HISTORY OF AMERICAN HEALTH INSURANCE Jonathon Erlen

1
HISTORY OF AMERICAN HEALTH INSURANCE Jonathon
Erlen
2
Perhaps no aspect of the history of the
development of the American health care system is
more complex and twisted than the evolution of
the arguments over health insurance. Who should
be covered? What should they be covered for?
Who pays for this insurance? These, and other
questions, appear regularly on TV and in
newspaper coverage today, and I am sure will
continue to be debated in the foreseeable future,
as availability and scope of health insurance is
the key to accessibility to health care for most
of the American public.
3
The concept of health insurance began in Europe
and can be dated back to the medieval guild
system. Modern health insurance really began
with Germany, under Chancellor Bismarck, with 2
insurance laws put into effect in 1883. By 1912
most European nations had passed similar health
insurance legislation, with Englands health
insurance system being created in 1911. It would
be a combination of the German and English health
insurance systems that would have the greatest
impact on the potential development of a
federally funded American health insurance
system.
4
Prior to the 20th century in America there had
been little consideration given to the health
insurance issue, as medical care was a relatively
unimportant economic activity. Health care was
not perceived as a major industry, and most of
the care of the sick was not part of the market
economy, but, rather, was taken care of at home
or through charity services at almshouses or the
early non-because of the lack of trust in the
traditional physicians by most of the public, and
the high indirect costs of other types of
available health care. Throughout most of the
19th century, the lack of transportation and
communication capabilities made health care a
household function i.e. how could you reach a
doctor before the telephone was invented?
5
The end of the 19th century, with wide-scaled
urbanization, the telephone, and the advent of
the car ended this era of individual isolation.
Medical care now shifted from the home to the
doctors office, and then, at the turn of the
20th century, to the hospital setting. Each of
these shifts in location for medical care lead to
increased health care costs for the individual,
thus raising the issue of the need for some form
of health insurance.
6
We must remember that there were and still are 2
competing forms of health insurance in the United
States. One type is the voluntary health
insurance system operated by private insurance
companies. The second type is government
administered and can be either mandatory or
voluntary in nature. While these 2 types of
health insurance can and do co-exist, there has
always been great tension between them, as we
will see as we trace the evolution of the
American health insurance system which has
emerged over the past century.
7
There were the 6 formats of voluntary health
insurance available in late 19th and early 20th
century America, most of which still exist today
in 1 form or another. Let me just list these 6
fraternal societies and mutual benefit
associations contract physicians private
physician plans county medical bureau plans
hospital service plans, and group insurance
operated by private commercial insurance
companies. Even with this wide variety of health
insurance options, there still was a large of
the American public in the 1st. quarter of the
20th century who had no health insurance, thus
severely limiting their access to any qualified
medical care.
8
Besides this wide-scale perceived need on the
part of the general public, there were also the
problems faced by a large number of physicians
who were unable to generate a satisfactory income
from their practices. The typical physician in
1913 averaged only 500 to 700/year, which was
little more than the income made by members of
the American manual laboring classes. In 1913,
the AMA's Judicial Council stated that hardly
more than 10 of all Americas doctors were
making a comfortable living.
9
Thus the perceived need for some type of
health insurance by a large part of the
American population, combined with the financial
shortcomings of most American physicians, created
an environment ready to accept some
form of mandatory health insurance. Another
force pushing for mandatory health insurance was
the Progressive Movement in American politics and
society. Unlike the Gilded Age, 1875-95, when it
was widely believed that the federal government
had no direct responsibility for the welfare of
the individual in society, the Progressive
Movement, 1895-1920, was a multi-faceted attempt
to have private charity and the federal
government cooperate in reforming American
society and promoting the individual's
betterment.
10
The major push at this time for mandatory health
insurance, however, did not come from 1 of the
political parties, but, rather, from a private
organization, the American Association of Labor
Legislation, the AALL. This powerful interest
group had already won several battles to clean up
the unsavory health conditions existing in a
number of industries and now turned its attention
to the issue of mandatory health insurance, which
it saw as the best means to combat the 2-sided
problem of dangerous working conditions and the
rising costs of medical care.
11
The costs for this AALL proposal would be divided
up, with the employer and employee each
contributing 40, with the remaining 20 coming
from the federal government. The initial
response to the AALL's insurance plan from the
American medical community was surprisingly
positive. The AMA, through its journal JAMA,
informed American physicians that health
insurance was definitely coming and that they
should try and work to support it for both
society's and their own benefits. In 1916, the
AMA created a Committee on Social Insurance with
the charge of working towards passage of health
insurance legislation.
12
While it was enjoying such success in the area of
health insurance, the AALL decided to try and
1st. pass this type of legislation at the state
level, selecting N.Y., Massachusetts, and N.J. as
trial states in 1916. The Mills Bill proposed in
N.Y. was strongly opposed by N.Y.'s medical
profession because it challenged the
fee-for-service principle, failed to allow
patients free choices of physicians, and appeared
to put the state rather than the physicians in
control of the health care system. This
temporary impasse was resolved through the
collaborative efforts of the N.Y. Medical Society
and the AALL, and the resulting insurance bill
was adopted by the N. Y. Medical Society in
December, 1916.
13
By the end of 1916, 2 state medical societies had
endorsed health insurance legislation, while 6
more had set up committees to study this
proposal. Health insurance was actively
supported by the part of the health care
community made up of public health workers,
hospital officials, and the teaching faculty of
many of Americas largest medical schools.
14
Yet there were also several sources of strong
opposition to the AALL's insurance plan. Most
sectarian groups came out against this proposal
because it excluded them from participation. The
pharmacy industry also rejected the AALL's ideas
because it would cost pharmacists business, and
force them to contribute to the health care of
their employees. This opposition reached the
point that in 1917 the American Pharmaceutical
Association created a special committee whose
charge was. One surprising source of opposition
to the concept of a federally funded health
insurance bill came from Samuel Gompers, the
great leader of the American Federation of Labor,
who stated in a session before the U.S.
15
1917 marked a major swing in the AALL's
previously successful efforts to ensure passage
of mandatory health insurance. U.S.
participation in WWI had created a tremendous
tide of anti-German sentiment throughout the
country, and opponents of federally funded
medical care seized this moment to claim that
mandatory health insurance was a German concept
that should be banded from the U.S. State
medical societies that had previously favored
some form of government funded health insurance
now turned violently against this proposal.
16
The years immediately following the conclusion of
W.W.I were hardly the best time to try to pass
social reform legislation. The nationwide Red
Scare after the successful Russian Revolution and
the wide-scale labor strikes and civil rights
riots, 1919-1920, turned the public's attention
away from the issue of health insurance.
Opponents of this cause tied health insurance to
this era of tumult. The fact that many of the
leaders pushing for insurance reform had foreign
sounding names, and that many of these
individuals openly espoused socialist doctrines
only further persuaded the American public of the
correctness of the anti-insurance forces
charges.
17
Several key factors can be credited with this
demise of the health insurance movement in the
1920s. The major element had to be the war,
with its outpouring of anti-German feelings,
which lasted into the 1920's.
A second key was the growing economic success
of physicians, who no longer needed to look to
health insurance as their major source of income.
Thirdly, the conclusion of the Progressive Era
and the national quest to return to normalcy
following the world war effectively hampered
practically all efforts at social reform in the
1920's.
18
The Depression drastically curtailed the 1920s
economic successes, both of individual physicians
and of Americas hospitals. During 1929-30, the
average general practitioners income fell, with
patients' fees declining by nearly 50 in the
South, and this situation worsened as the
Depression deepened. Hospital receipts tumbled,
as the average per patient fee fell from 236.12
to only 59.26, and the occupancy rate and
endowment funds both declined sharply. Faced
with these severe economic conditions, the
medical profession was forced to rethink its
total opposition to all forms of health
insurance.
19
Efforts at achieving federally funded medical
care still were strongly opposed by the AMA. To
meet this perceived threat of government
intervention and the serious economic needs
facing America's health care system, the medical
profession created 2 programs still very active
today, Blue Cross and Blue Shield. We only have
time today to skim over the creation of these 2
voluntary insurance agencies created by America's
health care system to meet their financial needs
and to stave off direct federal interference in
medical and hospital practices.
20
The concept behind the Blue Cross program
originated in Dallas, TX, in December, 1929,
where the Vice President of Baylor University
Hospital agreed to enroll 1,250 public school
teachers in a prepaid hospitalization plan for
the grand cost of 50 cents per month per person.
The success of this early venture, and the
deepening financial woes of hospitals lead a
number of hospitals in Sacramento, California in
1932 to create the 1st. Multy-hospital prepaid
insurance plan. This type of hospital insurance
policy spread rapidly across the U.S.
21
In 1933, the A.H.A. had officially adopted this
community wide approach to hospital insurance,
and, as this system did not interfere with the
patients' right to choose their own physicians
and the fee-for service doctrine, the AMA was
also willing to accept this voluntary health
insurance scheme. These early Blue Cross plans
still fostered high hospital rates, as they ruled
out the possibility of competition between
individual hospitals. By 1938 the A.H.A. had
established a policy for national Blue Cross
plans, stating that each locale could set its own
fee schedule, and that there would be no direct
competition among Blue Cross plans in nearby
cities.
22
The AMA was still hesitant to accept prepaid
insurance plans however, by the early l940's' a
combination of strong public pressure, the loss
of physicians fee revenues, the threat of direct
government interference, and the success of the
hospitals' Blue Cross plans forced a
reconsideration of this issue. Finally the AMA
was willing to accept a limited form
of health insurance, under the strict conditions
that this system be controlled solely by
physicians acting through their state medical
societies. The AMA created a commission in 1943
to coordinate these medical service plans run by
the various state medical societies, which paid
fees directly to the physicians, viewing this
system as the best alternative to state
run medical care.
23
The development of Blue Cross and Blue Shield did
not signify the end of efforts to create a
federally funded system of prepaid health
insurance. Every President since the Depression
has had to deal with this political hot potato,
with segments of the general public and various
philanthropic interests pushing for these reform
measures, while the AMA and the private insurance
interests have staunchly opposed all such
efforts.
24
The New Deal social reform forces renewed their
efforts to promote mandatory health insurance in
1938 by sponsoring the National Health Conference
in Washington, D.C., thus focusing national
attention on the need for compulsory health
insurance to assure access to medical care for a
large segment of the American public. To meet
this new challenge, the AMA and the private
insurance companies increased their lobbying
efforts in Congress and their blatant propaganda
attacks nationally through the newspapers,
warning the public about the supposed evils of
mandatory government funded health insurance.
25
Following the war, with the nation on its way to
a surprisingly easy, quick economic recovery,
President Truman took up the cause of federally
funded medical care, which fit in well with his
doctrine that "an ounce of prevention is worth a
pound of cure." Truman strongly objected to what
he considered to be the ill-gotten gains
physicians received from taking advantage of the
sick and vulnerable portion of the populace, as
well as the high-priced AMA propaganda campaign
against health insurance.
26
While no positive federal medical care
legislation was passed during these Democratic
administrations, things changed during
Eisenhower's 2 relatively quiet terms as
President. After 1952, hospital and medical
costs for the general public began their
tremendous escalation that still continues today.
Under intense public pressure and in order to
head off any radical federally funded health
insurance programs the AMA agreed to work with
the Eisenhower administration to create
legislation to partially relieve the economic
situation that was plaguing the American health
care system.
27
When we think of John F. Kennedy's tragically
shortened term in office, we think of the great
reforming zeal shown in his New Frontier
programs. Yet, despite his charismatic strength,
J.F.K. was defeated in Congress in all his
attempts to pass federally funded health
insurance. It fell to his successor, Lyndon B.
Johnson, the consummate politician, to achieve
the political victories which Roosevelt, Truman,
and Kennedy had been unable to achieve.
28
However, Johnson, too, met defeat in his first
effort when his 1964 hospitalization plan failed
in Congress. His sweeping electoral victory that
same year, bringing with it an extremely liberal
Democratic House and Senate, finally allowed the
passage of health reform legislation. 1965 saw
the passage of both Medicare and Medicaid, thus
firmly establishing the federal governments role
in funding health care for major segments of the
public. Medical care now appeared to be a right
for all citizens, not just a privilege enjoyed by
the economically sufficient.
29
It is interesting here to note that the two
groups who most opposed this type of legislation,
the hospitals through the A.H.A., and the
physicians through the AMA, have greatly
benefited financially from these laws. Hospitals
no longer had to pay all the costs themselves for
their charity patients, as this ever growing
total could now be passed on to the federal
government. We can say that without this federal
funding, American hospitals would not have become
the big business they are today. Physicians have
also discovered that, despite their fears, health
insurance has greatly increased their individual
incomes.
30
Has health insurance really helped the American
public? Certainly better access to
hospitalization and to physicians has improved
the health care of many parts of the public,
though not all. The middle class has found,
more, and more, that the existing health
insurance laws do not offer them much needed
protection. Also, it is probably true that the
overall quality of health is determined by other
factors than merely access to medical care after
the fact of an injury or illness. More and more
attention is being given in health care circles
to the issues of lifestyle and environmental
health concerns, as well as an emphasis on
preventive health care that usually is not
covered by health insurance.