Healthcare Insurance History
run75441: I have been fortunate to run across incredibly intelligent people here and other places who continue to impress me with their command on particular topics. Esmensetoo has an excellent knowledge of healthcare and healthcare insurance and how it has evolved. I was not expecting quite this much. It does cover all of the bases and there is still more to be had. I hope you enjoy reading it as much as I did.
In the 1980s when managed care was just coming into being in a substantial way, I worked with every major insurer in my region — Blue Cross, Blue Shield, Group Health (a Kaiser-type care provider that is now, in fact, owned by Kaiser), as a marketing professional. I also worked with several major regional health care providers, including the Sisters of Providence, who were the founders of the first hospitals in our region in the mid-19th Century. In the 80s they were trying, under the new deregulated environment, to create a health insurance vehicle too — that would use their hospital network. Ultimately, they were never able to worked out the details of a plan that both met what they saw as their responsibilities to the community and thought would be financially viable.
By the end of the 80s the late-1970s and later deregulation that led to “managed care” also encouraged insurers, at that time that primarily meant Blue Cross and Blue Shield, that had been founded as non-profits and had operated as such for all of their history, to become for profit (earning those in the executive suites HUGE paydays. It) was also bringing a lot of questionable new for-profit insurers into the health insurance market — many were little more than scams; adopting all the questionable practices we are all later became too familiar with — for instance, finding all kinds of clever ways to deny coverage when premium payers became ill. Also, as “managed care” which was supposed to control the cost of premiums and care that had started inflating in the 70s drove non profit insurance out of the market premiums began to really soar while what and who was covered was becoming more restricted. Small businesses started dropping insurance for workers and large insurers started offering lesser benefits at higher cost.
By the early 90s people were demanding reform, again. (Which, in my opinion, played an important role in Clinton’s election — and then the Democrats failure to pass anything in his first 2 years, along with other things like the bank scandal, contributed to their loss of the congressional majority for the first time in 40 years).
In my state, Washington, demand for reform was a really big issue for almost everyone, certainly including me. In 1992 I went to work for a local Democratic political consulting firm that was running the campaign of a reform candidate for Insurance Commissioner. She ran on setting standards to keep the scammers out of the state, setting up a system of state support for low cost insurance for the employees of small businesses, and developing community clinics that would treat people on a sliding scale. The insurance companies of course pushed back and demanded things that compromised her vision. But she still got most of what she ran on done. We ended up with system that was far from perfect but that did, did keep the scammers out of the market and the community clinics were an important resource. But the state supported small business insurance had too much paperwork and was especially unworkable for people whose work hours varied from quarter to quarter — which is common for low wage workers. And, unfortunately, by the time Obamacare passed, with similar reforms in terms of what insurers were required to provide, we only had one insurer left in the state who was offering Individual Insurance. It was excellent insurance but very expensive.
Thanks to those reforms we were in a good position for an easy transition to the ACA. We had a little technical difficulty right out the gate (embarrassing for state that sees itself as a tech leader) but mostly the transition was painless. The nonsense the Republicans and Trump have been indulging in has created problems though.
This is already too long — so I have no time to back up these three points but here are 4 things that many misunderstand about the history of our health care system that makes it difficult to have intelligent conversation about reform:
1. Our health care system was not created by the “free market.” Americans traditionally saw health care as a community responsibility. Community taxes, in addition to charity, and at times some non-profit insurance-like schemes, were used to help support community hospitals from colonial days on, often these hospitals were associated with religious denominations or orders but not always.
2. The Federal government also was involved in health care AND insurance very early — creating a hospital system for seaman in the late 18th century and requiring those using the system to purchase insurance to help cover the cost of care. In the 19th century that Marine Hospital Service also began to support medical research. The NIH, which has been very important in both funding research and doing research, was created out of the Marine Hospital Service.
3. Health insurance was not created by the “free market’ either. IT IS NOT RISK INSURANCE — and the commercial insurance industry avoided it like the plague for most of our history because they understood that it wa sn’t risk insurance but rather a way of socializing costs — and that it was unlikely to be profitable (while actually insuring care). Health insurance was created by the hospital industry and it was non-profit until “reformers ” de-regulateded it in order to make it easier for insurers to profit by choosing who and what would be covered and what providers would be paid (something, obviously, the AMA objected to).
4. The connection between employment and insurance was not created by FDR. From the very beginning hospitals identified employment groups — people who, like the seaman, and like the loggers in my state that the Sisters of Providence provided with a crude-insurance plan — $1 a month would insure they would have care in the very likely case that they were injure d — while allowing the Sisters to provide care to the poor too. Illness and injury deprived people of their ability to work and earn. So it made sense to ask the employed, especially those in dangerous occupations — to pay something while they were well and earning, so there would be resources available to care for them when they were not.
by run75441 (Bill H)
We have a health care oligopoly that not only allows these firms to make obscene profits but also allows them to be inefficient at the same time. My usual tale is that their 20% gross margin is twice what it would be under competitive conditions. This 20% = a 14% operating expense/premium revenue ratio plus a 6% operating margin, which basically grants a 24% return to assets if required assets are 25% of premium revenue.
OK – the ideal? A 2% operating margin (an 8% return to assets is quite reasonable) and operating expenses closer to 8% of revenues.
So we could easily cut this gross margin in half. That would help a bit. Of course providers (doctors and big pharma are also ripping us off).
I hesitate to say much as I am hoping the author will add to this. Here goes; the current mentality for pricing new pharma is; “value-based” pricing which counts the extra years of life gained, the quality of life during the time period lived, and the healthcare savings gained, in addition to other benefits, to assess the value of the drug and its price. The margin is as high as 85%, with mfg, being as little as 1- 5%. The reasoning is as stated an d follows the logic of being the only game in town. If you are 200 miles from water and in the desert, what is a glass of water worth to you?
I have read a fair amount about Medicare for All and Medicare for America.
One observation is like declaring peace a lot of money will be freed up and the former insurance workers will be laid off. Making it a “hard transition”.
A difference between US health financing and many other countries is the fact that insurance companies in the US are profit generating establishments.
Prior to 1973 that was not the case in the US.
I believe you will find the author agreeing with you. I am hoping she will answer you directly.
I worked in the health care business for over 30 years, mostly with Fortune 200 and start-ups, and the biggest take away that most people have no clue is that hospitals have absolutely no idea what it costs them to deliver care. Imagine a plant manager not being able to tell you what it costs to build a product. Same goes for physicians. They have no idea how much it costs for them to deliver care in their office. What they all are aware of is how much they are reimbursed and figure out many ways in both settings to add on as many extras as they can.
Welcome to Angry Bear. First time commenters go to moderation to weed out the spammers and advertisers. With that being said, I wonder why they can not collect data. They sure know how to bill me. The first thing they do is slap a wrist band on my wrist and ask you to cite your name, rank, and serial number or your full name and date of birth. They pass their bar code reader across that arm band code and record what they are doing to you. Give you a pill – zap; draw some blood – zap; shoot you up with some Heparin – zap; get some food (already said this one)- zap; use a bubble-oxygenator – zap; etc. It is all very methodical in a hospital. They have the same little bar-codes in the doctors offices on what look like Avery Labels.
I suspect your last sentence is the reality as they are not responsible for the costs of supplying care and insurance/Medicare is still pretty loose in its controls of what is done to the patient.
I owe you a better answer than what I gave you. I suspect the hospitals are profitable in spite of themselves. This is what I wrote in an earlier article:
– A measurement of the competitiveness of a hospital within a certain area of the country is done utilizing the Herfindahl-Hirschman Index (HHI). It has been used to measure competition in and around cities. The results of the HHI revealed an increase in the concentration of hospitals from mergers and acquisitions, going from moderately concentrated in 1990 with an HHI numeric of 1570, to more concentrated in 2009 with a HHI of 2500, and with some cities purely monopolistic at 10,000.
– From 2007 to 2014, hospital-prices for inpatient care grew 42 percent compared to 18 percent for physician-prices for inpatient hospital care. For hospital-based outpatient care, hospital-prices rose 25 percent compared to 6 percent for physician-prices. Hospital prices accounted for over 60 percent of the total price of hospital-based care.
Much of this is due to the consolidation into ACOs as far as I can see, being the only game in an area, and also with name brand hospitals which can demand a higher price regardless of cost. It appears like they are too heavily concentrated and we have not seen the benefit of this consolidation.