Thursday, August 13, 2009

A History of Health Insurance

A history of health insurance

There are a few very important pieces to the rising cost of health care.

1920-30:
Increase in demand for medical care caused by shift from rural to urban living
AMA monopolizes control of the medical field by forming the Council on Medical Education - it sought to limit the supply of doctors at the time of rising demand for medical care. "The present situation... can be more effectively met by a reduced output of well trained men than by further inflation with an inferior product"

1930-40:
Precursors to Blue Cross Blue Shield formed initially to provide price transparency to customers by offering 21 days of hospital care for $6.
The AHA designed the Blue Cross guidelines so as to reduce price competition among hospitals.
Blue Cross lobbies for special status so it does not have to classify itself as an insurance company - Blue Cross plans also benefited from special state-level enabling legislation allowing them to act as non-profit corporations, to enjoy tax-exempt status, and to be free from the usual insurance regulations. Originally, the reason for this exemption was that Blue Cross plans were considered to be in society's best interest since they often provided benefits to low-income individuals (Eilers 1963, p. 82). Without the enabling legislation, Blue Cross plans would have had to organize under the laws for insurance companies
Physician service insurance created

1940-60:
Commercial insurance companies offer health insurance
Government jumps in, distorting the free market: 1942 Stabilization Act, Congress limited the wage increases that could be offered by firms, but permitted the adoption of employee insurance plans. In this way, health benefit packages offered one means of securing workers. In the 1940s, two major rulings also reinforced the foundation of the employer-provided health insurance system. First, in 1945 the War Labor Board ruled that employers could not modify or cancel group insurance plans during the contract period. Then, in 1949, the National Labor Relations Board ruled in a dispute between the Inland Steel Co. and the United Steelworkers Union that the term "wages" included pension and insurance benefits. Therefore, when negotiating for wages, the union was allowed to negotiate benefit packages on behalf of workers as well. This ruling, affirmed later by the U.S. Supreme Court, further reinforced the employment-based system.
IRS code altered to make employer health contributions tax deductible, making it more expensive for individuals to buy their own health insurance.

1960s:
Medicare & Medicaid - the worst financial debacle of corporate crony healthcare begins under the pretenses of helping the indigent and elderly

Now:
By 2001, Medicare and Medicaid together accounted for 32 percent of all health care expenditures in the U.S.


I'll try to find more information on the 60s to the present but this is a gem that explains why health care costs have risen. Now that government spending accounts for 32% of all health care costs from nearly 0% in 1960, it should be easy to see why costs have run up so much. Imagine what it will cost when it accounts for 90-100% of all health care costs. What a disaster!

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