- To understand the different factors that effect the infrastructure and consequences of such a system one has to understand the theory of "moral hazard." Insureres need "any hazard insured against and the llosses arising from it to be unambiguous when they occur and beyond the control of the insured." If they are ambiguous, insurers cannot figure
out how much the costs of the illness cost. However, in a private insurance companies many parties will effect the costs of services and not all illness or sickness will be due to a "well-defined condition."
There are three types of benefits insurance companies provide:
- Indemnity benefits: reimburses the subscriber for medical expenses, but not usually all fo the expenses
- Service benefits: guarantees payment directly to physician or hospital (will usually cover all expenses)
- Direct Services: the provision of health services to the subscriber by the organization receiving prepayment
- Indemnity plans: usually transactions occur directly between the subcriber and insurer
- Dervice-benefit plans: physician/hospital will file for a reimbursement; so this plan usually involves some sort of negotiation
- direct services: doctors and hospitals are integrated into the same organization that enrolls subscribers; so, the organization control various aspects of the process from quality of services, to reimbursements, etc.
The creation of Hospital Insurance
The idea of hospital insurance started at Baylor University, when the school provided a group of teachers with hospital coverage for up to 21 days for $6/year. Such plans popularized and soon after th eonset of the Depression, hospitals began providing coverage also. Unlike insurance companies, these plans started "with hardly any starting capital." However, this was ok, because "member hospitals agree[d] t provide service regardless of the remuneration they would receive."
In 1934, a New York law allowed hospital insurance plans to be exempt for regular insurance regulations. However, this law allowed hospital insurance plans to be reviewed by the insurance department. This law also gave hospitals a power over the plans by providing that a "majority of the directors of the plan be administrators or trustees of the hospital that contracted to provide service." This provision allowed the precendent for voluntary hospitals to have long-term control over the Blue Cross system.
A problem with the original single hospital insurance plans was that it promoted competition between hospitals that oftentimes got in the way of providing good health care. The American Hospital Association (AHA) recognized this problem and soon began promoting group hospitalization. The AHA created the Committee for Hospital Service, which put out a set of principles for Blue Cross plans, that required n ocompetition between them. They set up defined terrirtories for hospitals and required states now be in charge of supervising the plans. However, it still included a provision to ensure hospital heads would still be the main directors of the insurance plans. By 1939, 25 other states had passed acts that created hospital service plans.
While the hospital insurance plans had initial advantages over their competitors (insurance companies), insurance companies still had more financial resouraces and their "long-established relations with employers." Thus, despite efforts by the AHA, insurance companies had almost 8x the subscribers as hospital insurance plans in 1940.
Physician's Reaction
The AMA was initially against hospital insurance and wanted there to be a separation for medical and hospital care. However, a 1936 survey showed a majority of physicans were for hospital insurance because if patients could have their hospital care covered, they were more likely to pay their medical bills.
In the early 1930's the AMA put out a set of ten principles they used to spell out their prerogatives. In short, these principles stated that there should be no third party intervention in payment for health services, physicians be allowed to charge the same prices as their colleagues, and maintain a relationship directly with their patients without third party intervention. As Starr states, these principles basically said that "all health insurance plans accept the private physicians' monopoly control of the medical market and complete authority over all aspects of medical institutions."
However, there were already many agreements that went against these "no third party intervention" principles. The first conscious attempt to reorganize medical care into a prepaid, comprehensive basis occurred in 1929 with the cooperative movement. The "medical cooperatives [...] emphasied four principles: group practice, prepayment, preventive medicine, and--uniquely -- consumer participation." This first cooperative health plan was created in Oklahoma by a physician named Michael Shadid. Shadid first approached local doctors to begin the program, but they were adamantly against it. He then went to local farmers who helped back the plan. Soon, the medical professinals in the area launched a campaign against this plan. Despite their efforts, Shadid obtained legal support and was soon able to spread the program throughout Oklahoma and into Texas.
The federal government even started a rural health cooperative plan. Shadid supported cooperatives by stating "the only successful alternative to compulsory health insurance." He asked the government not to intervene in providing coverage, but instead to "subsidize the poor" so they could enroll in the programs. However, Shadid was not against medical authority. He just allowed consumers to have more authority than the AMA approved.
The AMA vehemently disagreed with cooperatives because it controlled the physician authority over medical care; specifically, these plans "subjected doctors' incomes and working conditions to direct control by their clients." Soon, the AMA launched a full out campaign to sabotage the Group Health Association. In December 1938, the Justice Department "secured an indictiment agaisnt" medical organizations that were conspiring to destroy the GHA. However, by the time the indictment was in full effect, medical professions had already successfully stopped several cooperatives from forming. And, by 1939, the medical societies had gotten state intervention to ensure medical professionals could have control over prepayment plans. Several states passed laws that banned consumer-run insurance plans and other states required "all plans to allow free choice of physician."
Ultimately, medical professionals now enjoyed a monopoly over insurance plans.
Blue Shield vs. Blue Cross Plans
These plans had severa differences. Blue Cross was closer to prepayment plans and Blue shield was insurance. Blue Cross plans maintained that they serve dthe entire community and presented themselves as progressive. While Blue shiled aimed to prevent a government program form being adopted.
And the Unions Enter...
Collective Bargaining and Social Security are noted by Starr as being the two "great institutional legacies of the New Deal in social policy." While social security left out benefits for employees, the Wagner Act allowed for collective bargaining, therefore giving groups of people the opportunity to negotiate benefits from their employers. However, employees did not take advantage of collective bargaining until after WW2. Until this point, employee benefit plans were "management controlled," benefiting the needs or priorities of the management.
However, after the war in 1948, unions began focusing on getting better health insurance. The Tart-Hartley Act resored Wagner's ambiguous phrase "wages and conditions of employment," giving unions the legal backing to have a say in health care. By the 1950's, unions were negotiation for almost 1/4 od health insurance in America. Unions were insanely successful in their negotations; in fact, by 1950, employers ewre paying for almost 37% of health care costs for workers.
There were disagreements between management and unions on which type of insurance to use. Unions preferred Blue Cross and management preferred private insurance carriers. There were also differences in what differences collective bargaining led to dependign on whether unions were negotiating with businesses with few or many employers. Also, different types of unions also wanted different benefits (i.e. progressive unions wanted prepayment approach).
Despite these differences, it is clear the Unions successfully used collective bargaining to obtain employee benefits in the Post-WW2 period.
United Mine Workers of America
The next section follows the history of the UMWA and four strikes that led to union control of medical care. In summary, a lack of adequate medical care provided to miner workers led the UMWA to have 3 strikes over 4 years that would transform union control over medical care in the coal industry. The first strike occurred in 1946 when mine operators refused to provide 5 cents for "every ton of coal produced to fund a welfare fund to be operated by the UMWA. The government was forced to come in and takeover mines to stop a national economic crisis and, soon, a deal was struck with the union leaders. However, break down in relations would lead to two consecutive strikes in the years following.
After these strikes, miners had obtained a welfare fund that worked as an "open-panel, service-benefit program." Later, in the 1950's, the union began controlling and monitorying how doctors were treating their union members and their dependents. By the end of the 1950's, physicians or doctors had to be on a pre-approved list to even be paid by the fund. Furthermore, the fund could impose control on differnt insurance companies too. Ultimately, "the programs radically transformed the minors from a group that was virtually powerless in health care into a major force in controlling the cost and quality of medical services in coal-mining regions."
Other unions were also able to gain get some control over the type of medical care they were given. Many recognized that different parties (physician/hospitals & insurance companies) were over-charging for services. They found three different ways to control over charging -- bargain prices among different insurance companies, monitor cost/quality directly, or get physicians to accept a fee schedule.
Prepaid Group Insurance
Prepaid group insurance was a popular alternative because it's coverage was comprehensive and offered high quality services (mostly because group practices offered advantages like easier consultation, better preventive care, etc.).
Kaiser was one of the first prepaid group practices. Although, at first Kaiser and other group practices had a hard time getting employees to enroll in their programs. To alleviate this problem, they allowed their insurance plans to be offered as a "multiple-choice" program, in which employees can decide which type of plan they want. Soon, dual choice became very popular, in which employees could choose Kaiser or another program.
Physicians were adamantly against prepaid group plans. First, these plans were attracting middle income patients, that usually provided the most money to physicians. Traditional ways of campaigning against insurance plans did not work this time around. Physicians resorted to individual plans of discrediting Kaiser and other group plans; for example, physician's families handed out literature against Kaiser on their own. Some doctors even offered to take cheaper fees. In the end, Physicians were unsuccessful and enrollment in Kaiser plans continued to grow.
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