Where Did Health Insurance Come From? 
In the 1920 's changes occurred that tended to increase the role that medicine played in people 's lives and to shift the focus of treatment from homes to hospitals . These changes caused the price of medical care to rise because of : Advances in medical technology Growing acceptance of medicine as a science Development of hospitals as treatment centers Encouragement for sick people to visit physicians and hospitals . Licensing and standards of care In 1929 two doctors Ross and Loos formed Ross Loos Clinic to provide medical care for 2,000 employees of the water department of Los Angeles for $ 1 per month per employee . Ross Loos grew to 29 locations in LA to provide medical care for city employees at a fixed cost per month whether they visited the doctor or not . The precursor to Blue Cross was founded in 1929 by a group of Dallas teachers who contracted with Baylor University Hospital to provide 21 days of hospitalization for a fixed $ 6.00 payment . The Baylor plan developed as a way to ensure that people paid their bills . 1930-1940 : The Birth of Blue Cross and Blue Shield Pre-paid hospital service plans grew over the course of the Great Depression . Pre-paid hospital care was mutually advantageous to both subscribers and hospitals during the early 1930s , when consumers and hospitals suffered from falling incomes . Prepayment plans seeking the Blue Cross designation had to provide subscribers with free choice of physician and hospital , a requirement that eliminated single-hospital plans from consideration . Despite the success of Blue Cross and pre-paid hospitalization policies , physicians were much slower in providing pre-paid care . Blue Cross and Blue Shield developed separately , with little coordination between them . Physicians worried that a third-party system of payment would lower their incomes by interfering with the physician-patient relationship and restricting the ability of physicians to price discriminate . In the 1930s , physicians were faced with two situations that spurred them to develop their own pre-paid plans . Blue Cross plans were becoming popular , and some physicians feared that hospitals would move into the realm of providing insurance for physician services , thus limiting physician autonomy . Advocates of compulsory health insurance looked to the emerging social security legislation as a logical means of providing national health care . Physicians began to organize a framework for pre-paid plans that covered physician services . In 1939 , the California Physicians ' Service -LRB- CPS -RRB- began to operate as the first prepayment plan designed to cover physicians ' services . Open to employees earning less than $ 3,000 annually CPS provided physicians ' services to employee groups for the fee of $ 1.70 per month for employees . The AMA encouraged state and local medical societies to form their own prepayment plans . These physician-sponsored plans ultimately affiliated and became known as Blue Shield in 1946 . Blue Shield plans offered medical and surgical benefits for hospitalized members . Doctors charged patients who were subscribers to Blue Shield the difference between their actual charges and the amount for which they were reimbursed by Blue Shield . That is where health insurance began 