14.3: Privately Funded Healthcare

Health insurance originally began as catastrophic insurance - that is, if you were ill or injured enough to land in a hospital, it would help to pay for your stay so that you didn’t experience financial ruin. One of the earliest of these plans was Blue Cross - which helped fund a person’s stay at hospitals which were largely religious or charitable organizations. At first, Blue Cross was a non-profit entity, created along those same lines of charity. In the early part of the 20th century, technology was just beginning to advance medicine, and so often hospitals were solely places for those on death’s door. After WWII, due to labor shortages and wage freezes, employer-sponsored health insurance emerged as a way to increase compensation for workers - and employers didn’t have to pay taxes on it either. Thus, health insurance started to become an employment benefit more than a privately purchased commodity (Rosenthal, 2017).

In recent decades, the profit motive has started to affect health insurance substantially. For-profit health insurance companies like Aetna and Cigna came on the scene in the 1950’s, and began to enroll primarily young, healthy people - who are obviously more profitable: they tend to pay premiums for longer, and they don’t get sick as much. Over the decades, this has caused non-profit health insurers to have to become more like for-profit companies. All health insurance companies have focused on ways to control or cut costs, reduce risks, and many of them have been accused of prioritizing CEO pay and investor dividends over patient health outcomes (Rosenthal, 2017). Prior to the Affordable Care Act (ACA) of 2010 (aka “Obamacare), health insurers could deny coverage for patients with “pre-existing conditions”, thus leaving those chronically ill on their own financially. The ACA also included an emphasis on preventative healthcare, which many health insurance plans have turned their focus to in order to decrease costs down the road.

Kaiser Permanente (KP), a non-profit organization, was originally developed for workers building dams, aqueducts, and eventually military ships. They prioritized prevention, and worker’s health and safety. Over the decades they have evolved to include three parts: the Kaiser Permanente Foundation Health Plan, Kaiser Foundation Hospitals, and the Permanente Medical Group (practitioners) - and have grown to become the largest healthcare provider in the U.S. (Permanente, 2023, Kissell, 2024). The KP model provides just some examples of how the healthcare system can decrease costs: their large size, use of primary care physicians as “gatekeepers” to refer to specialists, integration of systems and emphasis on preventative care all help to reduce healthcare expenditures. All of these measures have both benefits and drawbacks.

Many people lack an understanding of healthcare systems and health insurance in general (see also Health Literacy in chapter 8). Below is a brief breakdown of common terms used in health insurance and their implications to the beneficiary (aka insured person).

Health Insurance Terminology

Health insurance plans come in a variety of types, with different coverages and costs to employers and beneficiaries. Here are some of the most common types of health insurance plans.