Reconceptualizing Risk in the Health Insurance and Home Loan Industries, 1940–65

During the twentieth century, federal policy redefined consumer risk and, in the process, shaped the image of capitalism in the American mind.  While many scholars have labeled the American state a weak one, federal policy transformed entire industries by structuring private institutions around products that transferred risk from the individual consumer to private sector corporations and the government.  This development solidified capitalism as a core tenet of the twentieth-century America identity.    

This presentation will briefly explore two products that developed to make up the largest portion of household budgets – home mortgages and health insurance.  During the 1920s, variable interest rates, large down payments, and short loan periods made homeownership unattainable for the majority of consumers.  Additionally, consumers paid for most medical services out of pocket.  A fortunate few purchased limited insurance policies that covered a portion of hospital costs in case of an accident or stipulated illness.

After WWII, federal policy helped transform these two consumer products by changing the way bankers and insurers viewed risk.  Federal Housing Administration underwriting and the guarantee of Federal Deposit Insurance allowed banks to offer low interest rates, smaller down payments, and longer home loan periods.  In the case of health insurance, underwriters sought to defeat numerous proposed government reforms by proving the superiority of private sector benefits.  In this race to the “top,” they transformed insurance from a restricted mechanism into a comprehensive device for covering first-dollar and last-dollar medical services both in and out of the hospital. 

The institutional buildup around the redefinition of risk made capitalism safer and more secure for American citizens in the short term.  Over the long term, however, the public-private marriage produced rapidly rising health care costs and a housing bubble that has led to America’s current “crisis of capitalism.”