From Humble Beginnings to Complexity Overload: How Early America Paid for Healthcare

Fast forward to 1798. President John Adams signed the first federal public health law creating the Marine Hospital Service, and one of the earliest forms of a group coverage policy. For this to be funded, customs collected 20 cents a month from every arriving sailor’s wages and deposited the money to the Department of Treasury. Collections were used to treat sailor’s illnesses and fund hospital construction, a groundbreaking idea that hinted at social insurance and planted seeds for structured coverage (U.S. National Library of Medicine, 1998).

With America industrializing, the use of railways and steamboats increased as it was a way to more efficiently transport goods and people. With the increased use of these transportation channels, we also saw a large amount of injuries and deaths occur. Between 1807 – 1853, more than 7,000 people died from accidents on steamboats (Brown, 1988) and between 1890 – 1900 there were over 6,000 accidents involving trains equipped with mail cars or compartments with over 80 mail clerks killed and 2,072 reported injuries in these accidents alone (American Postal Worker Union, 2005).

In response to these issues, the Franklin Health Assurance Co. of Massachusetts introduced accident policies for steamboat and railway injuries in 1850. For a 15-cent premium, policyholders could receive $200 for bodily injury or $400 for total disability caused by a railway or steamboat accident. In 1910, Montgomery Ward & Co. introduced the first employer-sponsored group disability policy. It didn’t pay for medical care directly but offered income protection. Half an employee’s weekly salary during illness or injury (Scofea, 1994). This marked a turning point toward employer-based coverage. These policies were just two examples of solutions to the growing need for financial protection in an industrializing America.

Do you remember when we talked about the Marine Hospital Service? Well, in 1912, the Marine Hospital Service became the U.S. Public Health Service and was tasked with conducting research on disease, sanitation, sewage, water and leading initiatives to provide preventative duties for illnesses. During this time, sanitation, or really the lack thereof, was becoming an issue not only in the United States but around the world. Because of this, diseases like smallpox and typhus were rampant, and attitudes toward public health began to shift as illness touched all social classes, not just those seen as immoral or impoverished (Institute of Medicine, 1988). This evolution signaled a growing belief that health was a shared responsibility.

While the way people practiced and paid for healthcare before the Great Depression seems like a foreign world dreamed up in the mind of an author, it is imperative we understand these milestones and practices, as they help set the scene for how today’s complex healthcare system came to exist. From bartering to employer policies and even sanitation, each step reflected a new solution to societal needs and values, including the core challenge that still remains today: balancing access, cost, and responsibility in healthcare in the United States.