When and why did health insurance, paid by third parties, become widespread in the American economy? Like so many things that the government does, third-party health insurance grew out of problems created by previous government policies.
During World War II, the government imposed wage and price controls. This meant that employers who wanted to hire more workers were forbidden to offer higher wages to attract them. So employers started offering various benefits instead. One of these benefits was employer-paid health insurance.
Since these benefits were not taxed as income, and could be treated as a business expense by the employer, everybody seemed to be better off. But, long after the war was over and wage and price controls were gone, the idea that third parties ought to pay for health insurance continued on. Eventually the government itself got into the business of providing health insurance and now some politicians depict it as a scandal that not everyone has health insurance paid for by third-parties.
This might make some sense if third-party insurance was cheaper or better than insurance that each individual pays for directly. All the evidence is that it is just the opposite. When third parties pay, use of the insurance -- and of the medical resources that it pays for -- has skyrocketed beyond anything contemplated at the outset.
When you hear leftist politicians speak of "universal health care," what they're talking about is health insurance which everyone is forced to pay for and use. It's an egalitarian approach to medicine: universal mediocrity. In a truly capitalist system, health insurance would not exist to the extent it does in today's mixed economy. Indeed, the modern HMO was virtually non-existent before the creation of Medicare and Medicaid.