Most US citizens did not have health insurance in the early 1900s. Using the "fee-for-service" business model, patients paid all healthcare costs themselves.

Health insurance in the US was introduced in the 1920s but most people could not afford it or saw it as a necessity. In 1929, the first employer led hospitalization plan was initiated for teachers. As a result of wage controls during World War II, widespread availability of health insurance offered by employers began, expanding health insurance plans.

Employers were federally prohibited from increasing wages to attract employees during the labor shortage caused by the number of men involved in World War II. Additionally, wage and price controls were imposed. But when the National War Labor Board announced that fringe benefits, such as health insurance, weren’t considered wages, to compete in the labor market, employers hurried to offer fringe benefits, especially health insurance.

Up till then, religious institutes and charitable organizations would assist some patients with paying for expensive medical bills. However, once health insurance became more common, the incentive for, and availability of, charity assistance decreased dramatically.

After World War II ended, large scale employers had accepted health insurance as an employee benefit entitlement. The total number of people enrolled in health insurance plans between 1940 and 1960, grew from 20 million to 140 million. By 1958, 75% of employed Americans had some form of health insurance.

Up to the mid-1970s, direct payment by the patient to the physician was the usual arrangement. Patients paid the physician directly for his or her services, then filed a claim with their insurance company, and was reimbursed for their expenses in excess of their yearly deductible. While most insurance claims were filed by hospitals for the patients, physicians generally did not.

In 1988, economist Eli Ginzberg said that in the 1950s (Ginzberg E. Ripple Effect or Tidal Wave? Health Management Quarterly. 1988; 4:21), authorities considered 140 physicians per 100,000 population to be "a reasonable minimum." The shortage of physicians was difficult to cope with for some patients, but even so, "very few people were dropping dead because they had to wait a couple of days to see a doctor." However, in ensuing years there has been an immense increase in the number of physicians. Furthermore, “If one postulates that on average a ratio of 200 physicians per 100,000 is more than adequate...then a prospective rate of 260 in the year 2000 indeed represents a surfeit,".

The most recent information reported by the World Bank was 250 physicians per 100,000 population—just a bit short of Ginzberg's prediction. It should be noted, however, that this number does not reflect the increase in the percentage of specialist physicians and apportionment of workforce. It leaves the mistaken impression that the number of physicians in the United States is adequate.

This perceived increase took a small-scale industry of physician provided medical services and created a multi billion-dollar industry. With growth in number also came the practice of fee per procedure. Fees increased in part because of the practice of insurers of not usually informing physicians when the allowable rates were increased for certain services. This, combined with being allowed to "balance bill" in many insurance contracts (balance billing is when a medical provider bills a patient for the balance of the costs of medical services not covered by the patient's insurance provider. A provider who has agreed to accept assignment as payment in full cannot balance bill the patient), meant that physicians, medical groups, and hospitals that didn't raise their rates to above those allowed by insurers would miss out on money in a deal that was there for the asking. Eventually, patients could no longer pay their bill and wait for reimbursement by the insurance companies. The age of physicians billing insurance companies directly on behalf of the patient had begun.

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