A Brief History of Healthcare in the Bay Area

Due to changes to the economy and in politics, the healthcare landscape in the Bay Area has experienced numerous highs and low. Learn more about the history of healthcare in our region and why the future for Bay Area residents looks so bright.

The Bay Area’s modern healthcare organizations began to form in the mid-1800s. Since that time, there have been highs and lows — and a lot of change. Today, our region’s healthcare system is more vibrant and diverse than ever. Keep reading to learn more about the evolution of Bay Area healthcare and where it’s headed in the exciting years to come.

1800s and 1900s: The First Hospitals and Healthcare Organizations Form

The first Bay Area hospitals appeared during the mid-1800s. St. Mary’s Medical Center, a Canopy Health-affiliated hospital, opened its doors in 1857. Today, it is the oldest continuously-operated hospital in the Bay Area. In 1864, Dr. Hugh Toland founded a medical school, which eventually became UCSF School of Medicine.

1930s: The Appearance of Early Healthcare Plans

As workers flooded into California, some physician groups and large employers began offering prepaid healthcare. In 1939, the California Medical Association founded the California Physicians Service, the state’s first statewide, society-controlled, prepaid health plan. Other prepaid healthcare plans developed around the same time.   

1940s and 1950s: The Growth of Employer-Funded Health Insurance

During World War II, the federal government froze civilian wages. To appease their employees, many employers began offering fringe benefits like health insurance. By 1958, more than two-thirds of Americans had some form of a health plan.

1970s: HMO Scandals Result in Regulation

In 1971, Governor Regan reworked Medi-Cal and encouraged the use of HMOs and prepaid health plans to reduce costs. Unfortunately, California did not regulate these plans at that time, and complaints of abuse and improper business practices were almost immediate.

By 1975, people were demanding HMO regulation. California’s Prepaid Health Plan Advisory Committee recommended that all Medi-Cal prepaid plans should comply with the Federal HMO Act of 1973. The legislature also passed the Knox-Keene Act of 1975, establishing licensing requirements for prepaid health plans and HMOs. While the regulation seemed burdensome to some HMO operators, it helped legitimize these plans — leading to the golden age of Bay Area HMOs.

1980s and 1990s: HMO Popularity Explodes in the Bay Area.

As healthcare expenses began to rise, companies looked for ways to cut costs. HMOs became increasingly popular due to their emphasis on managed care and narrower networks. While some poorly-operated HMOs closed in the late 1980s, better-run organizations flourished.  

While only three million people enrolled in HMOs in 1970, this number skyrocketed to over 80 million by 1999. HMOs were particularly popular in the Bay Area. In 1989, 24 HMOs served the Bay Area, and 46% of its residents were enrolled in an HMO plan.

2000s: The Bubble Bursts

Unfortunately, the Silicon Valley and HMO bubbles both burst in the late 1990s and early 2000s. Numerous HMOs, including the Bay Area’s Lifeguard and Health Plan of the Redwoods, were unable to meet the state’s financial requirements and were placed into conservatorships and eventually closed.

Many observers attribute the decline of HMOs to a series of factors. Healthcare costs continued to rise, and some employers eliminated plan options to reduce their expenses. Nationwide healthcare organizations squeezed some smaller regional HMOs out of the market. And some healthcare consumers resisted HMOs due to concerns about lack of choice and access. In Lifeguard’s case, the Bay Area organization could not keep pace with the rising cost of healthcare claims, and a failed merger sealed its fate.

Today: New Options for the Bay Area’s Diverse Healthcare Needs

Thankfully, the Bay Area rebounded after the HMO bubble burst. Today, our healthcare organizations are flourishing. The region includes some of the country’s top hospitals, including UCSF Health and John Muir Health facilities. Overall, our healthcare safety nets remain stable — and the Bay Area has a lower rate of uninsured residents than the state average.

Innovative healthcare organizations like Canopy Health offer members a remarkable combination of accessible, high-quality care, increased healthcare transparency, and affordability. While Canopy Health is not a traditional HMO, it has a restricted Knox-Keene license and its members benefit from managed care. However, unlike some narrow networks, Canopy Health members have a wide array of care options. They can seek treatment with any of the 5,000 physicians, 18 hospitals, and dozens of outpatient care centers within our alliance by choosing a healthcare plan from one of our three select carriers.


California Health Care Foundation (2016, January). San Francisco Bay area: Major players drive regional network development. California Health Care Almanac. Retrieved from https://www.chcf.org/wp-content/uploads/2017/12/PDF-AlmanacRegMktBriefSanFran16.pdf

Gold, M. (1991). HMOs and Managed Care. HealthAffairs. Retrieved from https://www.healthaffairs.org/doi/full/10.1377/hlthaff.10.4.189

Markovich, M. (2003). The Rise of HMOs. Santa Monica, CA: RAND Corporation, 2003https://www.rand.org/pubs/rgs_dissertations/RGSD172.html

Roth, D., Reidy Kelch, D. (2001, November). Making sense of managed care regulation in California. Oakland: California Health Care Foundation. Retrieved from https://www.chcf.org/wp-content/uploads/2017/12/PDF-MakingSenseManagedCareRegulation.pdf