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HNN's History of Healthcare Reform

Lyndon Johnson signing the Medicare bill, July 30, 1965. At left is former president Harry Truman. Credit: NARA

A Century of American Healthcare Reform

For the first century of United States history, medical care was simple to access and relatively inexpensive. Services were, from a twenty-first century perspective, inadequate and primitive. Today the quality of care is far better, but Americans have to deal with a complex, confusing, and—by some standards—inefficient system, with terms like HMO, PPO, HSA, and FSA becoming household acronyms. Was it inevitable that the system become as convoluted as it is today, with health care costs passing 15% of GDP?


The origin of our modern system of healthcare can be traced to the beginning of the twentieth century. Medical technology had progressed rapidly, and expectations grew with them. Training, technique, and technology all improved substantially. Hospitals, once exclusively way stations for the chronically ill and dying, became centers for specialized medicine, surgery, and research. Medical costs began to soar and would continue to rise far above the cost of living for the rest of the century.

The 1920s

The First World War spurred even greater advancements in medical technology, including X-rays, electrocardiographs, and early (pre-penicillin) antibiotics. In the 1920s, these advancements spread to civilian hospitals around the country. By the end of the decade, the middle class found itself struggling to deal with growing medical costs, once a concern only of the poor.

While the American Medical Association (AMA), a powerful association of doctors, opposed any government role in healthcare, doctors began to realize that more and more Americans were unable to meet their medical expenses. In 1927 the AMA formed a Committee on the Costs of Medical Care to report on options for helping Americans pay for their medical services. The Committee concluded that private insurance was the best solution.

In 1929, Baylor University Hospital in Dallas began offering non-profit, pre-paid medical insurance to local schoolteachers for 50 cents per month. The program was so successful hospitals across the country started offering similar programs, usually advertised with the symbol of a blue cross. That same year the stock market collapsed and the Great Depression began, creating tremendous new economic challenges, even as healthcare costs continued to rise.

The 1930s

The Blue Cross plans proved popular, and hospitals began to band together to offer joint regional plans. These plans continued to be offered mostly to professional groups, clubs, or other fixed membership bodies rather than the general public. By 1938, almost three million Americans were enrolled in Blue Cross plans. This growing market began to attract commercial insurers.

In 1932 Franklin Roosevelt (D) won the presidency, and the following year his administration began an aggressive program of economic and social intervention known as the “New Deal.” Many liberal Democrats expected some form of national health insurance to be a part of this program. Indeed, in 1933 Roosevelt’s Federal Emergency Relief Administration (FERA) declared healthcare to be a fundamental human right.

But resistance to government intervention in medicine continued to be strong among doctors and hospitals. The Roosevelt administration initially planned to include national health insurance in the Social Security Act, but fierce AMA resistance persuaded Roosevelt to remove it.

The 1940s

The Second World War came to occupy the full attention of the Roosevelt administration, and many ambitious domestic goals were put on hold, including healthcare reform.

But during the war, a policy designed to keep inflation in check had an unintended consequence that was to shape the way most Americans would receive healthcare for the next seventy years. The federal government imposed strict price and wage controls on many industries, so companies found that they no longer could use competitive wages to attract talent. A growing number found that company-subsidized health insurance, then unregulated, fit this need.

At the end of the war, President Harry Truman (D) made universal health insurance integral to his “Fair Deal” domestic agenda. He gave a special address to Congress in November, 1945, calling for the expansion of the popular Social Security program to national health insurance, federal healthcare funds for rural areas, and national standards for hospitals.

The AMA continued to strongly resist this agenda, and after the National Labor Relations Board ruled that unions could negotiate for health coverage with their employers, unions lobbied less aggressively for health reform, fearing that a national health insurance program would be less comprehensive than the benefits they were already winning directly. Democrats lost both houses of Congress to Republicans in 1946, ending for the moment any chance for the passage of Truman’s health insurance plan.

After his upset re-election in 1948, with the Democrats’ gain of 9 Senate seats and 75 House seats, Truman expected to resume his aggressive domestic agenda. However, foreign policy challenges, including the Chinese Civil War, the Soviet acquisition of the atomic bomb, and the Korean War, served to distract the administration. Truman eventually won expansions of public housing and Social Security, but promises of health reform went unfulfilled.

The 1950s

The decade of the 1950s was an era of increasing prosperity and expanding availability of employer-based health insurance. In 1954, Congress reformed the tax code to exclude employer contributions to employees’ health insurance, effectively providing a government subsidy to employer-based coverage. However, the vast majority of the poor and elderly continued to receive their medical care from large public hospitals, country doctors, and private charities.

Blue Cross programs now enrolled more than 20 million Americans, and commercial insurance aggressively entered the market, offering individual rates based on a customer’s unique health risks, allowing them to undercut the community rates offered by the Blue Cross plans for many healthier and younger Americans. This put pressure on the Blues to follow suit, since they would otherwise be left with the highest risk members of the insurance pool. Insurance companies charged the higher-risk individuals correspondingly higher rates, while refusing coverage to others entirely. The once affordable health insurance plans moved out of reach for many middle class Americans.

The Dwight D. Eisenhower (R) administration was opposed to government intervention in healthcare, and no serious healthcare legislation was considered until the very end of the decade. However, Republicans missed an opportunity to obstruct Democratic efforts and enact their own market-based alternative to national health insurance. With a debate effectively limited to two choices -- between government action and no action at all -- Americans in need of a healthcare solution increasingly leaned towards the former.

The 1960s

With both houses of Congress again under Democratic control and the AMA eager for alternatives to government health insurance, Eisenhower was persuaded to sign the Kerr-Mills Act in 1960. Kerr-Mills created a federal program to subsidize states’ health services for the elderly and infirm. The funds were limited and many states declined to participate altogether. The bill was a middle-ground between competing health bills championed by presidential candidates John F. Kennedy (D) and Richard Nixon (R).

On the campaign trail Kennedy called Kerr-Mills “most inadequate” and proposed a far more sweeping national insurance program called “Medicare.” When Kennedy became president, the AMA undertook a massive, expensive public campaign to oppose Medicare, including mass-mailings, speakers’ tours, and radio and TV ads (some featuring a future president, Ronald Reagan). Organized labor, the National Council of Churches, and elderly groups began to organize in support of Medicare.

In 1962, the Kennedy administration began an aggressive healthcare push, with Kennedy speaking to large crowds of seniors and administration officials traveling across the country in support of the legislation. The well-funded counter-campaign by the AMA and insurance industry, along with election year pressures, contributed to the legislation dying in Senate committee.

While Kennedy failed to pass Medicare, the issue wouldn’t die. Medical costs were growing faster than the overall inflation rate. And the population was rapidly aging. Nearly 10% of Americans were now over 65 (up from 4% in 1900). By 1964, the first full year of Lyndon Johnson’s presidency, over 60% of voters supported the enactment of Medicare. Also in its favor was the prevailing optimism of the period. Americans at the time believed they could do anything they set their minds to. If they could send Americans into space (and go to the moon, as leaders promised), they could certainly provide health insurance for the aged.

After a landslide re-election, with large gains in both houses of Congress, Johnson was emboldened to push forward with some of the most liberal legislation since the New Deal. In 1965, Congress passed both Medicare, which effectively expanded the Social Security mechanism to include health benefits, and Medicaid, which provided for health assistance to certain categories of low-income Americans.

The 1970s

President Richard Nixon’s (R) election in 1968 largely ended the liberal era. In place of government solutions the emphasis shifted to reforms involving private enterprise or non-profits. One such reform was the promotion of Health Maintenance Organizations (HMOs), which were designed to undercut the prevailing fee-for-service system that encouraged doctors to order expensive tests and potentially unnecessary treatments. HMOs were based on the model pioneered by health organizations like the for-profit Kaiser Permanente in California and non-profit Group Health in Washington State, which offered medical care on a pre-paid basis.

The HMO Act of 1973 created incentives for the formation of for-profit HMOs and introduced the managed care approach that would quickly come to dominate private insurance.

Democrats continued to press for expansion of direct government intervention in healthcare. In 1974, Nixon, seeking to neutralize healthcare as a Democratic advantage, proposed the Comprehensive Health Insurance Act, a bill that would mandate health insurance by private employers while giving individuals without coverage a federal “public option.” Senate Democrats, led by Edward Kennedy, rejected the proposal as insufficient.

In 1976, Democrats won back the presidency. But liberals like Kennedy in Congress were unable to reach an agreement on a robust healthcare plan with President Jimmy Carter (D). Democrats would soon come to regret their missed window of liberal opportunity.

The 1980s

Unlike the more ideologically-flexible Richard Nixon, Ronald Reagan (R) came into office in 1981 determined to scale back the reach of the federal government. In his first term, Reagan successfully enacted major tax cuts as well as reductions in many government services, including Medicaid. Medicare, however, had become too entrenched for even Reagan and a relatively conservative Congress to take on.

Employer-based health insurance was becoming less reliable, as heavily unionized industries fell into deep decline, and the expanding retail and service industries imposed strict restrictions on health coverage eligibility (until 2008, a large percentage of Wal-Mart employees did not receive health insurance benefits). Employment mobility also increased, as fewer Americans spent long segments of their career with the same company. As the number of Americans lacking reliable health insurance grew so did their anxieties. To address the problem, Congress passed the Consolidated Ombnibus Budget Reconciliation Act (COBRA), which allowed some degree of health insurance portability, while requiring relatively high premiums.

The 1990s

In 1992, Bill Clinton (D) made his plan for universal health insurance a prominent part of his platform. Upon taking office, he appointed First Lady Hillary Rodham Clinton to head up a healthcare task force and made achieving universal healthcare legislation his principal first-term goal. The Clinton bill was met with concentrated opposition from conservatives and insurance industry groups. The bill, which would use a complex series of mechanisms, national boards, and rules to achieve universal coverage, was easy for opponents to demonize. Opponents contended that Clinton’s reforms would lead to the government’s deciding on Americans’ health care rather than their doctors.

The bill died in Congress, and its failure contributed to Republican victories in the mid-term elections in 1994, giving the GOP control of both houses for the first time since the 1950s. Clinton spent the rest of his presidency fighting for less ambitious healthcare reforms, including: the S-CHIP, a program which dramatically reduced the number of uninsured children; the Health Insurance Portability and Accountability Act, an initiative that helped some Americans maintain their health insurance after losing or changing jobs; and Medicare Advantage, which permitted Medicare recipients to receive insurance coverage (including an expanded list of benefits) through subsidized private insurance plans instead of traditional Medicare.

The 2000s

For most of his first six years in office, George W. Bush (R) presided over Republican majorities in Congress, stifling any hope among Democrats for a substantial expansion of publicly funded health insurance. But Bush embraced one reform that even Democrats largely approved in concept: expanded Medicare coverage of prescription drugs (known as Medicare Part D). Although this was the largest expansion of Medicare since its establishment, some Democrats objected to a provision that forbade the federal government from negotiating discounts with pharmaceutical companies.

With the federal government unlikely to act to expand health coverage to the growing population of uninsured Americans, several states, including Tennessee (1994), Massachusetts (2006), and Connecticut(2009), undertook efforts to offer greater coverage to their residents. Both Tennessee and Massachusetts saw costs exceed predictions and adjusted their programs substantially after passage. The Massachusetts plan was the first to achieve effectively universal health insurance coverage, and was seen as a template for the healthcare plans of the major Democratic candidates for president in 2008.

When Barack Obama (D) became president in 2009, his large Democratic majorities in both houses of Congress offered the opportunity to achieve the substantial expansion and reform of healthcare in the United States long envisioned by Democrats. Compromises made to accommodate Democrats from conservative states and districts, however, led to an intra-party fight over the legislation, with more liberal Democrats championing a public option similar to Nixon’s proposal in 1974. Obama said he personally favored the public option, but in the end agreed to a deal taking it off the table, and the Affordable Care Act, which was designed to dramatically reduce the number of uninsured Americans, was signed into law in March, 2010, with most of the changes staggered over the following four years. Going into the 2010 mid-term election Republicans vowed to campaign against the reform and repeal it if they regained control of Congress.