Healthcare without Borders
The Evolution of America's Health Insurance System to a For-Profit System; A look at how Switzerland handles profit differently
In my video content, I repeatedly read comments like “Health insurance used to be non-profit and Reagan changed everything”. While that statement does have some truth to it, there are definitely areas that need clarification. Let’s dive in.
The real story is more interesting. America has had nonprofit and for-profit health insurance for nearly a century, but the ratio changed. What changed wasn’t whether companies could earn a profit as a business but rather which type of insurer came to dominate the market.
Understanding this history also helps explain why some countries with universal healthcare still rely on private insurance companies today, while reigning in the profit aspect.
Modern health insurance here in the United States traces back to 1929, when Baylor University Hospital in Dallas introduced a prepaid hospital plan. Patients would pay a small monthly fee in exchange for coverage if they were hospitalized. That model would spread across the country and eventually became Blue Cross.
A few years later, physicians developed similar nonprofit plans to cover doctor’s services, which evolved into Blue Shield, and eventually the two programs combined.
These organizations weren’t charities and they collected premiums, paid claims, and had to remain financially stable. But they were organized as nonprofit community insurers instead of investments. In exchange for favorable tax treatment, many accepted obligations such as broader access to coverage and community coverage.
This is where it gets more complicated.
Commercial insurance companies like Aetna, Prudential, and Metropolitan Life were also selling health insurance during this same period, and they weren’t considered non-profit. For-profit health insurance wasn’t something that appeared decades later. It existed alongside the nonprofit Blue plans almost from the beginning. This is a very common misconception.
What changed was the market decades later.
Beginning in the 1980s and accelerating through the 1990s, competition increased, managed care expanded, and many Blue Cross and Blue Shield organizations converted to for-profit companies or created for-profit holding companies. Around the same time, Congress took away the longstanding federal tax exemption for Blue plans, reducing one of the major legal distinctions between nonprofit Blues and commercial insurers and changing incentives. Those changes, combined with general market pressures, reshaped the industry into the mix of nonprofit and investor-owned insurers we know today.
We can’t blame the shift on just one law or one political decision, but rather it happened gradually over several decades.
Switzerland arrived at a very different balance, without going to a single payor system.
Like the United States, Switzerland relies on private insurance companies rather than a single government insurer but with an important distinction.
Every Swiss resident is required to purchase a standardized package of basic health insurance. Think of this like the original ACA mandate. Then private insurers compete for customers and administer those plans, but they must operate the mandatory basic insurance on a nonprofit basis. The standard medical benefits are defined by law, premiums are tightly regulated, and insurers can’t use the required basic coverage as a profit center.
If insurers want to earn profits, they can, but on extra services.
Many sell voluntary supplemental insurance covering things like private hospital rooms, dental care, international coverage, or additional amenities. Those optional products operate under different rules and can generate profits in ways the mandatory basic plans cannot, but do not raise the cost of true medical care.
Swiss insurers still compete. They still advertise, innovate and chase profits but at a smaller scale.
The business model is built around products people choose to buy rather than the core insurance every resident is required to carry.
My Opinion
I have noticed that Americans often frame the conversation as public versus private, as the knowledge of systems outside our borders mainly means talking to Canadians.
Switzerland suggests there may be another, better way.
Instead of debating whether private insurance companies should exist, should the rules be different for mandatory health insurance than they are for optional insurance products?
I’m not suggesting the United States could simply adopt the Swiss model exactly. Our healthcare system is larger and more fragmented and sadly too integrated into the stock market.
But I do think the Swiss approach can be a point of inspiration.
Private companies can still compete. They can still innovate. They can still earn profits.
The debate isn’t necessarily whether profits should exist at all but rather where those profits should come from. Core medical services should not be a profit center.
When you look around the world, that’s a distinction many countries have thought about far more explicitly than we have.
Want to keep learning?
You can also find me on YouTube, TikTok, Instagram, Facebook, and LinkedIn at @SliceofLifeMD.
I recently launched a new YouTube playlist, Health Passport, where I’m taking a deeper look at the healthcare system in every country, starting with the world’s most populated nations and working my way down the list.
🎥 Health Passport Playlist:
https://www.youtube.com/@SliceofLifeMD/playlists