Tag Archives: health insurance

20th Century History on Health Care and Insurance

A historian’s take on health care and insurance in the US:

Key points:

Health care in the US is primarily driven by an “insurance company model”.’
There actually was a “medical marketplace” in early 20th century.
One of the best in that marketplace was a “prepaid physician group” with profit sharing for docs.
Truman proposed universal health care.
A.M.A. fought government intervention.
A.M.A. decided that the best way to keep the government out of their industry was to design a private sector model: the insurance company model.
In the insurance company model, insurance companies would pay physicians using fee-for-service compensation.
Thus, physicians became allied with insurance companies – both striving to keep government out of health care. Fee for service was their chosen model.
The model worked to expand coverage: from 25% of the population in 1945 to about 80 percent in 1965.
Elderly did not get covered as well. Congress stepped in with Medicare in 1965.
Because of rising prices, insurers gradually took over. “To constrain rising prices, insurers gradually introduced cost containment procedures and incrementally claimed supervisory authority over doctors. Soon they were reviewing their medical work, standardizing treatment blueprints tied to reimbursements and shaping the practice of medicine.”
Innovation in lacking. Concierge medicine experiments show some promise, like Atlas is Wichita.

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JCR comments:
It’s always easier looking backward. If only 25% of the population have health insurance, it seems eminently sensible that driving that number up to, say, 80% would be a high priority goal.

That’s what America did: it adopted a high priority goal to increase health insurance coverage from 25% to 80%. It’s chosen method was a fee-for-service reimbursement model – the “insurance model”. We put insurance companies in the driver’s seat, and we encouraged them to work with employers and physicians groups.

They were the middle man:

Insurers made sure that their employer clients had the benefits they needed to attract employees, at a cost that was practical.
Insurers also made sure that their physician partners supplied the services that they needed, at prices that were practical.

So, with the insurer-as-middle-man-model, we achieved our goal of enrolling 80%, up from 25%. 80% of the American population had health insurance in 1965.

So – what’s wrong with that?

It’s mostly very good. But…

Looking backward, it is obvious now that what is wrong: it is the remaining 20%. These are the unemployed – or the seniors – or the ones who have such ugly health attributes that their health costs are truly exorbitant.

While America was getting the 80% “squared away”, the 20% were left to fend for themselves. They overran emergency rooms; they took beds in charity hospitals; they died.

In 1965, we adopted Medicare and Medicaid. Medicare addressed the 20% who were seniors.
Medicaid addressed the 20% who were poor, such as:

Low-income families
Pregnant women
People of all ages with disabilities
People who need long-term care

Most of this happened over time, not in 1965. State offerings vary.

In 1997, we adopted CHIP for children. This addressed the 20% who were kids. 11 million kids got coverage. They were from families with too much income to qualify for Medicaid.

in 2003, we adopted MMA “The Medicare Prescription Drug Improvement and Modernization Act of 2003”. Under the MMA, private health plans were offered, approved by Medicare “Medicare Advantage Plans’. An optional prescription drug benefit was offered (“Part D”)

In 2011, the Affordable Care Act was adopted.

So, the key question for today is: why is our health care system such a mess. Read on:

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CREDIT: NYT https://www.nytimes.com/2017/06/19/opinion/health-insurance-american-medical-association.html?emc=edit_th_20170619&nl=todaysheadlines&nlid=44049881&_r=0

The Opinion Pages | OP-ED CONTRIBUTOR
How Did Health Care Get to Be Such a Mess?
By CHRISTY FORD CHAPINJUNE 19, 2017
The problem with American health care is not the care. It’s the insurance.
Both parties have stumbled to enact comprehensive health care reform because they insist on patching up a rickety, malfunctioning model. The insurance company model drives up prices and fragments care. Rather than rejecting this jerry-built structure, the Democrats’ Obamacare legislation simply added a cracked support beam or two. The Republican bill will knock those out to focus on spackling other dilapidated parts of the system.

An alternative structure can be found in the early decades of the 20th century, when the medical marketplace offered a variety of models. Unions, businesses, consumer cooperatives and ethnic and African-American mutual aid societies had diverse ways of organizing and paying for medical care.

Physicians established a particularly elegant model: the prepaid doctor group. Unlike today’s physician practices, these groups usually staffed a variety of specialists, including general practitioners, surgeons and obstetricians. Patients received integrated care in one location, with group physicians from across specialties meeting regularly to review treatment options for their chronically ill or hard-to-treat patients.

Individuals and families paid a monthly fee, not to an insurance company but directly to the physician group. This system held down costs. Physicians typically earned a base salary plus a percentage of the group’s quarterly profits, so they lacked incentive to either ration care, which would lose them paying patients, or provide unnecessary care.

This contrasts with current examples of such financing arrangements. Where physicians earn a preset salary — for example, in Kaiser Permanente plans or in the British National Health Service — patients frequently complain about rationed or delayed care. When physicians are paid on a fee-for-service basis, for every service or procedure they provide — as they are under the insurance company model — then care is oversupplied. In these systems, costs escalate quickly.

Unfortunately, the leaders of the American Medical Association saw early health care models — union welfare funds, prepaid physician groups — as a threat. A.M.A. members sat on state licensing boards, so they could revoke the licenses of physicians who joined these “alternative” plans. A.M.A. officials likewise saw to it that recalcitrant physicians had their hospital admitting privileges rescinded.

The A.M.A. was also busy working to prevent government intervention in the medical field. Persistent federal efforts to reform health care began during the 1930s. After World War II, President Harry Truman proposed a universal health care system, and archival evidence suggests that policy makers hoped to build the program around prepaid physician groups.

A.M.A. officials decided that the best way to keep the government out of their industry was to design a private sector model: the insurance company model.

In this system, insurance companies would pay physicians using fee-for-service compensation. Insurers would pay for services even though they lacked the ability to control their supply. Moreover, the A.M.A. forbade insurers from supervising physician work and from financing multispecialty practices, which they feared might develop into medical corporations.

With the insurance company model, the A.M.A. could fight off Truman’s plan for universal care and, over the next decade, oppose more moderate reforms offered during the Eisenhower years.

Through each legislative battle, physicians and their new allies, insurers, argued that federal health care funding was unnecessary because they were expanding insurance coverage. Indeed, because of the perceived threat of reform, insurers weathered rapidly rising medical costs and unfavorable financial conditions to expand coverage from about a quarter of the population in 1945 to about 80 percent in 1965.

But private interests failed to cover a sufficient number of the elderly. Consequently, Congress stepped in to create Medicare in 1965. The private health care sector had far more capacity to manage a large, complex program than did the government, so Medicare was designed around the insurance company model. Insurers, moreover, were tasked with helping administer the program, acting as intermediaries between the government and service providers.

With Medicare, the demand for health services increased and medical costs became a national crisis. To constrain rising prices, insurers gradually introduced cost containment procedures and incrementally claimed supervisory authority over doctors. Soon they were reviewing their medical work, standardizing treatment blueprints tied to reimbursements and shaping the practice of medicine.

It’s easy to see the challenge of real reform: To actually bring down costs, legislators must roll back regulations to allow market innovation outside the insurance company model.

In some places, doctors are already trying their hand at practices similar to prepaid physician groups, as in concierge medicine experiments like the Atlas MD plan, a physician cooperative in Wichita, Kan. These plans must be able to skirt state insurance regulations and other laws, such as those prohibiting physicians from owning their own diagnostic facilities.

Both Democrats and Republicans could learn from this lost history of health care innovation.

Christy Ford Chapin is an associate professor of history at the University of Maryland, Baltimore County, a visiting scholar at Johns Hopkins University and the author of “Ensuring America’s Health: The Public Creation of the Corporate Health Care System.”
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Brian Hudes Comment:

I saw this one, as well.  The author lost credibility for me.   Ironically, what the author clearly doesn’t realize is that she is making an argument for the Kaiser Permenante model.  However, she unfairly and without any data makes the following claim: 

“Where physicians earn a preset salary — for example, in Kaiser Permanente plans or in the British National Health Service — patients frequently complain about rationed or delayed care”

Here’s a more balanced and comprehensive assessment supported by third party research:

Health Care Members Speak

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