The dental benefits industry quickly grew out of the blossoming health insurance market. Hopefully, we can better appreciate the dental benefits industry by becoming more familiar with its roots and natural progression.
Health insurance began to appear in the United States around 1850 and it only offered benefits to those who were disabled by accidental injury.5 Benefits for medical treatment didn’t begin to emerge until 1910, and coverage for hospital, surgical, medical and nursing care expenses began in 1930.5 The earliest health insurance models were traditional fee-for-service plans (also known as indemnity insurance plans). They were quickly followed by numerous prepaid health plans, considered the precursors to today’s managed care insurance models including health maintenance organizations (HMO) and preferred provider organizations (PPO).
The first instance of managed care insurance came about in 1917 in Tacoma, Washington when the Western Clinic began providing the lumber industry with prepaid physician services.6 In 1929, Dr. Justin Ford Kimball was instrumental in establishing the Blue Cross brand by introduced a prepaid hospitalization plan for local teachers sponsored by Baylor Hospital in Texas.6 The Blue Shield program was adopted in 1939 for participating prepaid physician plans.6
One of the pioneers responsible for making quality healthcare and insurance available to Americans was industrialist Henry J. Kaiser. In 1938, Kaiser recruited Dr. Garfield to help create prepaid clinic and hospital care for his Grand Coulee Dam project.6 In 1942, Kaiser and Dr. Garfield established a prepaid healthcare program for the employees of Kaiser shipyards and Kaiser steel mills that helped popularize health maintenance organizations.7 Kaiser Permanente remains prominent in the HMO insurance market to this day.3
By 1949, there were 81 Blue Cross hospital plans and 44 Blue Shield medical insurance plans, covering a total of 24 million Americans.6 Blue Cross companies and Blue Shield insurance plans covered 52 million and 40 million Americans respectively by 1959.6 After merging, Blue Cross Blue Shield collectively covered 87.4 million Americans by 1979.6 So Blue Cross Blue Shield, one of today’s top insurance providers, was very influential in the early managed care insurance movement.
Benefits grew and expanded in the 1950s as traditional fee-for-service health insurance plans flourished and coverage expanded to include other expenses, such as vision care.3 Most insured individuals were covered by either Blue Cross Blue Shield or by private commercial insurance companies at this time.3 Despite this progress, the 1960s and 1970s brought about a tumultuous time for the health insurance industry.
The term “Health Maintenance Organization” was coined in 1970 by Paul Ellwood, who was instrumental in promoting the Health Maintenance Organization (HMO) Act.6 HMO insurance came about as the insurance marketplace adjusted to employers’ and individual consumers’ concerns with the high premiums associated with traditional indemnity insurance.
After debating various bills for a national health insurance plan in the 1960s and 1970s, Congress passed the Health Maintenance Organization Act in 1973.6 This Act provided grants to employers who implemented HMO insurance – considered cost-effective alternatives to private doctors and hospitals – and effectively encouraged employers to provide their employees with health benefits.
At first, HMO insurance was perceived as providing better value than traditional indemnity insurance, due to lower premiums. Yet employers and individual consumers quickly began to backlash against the strict restrictions, poor service and other limitations associated with HMO insurance. The first annual decline in national HMO enrollment was seen in 2000.6 As a result of employers’ and consumers’ concerns with restrictions and service, modern day PPO insurance began to surface in the 1980s as an alternative to HMO insurance. The choices and service provided by PPO insurance was very well received, despite having higher premiums. By 2006, the national HMO enrollment grew to 67.7 million and PPO enrollment grew to 108 million.6
During the 1970s, those responsible for paying for healthcare – consumers, employers, and taxpayers – saw that the associated costs were becoming unmanageable.3 This concern with the cost of benefits was not exclusive to the health insurance industry and it quickly crossed over into other markets, including the dental benefits industry.
The dental benefits industry in the U.S. began as a by-product of the health insurance industry. Supposedly, the nation’s first dental insurance plan was instituted in 1883 by the Denver and Rio Grande Western Railway’s Hospital Association.8 Introduced in 1959 on a group basis, traditional dental insurance plans encouraged preventive care and reimbursed the insured for the cost of dental services.5
Dental HMO insurance quickly became more popular than its more expensive counterpart, traditional dental indemnity insurance. Dental PPO insurance provided consumers with better service and fewer restrictions than dental HMO insurance, despite the higher premiums. Discount dental plans, an easy-to-use and cost-effective alternative to dental insurance, became a significant part of the industry during the mid-1990s.9 Discount dental plans provided consumers with the value they desired by offering access to affordable, quality dental care at a low price and with an emphasis on choice and service.
At first, the majority of people with dental benefits received them only through their employers. Despite this welcomed advancement, a large percentage of Americans still did not enjoy access to affordable dental care. Unfortunately, many employers did not offer dental benefits and individual dental insurance remained too cost-prohibitive to become a viable alternative. The dental benefits industry began to adjust and progress to fill the growing need for affordable dental benefits. The dental benefits industry began to experience a shift away from the high premiums of dental indemnity insurance as well as the poor service and strict limitations of dental HMO insurance, and toward the greater value, choice and service offered by dental PPO insurance and discount dental plans.