State Licensing of Physicians
Before 1965, there was little federal involvement in the American healthcare system. State licensing laws controlled when a physician or healthcare professional could practice by requiring graduation from an accredited school followed by successful completion of the state licensing exam. Once licensed, practitioners could charge a fee to individuals seeking healthcare services. Practicing medicine without a license was a crime in every state; however, the practice of state-by-state licensure of qualified medical practitioners was not without its faults. As a policy matter, it provided 50 different ways to license practitioners to receive payment for services; so, a practitioner in Hawaii might not receive the same payment as a practitioner in Virginia for performing the same procedure. Each state gave medical licenses the highest recognition because medical physicians were the most educated people in the field of healthcare. When health insurance came into play, this high regard for a medical license resulted in the belief that medical physicians were the most qualified decision makers for determining the costs associated with healthcare services. When someone other than a medical physician was tasked with providing services, their payment would be determined by a prescription from the medical physician ordering the services.
In the early 1900s, in addition to licensing laws, every state passed statutes and set up processes to regulate companies that sold insurance to citizens of the state. States required an insurance company to put up a sizable surety bond so that people who bought any type of insurance would have a guarantee that the company would be solvent when called upon to pay a claim. When these first insurance laws were passed, states were not looking to regulate health insurance, as there was none, but the bond requirement would impact future health insurance programs.
The Dawn of Health Insurance
The first political act that had an impact on healthcare and health insurance was the National Labor Relations Act (NLRA), passed by Congress in 1935. The NLRA allowed the industrial work force to band together in collective bargaining units to negotiate with management over issues subject to mandatory bargaining, including determining the wages, hours, and conditions of employment and the right to strike if an agreement was not reached. The collective bargaining unit led to the formation of unions and provided professional expertise to assist the unit in formulating appropriate arguments to be made on the issues subject to mandatory bargaining. These negotiations on the issue of the conditions of employment led to the development of worker benefits, which provided leverage to the employees. Unions viewed these benefits as a win-win: because of tax advantages to employers, benefit packages would be attractive to the employer and employee. Instead of a worker getting a raise of three cents an hour, he would get a raise of a penny an hour plus two cents put into a fund for life insurance.
As a result of the NLRA, almost every industry was subject to the right of employees to organize, bargain collectively, and form labor unions. This led to industries providing subsidies for indemnification for life insurance and later workerâs compensation insurance and unemployment insurance. The question for the union advisors became: are there other types of insurance that might be appropriate for us to negotiate in the contract? Several union representatives were aware of a health insurance plan adopted in Harris County, Texas by the Board of Supervisors to reimburse physicians and hospitals for charges for services to the teachers in the Harris county school system in conjunction with the Baylor Healthcare System. Several union representatives reviewed the plan and suggested this type of insurance could be a subject for contract negotiations and become another condition of employment.
This idea put the politics of healthcare front and center across the United States. Since insurance is regulated by the states, approval to sell the product known as health insurance would have to be subject to state approval, either regulatory or legislative, for unions to be able to propose considering it in contract negotiations. When unions went to state authorities with a proposal to have the state approve a health insurance plan, physicians and hospitals became very concerned about the state allowing insurance companies to sell health insurance for fear that control of the healthcare system would shift to the insurance providers, who were primarily publicly traded for-profit insurance companies. Any for-profit corporation in the United States that is involved in interstate commerce has shareholders who look to that company to get dividends via shares of stock. Medical practitioners feared that, if a for-profit company was managing a healthcare program and not making money, there would be reductions to the fees for physicians and hospitals. Concerned that for-profit insurance companies would then be in control of all healthcare payments, physicians and hospitals felt they should oppose union efforts to change insurance laws to allow health insurance products to be sold.
Ultimately, unions and healthcare associations came to a political compromise by suggesting to the states that they allow nonprofit corporations to manage health insurance plans, as was the case in Harris County, Texas, and that the governing boards of the Blue Cross1 and Blue Shield2 plans be made up of hospital and physician representatives. This is the first of many political compromises made in the development of healthcare policy. The states permitted the Blue Cross and Blue Shield plans to be authorized to form and sell insurance as a product that could be bargained for as another condition of employment in the contract. The Blue Shield plan would be a not-for-profit indemnifier to pay for the costs of healthcare for physician services and Blue Cross would be the indemnifier to pay for the costs of hospital services.
The key in the compromise was that the insurance company would be a not-for-profit entity, governed by practitioners, removing concerns within the healthcare community of reductions in payment based upon shareholder return on investment. The Blue Cross and Blue Shield state-approved plans then became the program agreed to in the union contract and union employees would now have their healthcare costs paid for as a condition of employment. The impact of this arrangement proved to insulate the employee from true costs of healthcare and offer the healthcare provider with almost a progressive guaranteed payment. The political decision for nonprofit sponsored insurance to become a condition of employment was the first rocket fired in what would become the propellant for dramatic increases in cost and spending for future healthcare services.
A Condition of Employment
A political shift came in 1950. After World War II, the country began to reevaluate its resources and get back to the marketplace that built capitalism. With the election there was President Eisenhower and his platform of âNew Republicanism,â a philosophy of shifting back toward minimal government interference in the marketplace. The predominant philosophy of government in the United States up to President Eisenhower was that government ought to have an active role in many functions to improve Americansâ quality of life.
Dwight Eisenhower was a war hero and voters viewed him and his message in a positive way. He won the election by a wide margin and carried with him the election of many members of Congress to give his party control of the House of Representatives and Senate. His election also helped carry Republican governors and Republican state legislators whose decisions would have an impact on the policy directions for health insurance.
Supported by Eisenhowerâs philosophy of new republicanism and open markets, the health insurance market would be broadened far beyond Blue Cross and Blue Shield Plans by a combination of state insurance laws and federal tax laws. The for-profit insurance companies were given openings by state legislative and regulatory action to sell health insurance and provide competition to Blue Cross and Blue Shield. This was aided by major companies adding health insurance as a condition of employment as a result of tax law changes. For example, in 1950, Liberty Mutual Insurance offered major medical plans for extended illness in direct competition to Blue Crossâ and Blue Shieldâs coverage. Employers who were not unionized and sought to avoid a union shop partnered with for-profit carriers to offer employer-provided health insurance. On the national level, Congress under the Eisenhower administration expanded the 1943 tax ruling setting aside employer health payments to allow employee health plans to be tax free and tax deductible for the employer.
States where the legislature supposed the marketplace as the controlling force in the industry began to change their insurance laws and allow for-profits to compete alongside nonprofits. The for-profits decided that the system that Blue Cross and Blue Shield adopted was working, so they followed the same model. As a result, by 1951â1952, almost every major corporation and every company that had a labor union, now, had a third-party indemnification process. Health insurance was part of oneâs job. It was part of the American way of life, part of what employment was about. According to Michael A. Morriseyâs book Health Insurance, by 1952, most workers were covered by third-party insurance as a condition of employment and, by 1954, over 60% of the population had some type of health insurance either as part of a union contract or employer-provided health insurance.
The Retired, Elderly, and Poor
In the late 1950s and early 1960s, the nation began to face a new national policy question regarding health insurance. National statistics found that 22 million Americans were about to leave the workforce and enter retirement. The question became what happens to employer-provided health insurance when an employee stops working? Suddenly, there were millions of people asking union stewards and human resources directors about health insurance coverage after retirement. The answer: there will be no coverage. From an insurance perspective the elderly constitute a high risk population: in fact they are the highest risk group possible. And people 65 years old in 1960 were sick. They had pneumoconiosis from working in coal mines and in the steel mills. Most were smokers. Many had war injuries. According to the US Department of Health, Education and Welfareâs 1963 publication Vital Statistics of the United StatesâVolume II Mortality, retirees werenât likely to live past 66 or 67 years. Their serious illnesses would cost the insurance market large sums of money in the move toward modern medicine. The third-party insurance companiesâall of themâdidnât have reserves big enough to take care of all the elderly people, so there were no plans available for retirees.
The issue soon made it onto the national political radar screen, thanks to the first-ever televised presidential debates between John F. Kennedy and Richard Nixon on September 26, 1960. While the first televised debate dealt with foreign policy, the second debate focused on domestic policy. The two issues Kennedy raised were civil rights and the role of the federal government in providing protection to the elderly and the poor via their ability to buy health insurance through the Social Security system.
Richard Nixonâs view was that the issue of health insurance coverage for the elderly and the poor should be handled at the state level. Since the state licensed physicians and regulated the health industry, the state should determine what kind of coverage ought to be available for the elderly and the poor. Kennedy took the position that the states would never do it, otherwise it would have already been done and the federal government has a responsibility to look after those people who supported the country through World War I, World War ...