Invention of Health Insurance

  • Medicine & Health
  • 1935

Until almost 1930, health insurance to cover the risk of expensive hospitalization or doctor care did not exist in the United States. Families rolled the dice, and if a member became badly sick they could be saddled with frightening bills. North Carolina philanthropist George Hill, whose family had founded the first hospital in Durham, North Carolina, set out to solve this problem with Wilburt Davison, the founding dean of Duke University School of Medicine.

While he was in England as a Rhodes Scholar, Davison had observed voluntary, community-based prepayment plans that allowed individuals to pay moderate monthly fees in return for a promise of coverage if ever they needed hospitalization. Davison and Hill set out to establish such a plan in their home region, forming the Durham Hospital Care Association. It was forced to close, however, after the October 1929 stock-market crash.

Though the project folded, the idea spread. The very same month that the Durham association closed, Baylor University Medical School in Texas began a similar initiative that succeeded. Participants (Dallas schoolteachers were among the first to sign up) could prepay, at fifty cents per month, for 21 days of treatment at Baylor Hospital. In 1931, a citywide prepayment plan was created in Minneapolis-St. Paul, and then another in Newark, New Jersey.

Inspired by Baylor’s great success, Davison and Hill retried their idea and opened another Hospital Care Association. Hill provided the money to get the nonprofit corporation operating. The Watts and Duke hospitals in Durham provided additional funding. And shortly after, the Duke Endowment made a $25,000 grant to establish a competing but similar voluntary prepayment plan, called the Hospital Saving Association. Eventually, the two entities merged into Blue Cross Blue Shield of North Carolina.

In 1940, less than 10 percent of the U.S. population had health insurance coverage. That grew to nearly 70 percent by 1955. Today, Blue Cross Blue Shield companies cover nearly one out of every three Americans, in every zip code in every state and Federal Territory. There are 37 independent, community-based, locally operated Blue Cross Blue Shield companies in the national federation.