Health Care Reform Series: A history of health in the U.S. – Part 1

June 30, 11:26 PMLiberal ExaminerJenny Kakasuleff

Previous Next

24 comments Print Email RSS Subscribe

Subscribe

Get alerts when there is a new article from the Liberal Examiner. Read Examiner.com's terms of use.

Email Address   Include other special offers from Examiner.com Terms of Use

Health and Human Services Secretary Kathleen Sebelius testifies on Capitol Hill in Washington, Wednesday, June 24, 2009, before the House Health subcommittee hearing regarding health care reform. (AP Photo/Charles Dharapak)

This is the first part of a multi-layered series that will examine health care reform in the United States. A history of health care will serve to put the current crisis in context relative to challenges the country has faced when attempting to reform health care previously.

The next section will discuss the current debate over how best to address the nations skyrocketing health care costs. The following section will compare the single-payer and public options, which seem to be causing a rift among progressives who fear that reform will be watered-down in attempts to reach a bipartisan agreement.

Another section will explore the industries that have wielded the most influence in our health care system, serving to frame the debate between those who support universal care; and their critics, who believe government bureaucrats are unable to effectively manage such a system. The final section will offer concluding remarks, lessons, and further questions—particularly philosophical in nature—to determine what path should be taken going forward.

The Emergence of Health Insurance

According to Jonathan Cohn, author of Sick: The Untold Story of America’s Health Care Crisis (an indispensable source of information for this section), the idea of purchasing insurance to guard against illness took hold in the early twentieth century when advancements in the field of medicine placed a greater demand on these services.

Though available, medical services were out of reach for many; a problem that intensified with the onset of the Great Depression. In an attempt to address this disparity, the Committee on the Costs of Medical Care was created to conduct a study over the course of five years, which in 1932, ultimately concluded that “the largest expenses were concentrated among a small group of people, the ones with the most serious medical problems.” Consequently, the commission recommended a system that would rely on collective responsibility by creating health insurance.

At the same time, countries in Europe faced similar questions, and they settled on a remedy that involved government intervention, which effectively spread the financial risk among the entire population and regarded health care as a right, as opposed to a privilege.

However, on our side of the world, the fear of communism, fascism, and Nazism stoked antipathy toward government involvement in the economy, and private industry ended any near-future possibility of universal health care. Though some labor unions supported Harry Truman’s attempt at national health insurance in the 1940’s, they were satiated by their ability to include health care in their collective bargaining agreements, which allowed them to negotiate a low standard premium rate for all members.

Before Blue Cross/Blue Shield became a name that provoked ridicule, it was the first to widely apply the concept of insurance when it established a “community rate,” in which all group members paid the same amount for equal benefits. Furthermore, they practiced some form of what Cohn calls, “guaranteed issue,” which meant they agreed to provide coverage for anyone willing to pay the premiums, irrespective of preexisting conditions. The organization was nonprofit, charitable in nature, and received tax exemptions from the government due to their work on behalf of the elderly and indigent.

Though private entities, the “Blues,” as Cohn calls them, considered themselves devoted to serving the public good and did so, by following the earlier guidelines of the Committee on the Costs of Medical Care. Indeed, their success helped undermine Truman's case for national health insurance.

The Emergence of Commercial Health Insurance

The Blues’ efficiency in serving trade groups eventually extended to the advent of employer-sponsored coverage, which as Cohn points out, began to take hold during WWII. The government exempted fringe benefits from wage controls, thereby incentivizing generous health insurance, in order to attract prospective employees in a tight labor market. Consequently, demand for insurance increased, and as coverage expanded, more individuals took advantage of it, creating an emerging industry that caught the eye of for-profit interests.

Though commercial insurers had attempted to offer a form of voluntary health insurance in the past, they had found the business model inadequate to serve a for-profit goal. The sentiment of Prudential’s president was noted in the 1920’s, when he affirmed that such coverage could not “safely be transacted.” Cohn explains that such systems tend to attract those who are the greatest financial risks, deeming the service unprofitable.

Based on the success of the Blues, these insurers decided to enter the market of health care once again, but since their motive was not for the public good, but rather profit, they changed the Blues’ business model, and rather than basing premiums on community rates, they began using “experience rates.” Since the Blues’ plans relied on the healthy subsidizing the less healthy, commercial insurers were able to undercut the Blues’ premiums by offering groups different premiums based on their health status.

They applied the same logic to individuals, and being well-aware that individuals who voluntarily seek out health insurance are likely those with the highest risks, they created strict guidelines that allowed them to deny coverage, thereby absolving them of any responsibility to the truly needy. Not surprisingly, the Blues and other nonprofit providers were forced to adapt, or else fade into oblivion. They chose the former, and their tax exempt status was promptly revoked.

The Emergence of Medicare/Medicaid

According to Cohn, by 1961, only 7% of the aging population’s expenses were covered through health insurance. National health care advocates, realizing their failures in the past, decided that changes to the system could only be made incrementally, so they began shifting public attention toward the elderly and needy, who lacked adequate care.

In 1965, President Johnson signed the Medicare-Medicaid bill into law—the latter receiving very little fanfare—which at its inception, only covered hospitalization. Though the bill served to swell the insurance rolls, and played a hand in reducing poverty, its cost was quickly exceeding projections. In part, this was owing to the fact that the program had met its goal of bringing more of the elderly and poor into mainstream health care. However, in order to garner enough support to pass the initiative in the first place, the bill was initially designed to pay providers any fee that was “reasonable and customary,” which left the government with relatively little control over fees.

Even the staunchest purveyors of anti-government rhetoric began calling for price controls by the government, and in the 1980’s, Ronald Reagan did just that, first introducing a payment system based on diagnosis, and finally, uniform fees. With all of the lip service Reagan paid to the government minimalists, he was a fan of the elderly, and the expensive, deficit-generating government programs geared toward their care. However, his entitlement generosity was limited to the elderly, and he effectively called for more stringent guidelines for the Medicaid program.

The Emergence of Health Maintenance Organizations (HMO’s)

Cohn describes early cooperatives that popped up around the country during the Depression-era, in which employers set up clinics with salaried physicians—a radical idea, since the pay scheme had traditionally focused on a fee-per-service—and employees paid a fixed monthly fee to fund them. They focused on preventative care and more effective treatment for disease.

With the expansion of health care, came expansions in technology and medical improvements, which inevitably drove up costs as more individuals sought care. The idea of cooperatives was pitched to President Nixon, who needed a solution to controlling health care costs without national insurance. The Nixon administration was intrigued; and with some crucial diversions from an authentic cooperative, they ran with it.

HMO’s were intended to be voluntary. They were intended to encourage free-market participation by better controlling prices, they could offer lower premiums as a result, and lead the charge in the market for greater efficiency and quality care. Another distinction between a co-op and the HMO as envisioned was to keep the old fee structure in place, but negotiate deeper discounts with providers.

They would also cut costs by creating treatment guidelines and injecting themselves into the medical decision-making process; they would determine whether care was necessary, and participants would be limited to a preapproved network of doctors, prior approval for referrals, and preauthorization for certain procedures.

Such cost-cutting methods effectively allowed the new managed-care plans to undercut the previous plans and largely consolidated power with insurers to make key medical determinations for a growing number of Americans. Indeed, in keeping with their promise, and through their own corporate bureaucratic maneuvering, HMO’s managed to offer more comprehensive care—including some preventative care—while offering still lower prices than competitors. As Cohn notes, this is likely due to their greater ability to control costs. They were certainly profitable, as indicated by the fact that they composed just 12% of the for-profit market in 1981, but 65% in 1997.

But the shifting focus from quality care, irrespective of ability to pay, was beginning to swing violently in the opposite direction; and the health care system that had long appeased the population - if not entirely satisfying them - was beginning to unleash the worst excesses of capitalistic venture on the most vulnerable and needy among us.

While the first part of this series focused on what could largely be considered breakthroughs in health insurance, the second part will describe how unforeseeable consequences have lead to the eventual decline of adequate, private stewardship over health care and will conclude the first section on the history of health care in the United States.

Read Part 2: A history of health care in the U.S.

Become a Subscriber (link above) to receive notification when the next part of the Health Care Reform Series is published.

*If you would like to submit a health care story, with the possibility of seeing it published here, please send me an email message at jennyk1981@gmail.com.

Copyright ©2009 Jenny Kakasuleff