A Brief History of Health Insurance: Regulation = Death

One of the joys of being in this space since 2018 is watching more and more voices grow public awareness of health policy.

https://joehoft.com/a-brief-history-of-health-insurance-regulation-death/

A Brief History of Health Insurance: Regulation = Death

Joe Hoft   /Guest post by Rolf Lindgren    |    December 1, 2025

In the U.S. Constitution ratified in 1788, there is no federal power to regulate insurance. The states regulated insurance. This was a great system because if the laws in one state were bad, you could move to another state. It prevented a cartel of massive insurance corporations from taking over the entire nation. Insurance lobbyists had to go to each state separately to try to rig the system, which was impractical.

So in 1869, the national insurance lobby brought a case to the US Supreme Court. This case, called Paul vs. Virginia (1869) was remarkable for three reasons:

1) The insurance companies WANTED to be regulated by the federal government.

And the Supreme Court decided…

2) Corporations are NOT people.

3) Insurance is NOT commerce!

The insurance lobby lost the case. It was a unanimous decision authored by fabled pro-capitalism Justice Stephen J. Field.

So America continued to enjoy insurance freedom for another 75 years as it turned out, during which time the American economy grew to the largest in the world, by far.

But the bad news is that in 1944, Paul vs. Virginia was overturned.

The Supreme Court suddenly decided that insurance was commerce and soon the President, US Congress, and national insurance lobby thought it was a good idea to federally regulate insurance.

One area ripe for regulation was employee-paid health insurance. Since wage freezes were enacted during WWII, employers offered free health insurance to compensate. The federal government quickly moved in to regulate this practice. So began the cycle of fixing one insurance regulation with new regulations.

Here is a quick summary of major post-WWII health insurance regulations, all of which would have been unconstitutional under Paul vs. Virginia:

The Hill-Burton Act of 1946 – Regulated the addition of hospital construction costs into health insurance costs

The Revenue Act of 1954 – Excluded health benefits from taxable income, thereby ingraining the employee-paid healthcare system

Military Medicare Act of 1956 – Medicare for military family members only

Medicare and Medicaid 1965 – Medicare for everyone, plus Medicaid for low-income people

Employee Retirement Income Security Act (ERISA) of 1974 – Massive regulation of all facets of health insurance

Mental Health Parity Act of 1996 – Requires quasi-scientific mental healthcare to be treated the same as medicine based upon hard science.

And we all know about Obamacare 2010 – Obamacare also would have been unconstitutional under Paul vs. Virginia. In a remarkable fact, not long after the Supreme Court upheld Obamacare in 2012, the six largest health insurance companies merged into only three!

Another remarkable fact is that Obamacare was labeled a “a government takeover of insurance.” But had the Republicans held Congress at the time, the insurance lobbyists were prepared to have it called “a corporate takeover of insurance” for almost the exact same law! Either way, it’s both socialism (redistribution of wealth) and fascism (partnership of big government and big business).

The three most heavily regulated industries in the US are healthcare, education, and nuclear reactors. All of them have unsustainable cost explosions.

Today, we face a health insurance and healthcare crisis, accompanied by a vast array of laws and regulations. We don’t have cost transparency. This didn’t exist prior to 1944. In those days, you could call your family doctor over for a visit and pay out of pocket. The improvements we do have since 1944 derive from advances in science & technology, not from regulations. Today, health insurance isn’t affordable, and pretty soon, healthcare costs may swallow up most of our Gross National Product.

Frightening Final Thought

Imagine for a moment if a serious world war began. Suppose this war involved the United States, China, Russia, India and/or Europe. Suppose our government needed every resource available for the military to fight the war. What would happen to all the people getting government healthcare benefits? Chances are, they would be left on their own until the world war was over, and millions of people would die.

Our healthcare system must be fixed now. Restore Paul vs. Virgina!