Sister Austin Doherty, VP of Academic Affairs at Alverno College, would pose this question to first semester students, “What causes problems?” The suggestions were always wide and varied, sometimes filling a large white board with possibilities. After considerable discussion on the topic Sister Austin would tell us that the answer could be summed up in one word…Solutions.
How true, how true…Nothing exemplifies this more than the healthcare rabbit hole we fall into when seeking medical care. This article, the third on healthcare, deals with insurance and other payors.
OK – WHO CREATED THIS MESS????
Insurance, as we know it today, is a patch work of solutions created to address specific issues as medical science evolved. A hundred years ago medical treatments were rudimentary, cheap and not very effective. Hospitals were charitable institutions where people mostly went to die. Medical care was provided in dispensaries by doctors or quacks for minimal fees. Without antibiotics and nonsteroidal medicines, or anesthetics and minimally invasive surgery, sickness and injury took a long time to heal. [1]https://stanmed.stanford.edu/2017spring/how-health-insurance-changed-from-protecting-patients-to-seeking-profit.html
Long absences were costly for companies that depended on manual labor. To address this problem, some companies hired doctors to tend their workers, such as lumber companies in Tacoma, Washington that paid two enterprising doctors 50 cents a month to care for employees the 1890s. This may have been one of the earliest predecessors of employer-based insurance. Eventually the concept spread to include mining camps as well as lumber companies in the Pacific Northwest and California. By 1939, the first official Blue Shield plan was founded in California [2]Wikipedia – https://en.wikipedia.org/wiki/Blue_Cross_Blue_Shield_Association#cite_note-5} [3]1}
The catalyst for insurance plans, as we know them today, began with the Texas Baptist Memorial Sanitarium in Dallas, Texas. Its only purpose was to help the sick, and was successful at the time. Called “a great humanitarian hospital”, it was created in a 14 room mansion in 1903, funded by a devout Baptist cattleman.
As medical treatments and knowledge improved, and more and more Texans came for treatment, it evolved into the Baylor University Medical Center. In 1929, Justin Ford Kimball, Vice President of Baylor University’s health care facilities became concerned about the hospital’s huge number of unpaid bills. In an effort to alleviate this financial burden, he offered the local teachers’ union a deal. For $6 a year, or 50 cents a month, teachers who subscribed were entitled to 21-days in the hospital, at no cost after the first week. At that time twenty-one days in a hospital at $5 a day would cost $525, which would have bankrupted many families. It may not seem like much, but given the treatments available at the time, in 21 days a person was most likely cured or dead.
Both program models spread across the country. Within a decade three million had signed up for this “catastrophic care insurance” and the concept became known as Blue Cross Plans. The goal was not to make money, but to protect patient savings and keep hospitals — and the charitable religious groups that funded them — afloat. They were designed to solve a common problem, to compensate for lost income while workers were ill. Blue Cross Plans were not-for-profit and, at that time, successful.
But time and progress marches on. The invention of effective ventilators, breathing machines that moved air in and out of the lungs, expanded surgery suites and intensive care units meant more people could be saved, including soldiers injured during wars and victims of polio outbreaks. Transformative technologies rapidly spread across the developed world. Abbott Laboratories made and patented the first intravenous anesthetic, thiopental, in the 1930s. Massachusetts General Hospital started the first anesthesia department in the United States in 1936. The first intensive care unit armed with ventilators opened during a polio epidemic in Copenhagen in the early 1940s. Five dollars a day and a 21-day maximum stay were no longer enough. [4]An American Sickness: How Healthcare Became Big Business and How You Can Take It Back by Elisabeth Rosenthal, published by Penguin Press, an imprint of Penguin Publishing Group, a division of Penguin … Continue reading
Not only were the expenses associated with a hospital stay increasing, so were the educational needs of physicians and other medical personnel. New specialties and services for treatments that saved peoples’ lives increased. Equipment and medications increased and became more sophisticated. All of this was expensive and 21-days at $5 a day was no longer enough to prevent financial ruin. “The idea of insurance with a capital I began to catch on.” [5]An American Sickness: How Healthcare Became Big Business and How You Can Take It Back by Elisabeth Rosenthal, published by Penguin Press, an imprint of Penguin Publishing Group, a division of Penguin … Continue reading
So, we have a chicken and egg question. Was the idea of health insurance what opened up the door for technological advances that alleviated pain and suffering and saved lives or did costly advances in medical science open the door to for-profit insurance, and the tangle of healthcare we have today? Would we as a nation have invested in improving medical care if only the wealthy could pay for it? Before WWII most treatments were relatively simple and cheap, and few Americans had health insurance. Could a private industry selling directly to customers who could afford care have fueled the vast advances in medical research that we know today? It’s hard to say. However, in their books, How The Other Half Lives, by Joseph Riis, [6]https://en.wikipedia.org/wiki/Jacob_Riis and Society as I Have Found It, by Ward McAllister ,[7]https://en.wikipedia.org/wiki/Ward_McAllisterthat chronicled life in the mid 1800s and early 1900s, we find a glimpse of what might have been.
We will never know the “what if” because with the start of WWII everything changed. As more and more men were drafted and many women enlisted, companies faced severe labor shortages. To stabilize the economy the National War Labor Board froze salaries and companies used health insurance to attract workers. The federal government encouraged this trend and ruled that employee health benefits could not be taxed. This was a win-win in the short term, but…in the term it created some losing implications. [8]The National Bureau of Economic Research, Employer-Sponsored Health Insurance and Health Reform, by researchers Thomas Buchmueler and Alan Monheit. https://www.nber.org/aginghealth/2009no2/w14839.html
Enter World War II
Before WWII most treatments were relatively simple and cheap, and few Americans had health insurance. As more and more men were drafted and many women enlisted, companies faced severe labor shortages. To stabilize the economy the National War Labor Board (NWLB) froze salaries. To attract workers companies began to offer health insurance. The federal government encouraged this trend and ruled that employee health benefits could not be taxed. This was a win-win in the short term, but…in the long term it created some unforeseen complications. [9]https://www.nber.org/aginghealth/2009no2/w14839.html
Job-based health insurance grew quickly and has become the largest single source of health care coverage in the U.S. With the NWLB wage freeze health insurance became a significant part of an employee’s compensation that is negotiated on the same level as wages. By the time the wage freeze ended health insurance had become an established part of an employee’s compensation package. Employees agreed to smaller wage increases in order to get insurance. Insurance premiums have increased yearly as medical care became more sophisticated and healthcare’s original mission shifted from helping the sick to earning a profit. Yearly premium increases have put stress on small and medium sized employers, and they have incrementally reduced coverage and shifted more medical costs to their employees. Reduced coverage for employees has taken a number of forms, including higher deductibles and copays, as well as eliminating coverage for high use needs such as diabetic supplies and maternity care.
However, while insurance coverage has decreased, wages have not increased proportionately. According to a Commonwealth Fund report, in 2016 nearly a quarter of working-age adults with job-based coverage found themselves underinsured. [10]Commonwealth Fund report: Underinsured: spending more than 10 percent of income, excluding premiums, on health care; spending more than 5 percent for low income; or if having a deductible that … Continue reading Increased out-of-pocket expenses are one of the biggest reasons for the rising number of underinsured as employees must absorb increased out-of-pocket expense. [11]The Decline of Employer-Sponsored Health Insurance; 12-5-2017; by David Blumenthal, M.D. https://www.commonwealthfund.org/blog/2017/decline-employer-sponsored-health-insurance
How an industry shifted from protecting patients to becoming big, for-profit business
In the beginning, Blue Cross/Blue Shield (The Blues) were primarily the only major insurers. Policies were termed major medical and meant to cover only extensive care, following their original mission, to prevent financial disaster due to illness or injury. It was not intended to make health care cheap or control costs. Between 1940 and 1955 health insurance coverage bloomed to 60%. The Blues were still non-profit and accepted everyone who sought coverage, charging the same rates regardless of age or health history. While most people were seeing a future where children would not suffer, and frequently die, from “normal” childhood diseases, where polio could be prevented, where diabetes was no longer a slow, difficult death sentence, and other diseases and injuries could be alleviated or cured, others saw dollar.
By 1951 Aetna and Cigna began offering for-profit medical insurance and others soon followed. For-profit insurance companies were just that…businesses created solely to make a profit. They accepted only younger and healthier people who posed less risk of having to use their insurance. Seniors were considered uninsurable. Average life expectancy then was 65 for men and 71 for women vs. 76.1 for males and 81.1 for females on average in 2019. When the population is divided into minority categories, their average is lower. [12]https://www.cdc.gov/nchs/data/nvsr/nvsr68/nvsr68_07-508.pdf)
Insurance companies provided different levels of protection and charged different rates for different people, based on age and prior health history. Pre-existing conditions were not covered, even for employees and their family members who were covered under a group health plan. With aggressive marketing, and close ties to business, for-profit plans slowly gained market share through the 1970s and 1980s. Left with only the sickest patients, The Blues in all 50 states were hemorrhaging money. By 1994 they became for-profit. This was the final nail in the coffin of old-fashioned humanitarian health insurance.
ENTER STAGE RIGHT – Milton Freidman and his Doctrine
Another nail in the coffin. The 1970s saw a shift in the American business paradigm. In 1970 The New York Times published an article by Milton Friedman. Known as The Friedman Doctrine, or Shareholder Theory, it stated “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud… As such, the goal of a firm is to maximize returns to shareholders…. A company should focus totally on making money and forgetting concerns for employees, customers or society.” At this time global competition began to have a negative effect on private sector businesses. Shareholders were quick to embrace Freidman’s theory and, by including company stock in a CEO’s compensation package, support for short-term increased profits was assured. [13]Wikipedia – https://en.wikipedia.org/wiki/Blue_Cross_Blue_Shield_Association#cite_note-5} [14]1}
The theory making CEOs accountable only to stockholders, and linking stock profits to a CEOs’ pay, was eagerly embraced by those who held the power to make business decisions. However, economist Joseph Stiglitz argues, it became “an incentive to manipulate stock prices by using company money to buy back shares in order to drive prices higher.” Hence the focus shifted to the narrow objective of short-term gains, at the sacrifice of investments in employee development, innovation and long-term growth. “That’s how you got from the average ratio of CEO-to-median-level-employee pay from 20-to-1 in 1965 to 295-to-1 today.” [15]Business Insider Richard Feloni Mar. 13, 2018, 11:13 AM https://www.businessinsider.com/joseph-stiglitz-milton-friedman-capitalism-theories-2018-3
How are health insurance companies really doing?
A report from the National Association of Insurance Commissioners said the health insurance industry generated net earnings of $23.4 billion in 2018. [16]https://www.msn.com/en-us/news/factcheck/fact-check-cnns-democratic-debate-night-2/ar-AAF8TYu?ocid=spartandhp
Health Care Stocks: Buy Them While They’re Down (Kipling.com/article/investing; April 30, 2019) Although there are reports anxious investors are dumping health care stock, and some are whining about low profits by pointing to small growth percentages, let’s not shed a tear for them. In his April 30, 2019 article, Kiplinger contributing columnist, Steven Goldberg reports, “…2018 marked the fifth time in six years that health care stocks topped the S&P. Health care has long been my favorite sector because it tends to do well in both bull and bear markets. Why? Because demand for better medical treatments is extremely unlikely to stop growing, and health care is one of the last things people stop spending on when times are tight.
10 of the Best Health Care Stocks to Buy for 2019 (US News.com/investing, Aug. 1, 2019) “Anyone who invests in the stock market should be curious about the best health care stocks to buy Along with college tuition, health care is one of the few economic segments where spending has risen faster than inflation. Both of those trends are fundamentally unsustainable, but until Washington does something about it – and as long as Americans’ own health care bills keep rising – individual investors might as well profit from the sector themselves. In a sector with enormous variety, here are the 10 best health care stocks to buy in 2019.”
So – Where Are We At With The Affordable Care Act (ACA-aka Obamacare)
In 2013, the year before the ACA went into effect, the number of uninsured non-elderly Americans was over million. By 2016 it was just below 27 million and remains roughly the same today. [17]Kaiser Family Foundation; jQuery('#footnote_plugin_tooltip_243_1_17').tooltip({ tip: '#footnote_plugin_tooltip_text_243_1_17', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top center', relative: true, offset: [-7, 0], });The">https://www.kff.org/uninsured/fact-sheet/key-facts-about-the-uninsured-population/)) The ACA’s mission was to help Americans defend against the expense of medical care and support the idea that decent healthcare for everyone should be our guiding principle. It created some important incentives and rules to influence for-profit systems toward better serving patients. It eliminated higher fees or denial of coverage for preexisting conditions and age. It banned lifetime limits on insurance payouts, which was deadly for chronically ill patients. It capped annual out-of-pocket for in network services. Coverage for essential health services, including maternity and birth control, and free screening for certain conditions were mandated.
Efforts to control runaway spending ran into roadblocks. Powerful groups like PhRMA, the AMA, the American Hospital Association, and America’s Health Insurance Plans were concerned about reduced profits.[18]https://stanmed.stanford.edu/2017spring/how-health-insurance-changed-from-protecting-patients-to-seeking-profit.html
In the current political environment we must conclude health insurance companies are great for shareholders, but for the rest of us not so much. The industry has managed to dance around the ACA’s well-intentioned efforts in order to minimize any financial impact and maximize profits…and, of course, feed into Republicans’ efforts for the ACA’s repeal. [19]https://stanmed.stanford.edu/2017spring/how-health-insurance-changed-from-protecting-patients-to-seeking-profit.html
The question: do we really want to be a nation that puts profit before people?
Brendan Williams, a lawyer who was a representative in Washington State, and deputy state insurance commissioner in 2010 stated, “So much has happened that is anathema to the spirit of the ACA…. In healthcare, entrepreneurship outsmarts regulation every time.” [20]https://stanmed.stanford.edu/2017spring/how-health-insurance-changed-from-protecting-patients-to-seeking-profit.html
References