoroughly studied is the institution for which Gompers was advocating: labor union sickness funds. By the time of the Progressive battles over state-mandated health insurance, a sizable minority of unionized workers were covered by their unions’ sickness funds.


    • CHAPTER SEVEN Workers’ Decisions to Save or Buy Insurance
      (pp. 145-168)

      In the late nineteenth and early twentieth centuries American workers insured themselves against the costs of sickness through fraternal, union, and employer sickness funds. Progressive reformers attacked these arrangements as inadequate. If Progressive proposals for state insurance were to be improvements over the existing arrangements, in what ways were existing arrangements defective? One deficiency that Progressives steadily noted was the inability of workers to save part of their usual earnings in case of income loss due to sickness. According to this argument, the state needed to step in and force workers to insure themselves to protect them from their own...

    • CHAPTER EIGHT Workers’ Decisions to Work or Stay Home Sick
      (pp. 169-200)

      This chapter and Chapter 7 test assertions made by Progressive reformers regarding actions of workers covered by sickness insurance and those who were not covered. The previous chapter concluded that, contrary to claims made by reformers, workers could save for the rainy day of illness that prevented them from working. The present chapter tests the claim that insured workers were not subject to moral hazard. Moral hazard is the tendency of insurance to remove an incentive to prevent the insured-against event, which thereby increases the probability of its occurrence. The primary moral hazard associated with sickness insurance was the decision...


    • CHAPTER NINE Insured Workers’ Health in the Great Depression
      (pp. 203-217)

      At least until the end of the Progressive Era, this book has contended, industrial sickness funds served the workers who belonged to them well. Today, such funds form a small part of the network of American health insurers. The point at which sickness funds went from being major players to minor players was not the Great Depression proper (1929–1932) but the later 1930s. This chapter explains why, paradoxically, the Depression was beneficial for sickness funds, though not for their members. The paradox emerged from a sharp decrease in absenteeism during the Depression. This was a sign of improving health...

    • CHAPTER TEN Actuarial Science and the Decline of Sickness Funds
      (pp. 218-236)

      If the great depression failed to kill off industrial sickness funds, then what did? In Chapter 9 I observed that discharging the least healthy employees had salubrious effects on sickness funds’ finances. Thus did sickness funds prove their resilience in the face of a severe and sustained financial shock. What they could not withstand was the development of a technologically superior alternative, namely, actuarially sound group health insurance. Even enthusiastic proponents of government insurance acknowledged that a great strength of sickness funds was their ability to get members to accede to close scrutiny while receiving benefits. Commercial insurers recognized the...

    • CHAPTER ELEVEN Succession in the Forest of Health Care Reform
      (pp. 237-248)

      A theory in ecology proposes that, given an area with a particular soil type, climate, rainfall, and initial composition of plant species, it should be possible to forecast the future composition of plant species in that area. The succession of certain species may occur because of random shocks to the area such as fire, and it may occur because the previously dominant species were not in a sustainable equilibrium but, as it were, contained the seeds of their own obsolescence. Beeches and maples that thrive in the shade may come to succeed sun-loving oaks and hickories by forming a canopy...

  7. APPENDIX A: Data Sources
    (pp. 249-251)
  8. APPENDIX B: Additional Regressions for Chapter 7
    (pp. 252-258)
  9. NOTES
    (pp. 259-288)
    (pp. 289-304)
  11. INDEX
    (pp. 305-313)