In the first installment of a two-part series, Dr. Henry Rosevear examines how America established its current health insurance system, both private and public.
Dr. Rosevear is in private practice at Pikes Peak Urology, Colorado Springs, CO.
Urology residency is known for its long hours, quirky faculty, and challenging cases. They all fight for your attention.
One concern I never had, even though I was a resident during one of the most severe economic downturns in our recent history, was my salary. I didn’t understand nor care how the department paid the bills. When I left residency and started private practice, I quickly learned that while striving to do the right thing when it comes to my patients is important, understanding how the business of medicine works is equally vital to the survival of a successful practice.
But where do you start? How do you tackle a topic as broad and diverse as health care economics? My liberal arts background came to my aid when I remembered this line from Shakespeare’s “The Tempest” (Act 2 Scene 1: Antonio trying to convince Sebastian to murder his father; my emphasis added):
“We all were sea-swallow’d, though some cast again,
And by that destiny to perform an actâ¨
Whereof what's past is prologue, what to come,
In yours and my discharge.”
With that passage in mind, I started researching the history of health care in America. My goal was to understand the economics of modern health care, how we ended up with the delivery system that we have today, and-most important-how the recent health care law will change everything. I quickly learned that understanding health care economics means understanding the health insurance industry.
I will address this topic in two blogs. In this one, I’ll examine how America established its current health insurance system, both private and public. The second blog will summarize what the Affordable Care Act (aka Obamacare) does and how it may change the system. Neither one is meant to be an exhaustive history (for that, I recommend “The Social Transformation of American Medicine,” by Paul Starr [Basic Books 1982]) or a political commentary (which I will leave to Bill O’Reilly on the right and Rachel Maddow on the left, although my own opinion is that Jon Stewart probably speaks the truth more often).
Continue to next page for more.
The first health care-related insurance product in America was offered by the Franklin Health Assurance Company of Massachusetts in 1850 that sold accident health insurance related to steamboat and railroad travel. This would probably be considered travel insurance today, but the industry needed to start somewhere. Germany gets credit for the first national health insurance system for introducing a compulsory health care insurance program around 1883. Interestingly in those days, it was termed “sickness” insurance. The etymology of the phrase "health insurance" itself came from the British National Insurance Act of 1911. No similar program existed in America until the Progressive Era in the first two decades of the 20th century when the Labor Movement starting working on legislation.
In 1906, the American Association of Labor Legislation began drafting what would be the first attempt to create a national health insurance system in America. In 1915, this group introduced a bill that would have provided health insurance to all working people making less than $1,200 per year and paid for through contributions from the worker, the state, and the federal government. While the American Medical Association initially approved of the legislation, the American Federation of Labor opposed it, saying it would weaken unions, which up until that point were the major providers of what we now consider “social safety nets.” By 1917 with America's entry into World War I, the idea fell out of favor as it was directly compared to the German concept of socialized medicine.
Nothing significant happened for over a decade until in 1929 an administrator at Baylor University Hospital in Dallas noted that public school teachers were often delinquent with their hospitals bills. He implemented a system where for $6 a year (paid at 50 cents a month), Baylor would provide up to 21 days of free hospital coverage per year. This revolutionary concept of a small monthly fee paid by a employer for a worker soon spread across the country and was popularized by the Great Depression. Workers liked the idea of paying a small amount every month rather than being hit with a sudden large hospital bill (especially since some hospitals in those days were cash up front businesses).
Numerous other hospitals followed suit and the American Hospital Association eventually standardized the system with the creation of a company we all know today-Blue Cross.
Interestingly, Franklin D. Roosevelt considered including a national health insurance system when he was drafting the Social Security legislation in 1935 but decided against it, as he was afraid that opposition from the AMA and others would derail the entire law. As a result, employer-funded health insurance continued to gain acceptance.
While employer-funded insurance was popular in many parts of the country, it took World War II to solidify its role in American society. During World War II, in an effort to limit inflation, the federal government limited wages that employers could offer. It did allow companies to compete for workers by offering various “fringe benefits,” including health insurance. In 1943 (then modified in 1954), the IRS declared that employer contributions to health insurance were tax-free. This decision created a huge economic advantage for employer-funded health insurance and finalized the role of the health insurance industry in American life.
As a historical aside, Blue Shield has its origins in the Pacific Northwest's mining and lumber industry as an insurance plan to cover physician costs (remember, Blue Cross was originally for hospital fees only). Another health insurance company that was started during the Great Depression and cemented during WWII is Kaiser Permanente. It serves as a good example of company employing the same model outside of the Blue Cross/Blue Shield umbrella.
While employer-funded health care was working well for many people, large groups of Americans were left uncovered, including the unemployed, the poor and the elderly. Starting in 1943, Sen. Robert Wagner introduced what eventually become known as the Wagner-Murray-Dingell bill, which was designed to fix this problem. Wagner envisioned a compulsory national health insurance system funded with a payroll tax. Versions of that same bill were introduced for the following 14 years with no legislative action.
In the early 1960s, serious legislative consideration was given to using public money to directly subsidize private health insurance plans, an idea that Rep. Paul Ryan (R-WI) recently re-popularized. It wasn’t until 1965, when the scope of the bill was turned away from universal coverage and instead aimed at the poor and the elderly, did the Medicaid and Medicare programs that we now know finally pass. Medicare was later expanded to include coverage for patients with end-stage renal disease, amyotrophic lateral sclerosis, and the totally and permanently disabled.
The debate about national health insurance slowed during the 1970s and ‘80s, with most of the changes at the state level aimed at increasing coverage for children and expanding Medicaid eligibility. One important law that was passed in the 1986 was COBRA, which allowed employees to temporarily keep their employer-funded health insurance after leaving a job. A renewed effort for universal coverage was made in 1994 under Hilary Clinton that did not find much favor in Congress. In 1996, the Health Insurance Portability and Accountability Act (HIPAA) was passed. In addition to codifying the protection of personal health care information, it also helped people keep insurance between jobs.
In summary, health insurance in this country started off through the creativity of businessmen trying to keep their hospitals financially afloat, was popularized during WWII as a way to attract employees, and was made economical through tax law changes. The federal government slowly filled in the gaps in coverage this system created.
The stage was now set for the next push toward a universal health insurance system that culminated in the passing of the Patient Protection and Affordable Care Act in 2010. While the jury is still out on the long-term implications of this far-reaching new law, its breadth and scope ensure it will directly affect every urologist in our generation. In my next blog, I will summarize the goals of this new law and explain how it is already affecting my daily practice.
As always, I hope that sharing the lessons I learn as a young urologist will shorten your learning curve and allow you to practice better urology. I welcome your comments at UT@advanstar.com.
Like this article? Check out these other recent blog posts from Dr. Rosevear:
When OR case goes wrong: More than technical skill needed
Finding the right job: Balance three competing factors
Starting out in practice: Don't overextend yourself!
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