The Accidental History of the Health Insurance Industry…

History of Health Insurance in America

  1. Pre-paid community health plans started to emerge in the late 1920s and early 1930s.  Very small in size, people paid hundreds of dollars for pre-paid services to a single doctor. Direct relationship with doctor.  You pay a group, that group pays the doctor, who cares for that specific group. In 1910, the Western Clinic in Tacoma, Washington provided a wide range of medical services to lumber mill owners and employees for a monthly premium of 50cents. In 1929, a managed care pioneer by the name of Dr. Michael Shadid began a cooperative health plan for rural farmers in Elk City, Oklahoma. The members who enrolled in his plan paid a predetermined fee and received medical care
  2. Not for profit entities starting offering health care to more than one doctor in more than one location. Initially non-profit insurance companies flourished, then for profits entered seeing that they could rate the risk of patients and make money.
  3. In the 1940s, for-profit insurance companies grew.
  4. During WW2, labor was in short supply, so the government instituted wage controls. Companies wanting to attract better workers with higher wages had to do so by offering health insurance benefits, which the government encouraged by offering tax breaks.
  5. Much later, non-profit HMOs started to balance the insurance companies, and when insurance executives saw how successful they were at controlling costs and providing care, they created for-profit HMOs. In 1996, more than 600 HMOs were in operation covering 25% of the population. Now 90% of the population is covered under some form of managed care. We live in a managed health care society.

Health care is about 4 things:

  • Money. Medical treatment costs money. Medical treatment also makes a lot of people a lot of money, especially doctors and health industry executives.
  • Quality. Wanting the best doctor, the best medical care. Everyone wants quality medical care – nobody wants sub-standard care, albeit some receive it. You don’t want anything to stand in the way of you getting that doctor. I want my doctor, and I want my doctor to have the ability to focus on me. Unfortunately when it comes to quality of care, very few doctors look outside of their box — beyond the “standard of care” prescribed by insurance companies, and so therefore very few doctors have a holistic view of their patients.
  • Sickness, not wellness. Very little money is spent on prevention. The system is skewed towards sick care. You don’t see a doctor to stay well, although doctor office visits are some of the least expensive things in medicine.
  • Access – having it. Health care is a system of haves and have nots. If you don’t have private insurance, you can’t gain access.

Major Problems and Issues

  • Managed care, what does that mean? What is managed by whom? We have a system now where sick care is managed by insurance company beauracrats not doctors in relation to patients as the practice of medicine demands.
  • Patients don’t assume enough financial and personal responsibility.  We want it all, and we want it now, and we don’t want to pay for it. We expect the best care for the same dollar someone else is paying for basic care.
  • The myth of the market. Where is the market in health care? There is no free market between the provider and consumer. Both buyer and seller are insulated from the market.  It’s a market driven by health insurance companies, and that’s not really a free market, and without a public option, there is no competition.   Because there is no free market in the classic sense, the consumers lack appropriate information to make informed decisions (but rest assured health insurance companies have all the info on doctors and patients they need to make their ‘informed’ decisions — like who deserves care or what rates to pay doctors). For example: We all need transportation, but maybe we don’t need a Mercedes – you can get by with a VW. In health care, you expect to pay the same for the Mercedes as you do a Hyundai.
  • We also don’t work hard to stay well, and to stay well informed. The health care system doesn’t reward wellness.
  • We pay doctors for the most part by head count – not what they do or how well. That makes money but sacrifices the quality people want.
  • People who are uninsured or underinsured have more chronic problems and worse outcomes.
  • The US spends 2 or 3 times more than any other country, per capita and per GDP, on health care. 16% of our GDP is spent on health care, compared to 8.3% in the UK and 9.3% in Canada.  Any system that spends more and gets less is by definition inefficient.
  • Health insurance companies make billions in profits and we don’t see changes in the system because the nature of their oligarchy makes it hard to hold them accountable. You don’t have free choice to leave your insurer – to fire your insurer, to vote with your wallet – especially if you have a pre-existing medical condition.
  • Private greed corrupts, morally, physically and financially. Any company that can afford to give an executive and 8-figure compensation package and spend hundreds of thousands of dollars, if not millions, on lobbying, that is administratively top-heavy is by definition making a choice in the care it provides by saying less money should be spent on care and more should be given for the personal financial benefit of a few. There are estimates that shareholder profit, CEO and top-level executive salaries and top-heavy administration comprises 25% of health care costs.  The 20 largest HMOs made $11 billion in profit in 2005, and the largest drug companies made $62 billion in profit. So are they primarily motivated by making money (financial play) or by keeping or getting people well?
  • Health insurance companies currently ration care, but they do so disingenuously by using back-door practices or fine print – the consumer doesn’t really know what he/she is buying. The system is inherently complex – it is done so by design for the benefit of the insurance companies and to protect their control over the system and the flow of profits.
  • States share in the cost of Medicaid with the federal government, and with the recession they have declining tax revenues and surging enrollment, costing them an additional $200 billion over the next 3 years, making any changes to the current system that shift more costs to states prohibitive.
  • Small businesses, self-employed, working poor are discriminated against with the current delivery system through businesses.
  • The cost of health care undergoes dramatic inflation each year because there are no market controls. Why is it that some insurance companies can raise rates 49% and others just 7%, as was done in the same geographic market last year?
  • The Amish have been able to provide care for their community without insurance through a belief that they all share in the responsibility. So when one is sick, they voluntarily share the burden. Charitable care, throughout history, has been the most efficient and effective way to provide care.
  • Most advances in research come from government funds or in university or non-profit settings, then they are privatized and commoditized by for-profit companies. The notion that reforming the system will hurt research and innovation is a myth.
  • An employee with gold-plated coverage at work will get excellent care. 50 million under-insured people will get C or D level care. 50 million uninsured will get no care at all.
  • People and providers find the current system so confusing and so complex that they often give up, which benefits those who control the status quo.
  • Doctors practice defensive medicine. The cost of lawsuits has gone so high that some physicians engage in medical practices they otherwise wouldn’t for fear of being sued.

Are you serious about dealing with the debt, deficit and entitlements? If you are, then you have to grapple with these issues, and more around Social Security.

— Jeff K


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