Remember When Health Insurance Was a Great Idea?

For roughly the first half of the twentieth century and before, out-patient medicine in the United States was delivered mostly in the offices of private generalist physicians [general practitioners] - solo practitioners or members of small groups. They handled most clinical situations, including viral and bacterial infections, suturing of wounds, setting of simple fractures, and a few brave doctors in the countryside even aided in uncomplicated deliveries. Often chest X-rays, electrocardiograms, blood counts and urinalyses were also performed in the offices. Specialist consultations were unusual.

When the need for hospitalization arose, physicians alone, without the intervention of third parties would decide whether, when and in which hospital patients would be hospitalized. The private doctor took care of his patient in hospital, with the assistance of nurses and other staff. All payments were made by the patient directly to the physician and separately to the hospital. Insurance coverage of either in- or out-patient treatments was rare to non-existing. Well-to-do patients paid more to the doctor; the poor paid less or were not charged at all. Alternatively, the poor were sent to out-patient clinics and hospitals run by local charities or governments.

Physicians liked the system because contacts with patients were unhindered by any third parties. So did many patients, for the intimacy and personalized unhurried care received. However, potential problems existed, their extent unknowable: questions of efficiency and quality of care were under the purview of committees in hospitals or state government regulators manned in part by colleague physicians who rarely enforced harsh discipline. Egregious failures were taken to court. As medicine became increasingly specialized due to progress in the sciences and arts underlying clinical practice, solo practices were gradually replaced and physicians gathered into group practices, resulting in some bureaucratization and loss of fiscal autonomy for physicians, but it made coordination of care among specialties easier.

Perhaps as important, the old arrangement was clearly two-tiered, favoring the well-to-do over the less well off, relegating the lower tier patients into the positions of dependency, not a self-image Americans living as free men in a democracy relished. Thus, those in the lower tier and their advocates sought more fairness by seeking to make first tier care more widely affordable, as a matter of a right, rather than relying on any charitable impulses of the wealthy and the doctors. It has been a difficult battle over many decades, and from the point of view of the lower tier, still far from complete.

The first attempts to indemnify the lower tier included Blue Cross that in return for premiums initially paid hospitals on a fee-for- service basis. Coverage was eventually extended to out-patients (Blue Shield). The Health Insurance Plan of New York and Kaiser-Permanente provided more or less comprehensive (in- and out-patient) coverage in return for prepaid premiums. All of these were not-for-profit organizations using community ratings to assess risk and set premiums. Profitability was not a consideration.

For the first quarter century following the advent of early insurance schemes the for-profit commercial disdained the health care “business”, because covering everyone in a given population based on community rating of risk and the then prevalent premiums, did not promise sufficient profits to satisfy them. It was not until Medicare and Medicaid, and the government paid for many children and for renal dialysis, leaving the relatively healthier, well-to-do behind as potential “consumers” that commercial insurers saw their opportunity. They then entered the “market” in large numbers with the aim of collecting premiums from the groups least likely to become ill, using all sorts of refined risk rating schemes to exclude (or penalize) the most vulnerable. Of course, the public arguments used to expand the their share of the market were framed so as to depict the for-profit companies as benefactors of society, not as profit-driven businesses, as follows: a) the private capitalist market was the “American way”, b) government paid medicine is “un-American, socialistic” c) “do not permit the government to run the health system; the bureaucrats will botch it up”; d) the multiplicity of insurers will guarantee price competition and low prices, and e) the multiplicity of plans offered by each insurer will provide the insured the optimum choice to fit their needs.

Unfortunately, the experiences of the last forty plus years have demonstrated that the promises of lower insurance prices due to competition did not materialize. In the absence of effective enforcement of anti-trust laws, insurers gradually gobbled each other up creating a few mammoth (in today’s terms: too big to fail?) enterprises. This was entirely predictable, based on the experience of other industries (e.g. autos, airlines). In some markets the numbers of insurers were reduced to as few as one or two. In the absence of effective competition, prices rose. Who was there to stop it? Also, the commercial insurers refused to insure persons in high risk categories, and stopped providing coverage to persons who became too sick and hence too expensive, in their opinions. This too is predictable, when the primary motive is profit, not care of the ill.

In addition to the actions of the commercial insurers, the increasing sophistication of medical diagnostic and therapeutic modalities (also in the hands of for-profit companies) acted to increase the prices of the medical care over time. Add that to the insatiable hunger of the commercial insurers for profits and indeed, prices rose at more than twice the levels of inflation. Thus, health expenditures came to absorb increasing fractions of the gross domestic product. Since incomes of the poorer segments of the population rose at a slower rate than the costs of medical insurance, and the government was too paralyzed by partisan contention to make up the difference, increasing numbers of Americans were left without means to pay for health care.

The promise of choice of plans also fell by the wayside as many employers chose the only one insurer and the plan provided for their employees, giving the individual and his family no choice. Thus, it seems that the vast social experiment of the last forty years, permitting commercial insurers wide latitude over the health care “market” for the benefit of sick Americans did not work quite out as predicted. In fact, many millions of Americans were worse off as a result.

One would think that with so much money being spent on health care that there would be efficient internal communications and allocation of payments within the system. Not so. The insurers have excessively complicated the system of delivering medical care and paying for it in America. There is too much variation within and between insurers, e.g., what diagnostic procedures and therapies they cover and to what extent; which pre-existing conditions they exclude from coverage; at what point do they drop a patient who has become too expensive for them; the sizes of premiums and co-payments (what the patient pays out of pocket); and which physicians they find acceptable. Even the forms they use differ from one to the other.

The insurers have also devised a series of ingenious procedures to contest, and when they can get away with it, deny payments to health providers. Their hope seems to be that the providers faced with the manifold difficulties of collection will yield. But providers also have expenses and are entitled to be paid for their work. Thus, the insurers’ bureaucracy engendered a counter-bureaucracy on the side of the providers to assure that due payments are in fact received. Needless to say this adds to the cost of medical care, while neither bureaucracy directly benefits the patients. The back-and-forth tussling can result in payments being delayed by several months, a nice “float” for the insurers. In sum, the payment of undeserved excessive salaries to insurance executives and their extensive staffs, and the generation of profits to satisfy shareholders, have added a huge additional burden of cost to the delivery of health in this country.

It is interesting that when businessmen speak of the excessive cost of medical care, the costs of the interposition of a non-productive insurance industry are not mentioned. The problem seems to be that doctors order too many tests, give too many drugs, and make too much money; and that they can get away with this profligate behavior because there is insufficient competition among the providers in the system and patients are ignorant customers. What sort of shopping these stalwarts do? How much time and study do they devote to finding the least expensive cardiologist, ECG, cardiac catheterization, heart surgeon, or any of the large numbers of medical specialists and hundreds of tests or procedures they may need during their lifetimes? Do they feel themselves qualified to judge appropriateness of utilization and quality of care? The fact is we all rely on the experts we use to make the right judgments for us, and rely on word-of-mouth reputation, a reed whose strength is unknown, to help us choose them.

The fact of the matter is that the medical delivery system can certainly use improvement, which is being done by, among other things, the importation of systems-management procedures; and clinical trials of various sorts; but the insurance industry is of no help in either effecting these improvements or in the diagnosing or treating of patients. It merely adds another obnoxious burden, the aggravation and financial cost that all of us must bear.

This situation leaves most Americans cognizant of the shortcomings of the health system, including the fact that it costs us twice as much per capita for health care as it does the citizens of our fellow democracies, without any measurable differences in health outcomes. Further, there seems to be no limiting mechanism to the increasing velocity of rises in cost. Yet, some people wish to continue more of the same, expecting improved results. One wonders, for whose benefit?

Finally, we have learned a new phrase “health tourism” which denotes the travel of some of our fellow citizens outside of the US for the purchase of high quality less expensive health care. It reminds one of what happened to several other once mighty American industries. How the mighty have fallen!