HISTORY OF AMERICAN HEALTH INSURANCE

Jonathon Erlen

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.

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 England’s 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.

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?

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 doctor’s 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.

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.

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.

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 America’s doctors were making a comfortable living.

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.

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.

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.

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.

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 America’s largest medical schools.

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.

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.

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.

Several key factors can be credited with this demise of the health insurance movement in the 1920’s. The major element had to be the war, with it’s 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.

The Depression drastically curtailed the 1920’s economic successes, both of individual physicians and of America’s hospitals. During 1929‑30, the average general practitioner’s 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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 government’s 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.

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.

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.