By Taruna J. Madhav, MD; Manish Sethi, MD; Samir Mehta, MD; Ryan M. Nunley, MD
The search for affordable health care in America
To understand healthcare reform in the context of the U.S. system of deliverying health care, an understanding of the past is helpful. Until recently—and in some areas of the world, even today—health care includes facets of herbology, astronomy, divinity, animism, and many other influencing factors. In many industrialized nations, including the United States, healthcare delivery has moved from the home to the hospital and has grown in response to the healthcare needs of an expanding middle class. Modern evidence-based medicine, with increasing utilization of technology and techniques, has improved the quality of medical care—at a cost.
Organized medicine developed during the nineteenth century. The American Medical Association was founded in 1847 at Philadelphia’s Academy of the Natural Sciences. The American Orthopaedic Association—the oldest orthopaedic association in the world—was established in 1887.
1900–1920: “Sickness insurance”
Health insurance—as it has evolved in the United States—began in the early 1900s. During this time, health care itself was not very costly; the chief cost associated with illness was actually the loss of wages. Thus, “sickness insurance,” similar to our current concept of disability insurance, was meant to cover loss of wages. As a result, the need for health insurance was very much a discussion within the labor force. Universal health coverage was supported by the American Association of Labor Legislation in 1906, but opposed by the American Federation of Labor, which thought providing such coverage would deter workers from joining unions.
Improvements in medicine, through collaborative knowledge boosted by technology, research, and increasing numbers of publications, resulted in more reliable treatments for the sick but also led to increased medical costs. Health care was moving away from the homes and into hospital settings. In 1912, during his unsuccessful re-election campaign, President Theodore Roosevelt was the first to propose a universal healthcare plan. His Bull Moose Party Platform called not only for “a system of social insurance adapted to American use” but also for child labor laws, women’s suffrage, and a minimum wage.
1920–1940: Economic downturn; Blues rising
With the advent of the Great Depression in 1929, the U.S. economy went into a tailspin. As it is today, illness was one of the largest and fastest growing causes of poverty during this time. President Franklin D. Roosevelt, through the Committee for Economic Security, drafted a reform program to deal with both the healthcare and economic crises. In the end, however, fearing that the inclusion of healthcare benefits would sink the Social Security Act, the president decided to remove “health insurance” from the bill.
This era also saw the birth of one of the largest health insurance programs—the “Blues.” In Dallas, the administrators of Baylor Hospital created a system to help close the affordability gap and attract patients by offering high school teachers 21 days of hospital care for $6 per year. Similar prepaid hospital plans developed throughout the nation and were endorsed by the American Hospital Association. Combined under the name Blue Cross (BC), these plans had tax-exempt status under state laws that allowed them to operate as nonprofit organizations.
Around the same time, Blue Shield (BS) was developed by medical service bureaus composed of physician groups in the Pacific Northwest to provide medical care to lumber and mine workers for a monthly fee. Everyone was charged the same premium, regardless of age, sex, or pre-existing conditions.
These plans were so popular that when Sen. Robert Wagner (D-N.Y.), Sen. James Murray (D-Mont.), and Rep. John Dingell Sr. (D-Mich.) proposed a national health insurance plan in 1943, the legislation failed, in part due to backlash against government expansion into an area now well-covered by the nonprofit sector.
1940–1950: Workplace and commercial coverage
The start of World War II in 1939 kicked off a wave of inflation in the United States. The government responded with attempts to control wages and prices. Businesses, under the 1942 Stabilization Act, were able to circumvent wage controls by offering employee benefits, including health insurance. The government’s decision to provide tax incentives to businesses for providing health insurance resulted in employers being the primary purchasers of health insurance.
The success of BC/BS plans encouraged private commercial insurance companies to enter the health insurance market for profit. By providing insurance to young and employed individuals, these private commercial insurers would essentially be able to avoid adverse selection. Private insurance companies also began to calculate relative risk, another way of avoiding costly adverse selection. To keep pace, BC/BS began to operate in a similar manner, losing its tax-advantaged status in the process.
From 1940 to 1950, enrollment in health insurance plans increased seven-fold—from 20 million to nearly 142 million. Commercial insurance companies, which were not tied to community-rating policies, became more competitive and surpassed BC/BS in popularity by the early 1950s.
During the 1940s, healthcare reformers, with President Harry Truman at the helm, were proposing comprehensive, nationalized health insurance programs as part of the Social Security program. As the postwar economy slowed and public opinion of PresidentTruman declined, his ideas for a national health initiative that extended the New Deal, during a time when communism was growing in China and Russia, were considered socialistic. Labor unions were split on government-sponsored insurance, and Southerners feared that federal involvement in health care might also lead to action against segregated hospitals.
1960–1970: New social measures
John F. Kennedy was elected president in 1960 and the Democrats won a House majority in 1964. A growing economy, educated work force, and increased union membership were hallmarks of the era, enabling Democrats to increase government spending and lower taxes. The passage of the Social Security Act of 1965 created the Medicare and Medicaid programs, which were supported by hospitals and labor unions that recognized the expense of insuring the growing numbers of elderly.
During the 1970s, inflation and health care costs were major concerns. Sen. Edward Kennedy (D-Mass.) proposed the Health Security Act, a single-payer plan financed through payroll taxes. President Richard M. Nixon countered with the Comprehensive Health Insurance Plan (CHIP), which called for universal coverage but had a separate program that would replace Medicaid to cover the poor and unemployed. Compromise legislation received bipartisan support, but as the Watergate hearings began, the focus shifted away from healthcare reform.
1980–1990: Cost containment and managed competition
Although President Jimmy Carter ran for office on a proposal for national health insurance, his administration focused primarily on containing hospital costs. Under President Ronald Reagan, the Medicare Prospective Payment System dramatically changed the way government paid for health care by shifting from a charge-based system to a set payment per diagnosis.
According to public opinion polls in the 1990s, American concerns about healthcare costs and an inability to pay health bills increased, and managed competition among healthcare plans became popular. President Clinton’s Health Security Act, which was a result of the task force headed by Hillary Rodham Clinton, included input from 34 groups and more than 600 experts. But this sweeping piece of legislation, more than 1,400 pages long, was too complex for many to understand. Without a majority vote that would give him a mandate, President Clinton could not carry the legislation through Congress. Instead, incremental changes, such as the Child Health Insurance Program of 1997, passed.
Today: The debate continues
As healthcare costs, including Medicare, reached unsustainable levels, and the demographics of the work force changed, new approaches were tried. Under President Bush’s administration, health savings accounts were emphasized, echoing the overall trend toward a market-driven healthcare system. The Medicare drug benefit plan and an increase in community healthcare clinics did address some problems among the elderly and the underserved, respectively.
President Barack Obama re-opened the debates on healthcare reform. The expanding middle class and the increasing costs related to the improvements in modern medicine will continue to drive up the cost of providing quality healthcare coverage.
The path of healthcare delivery in the United States has taken many turns over the years, and its destination is still unclear. Collaborative efforts among hospitals, physicians, and politicians will be critical to help map out future reforms. Clearly, healthcare delivery in America is a toddler that is still trying to figure out how to walk without falling too often.
Editor’s note: This article is part of a series on health care in America prepared by the AAOS Washington Health Policy Fellows. The series takes a close look at various aspects of healthcare delivery, particularly as it is affected by the healthcare reform legislation signed by President Obama last year.
Taruna J. Madhav, MD; Manish Sethi, MD; Samir Mehta, MD; and Ryan M. Nunley, MD, are members of the Washington Health Policy Fellows.
April 2011 Issue
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