The Miller Report: A History of Health Insurance

Miller’s Report for the Week of July 18Th, 2022; and William Miller, MD

Because of the current discussion between Adventist Health and Anthem Blue Cross, I thought it would be interesting to explore how our medical system came to rely on health insurance as an important part of providing health care to the American people. This will be a series in which subsequent articles will examine Medicare and other types of single-payer health care including the American Veteran’s Association and the Canadian Healthcare system.

The story begins in 1850 when the Franklin Health Assurance Company of Massachusetts began offering “accident insurance” to protect against disability caused by injuries while traveling on a railroad or steamboat. Think modern “airline travel insurance”. This was so popular that by 1866 there were over 60 companies in the US offering this type of insurance. This eventually led to increased insurance coverage against disability from other causes, including illness. By 1911, disability policies were common.

In the 1920s, hospitals began offering their own prepaid plans in which participants paid for medical services if they were provided at their hospital. In particular, covering the cost of surgery was emphasized because this was the most common practice in hospitals as other medical procedures were performed mainly outside the hospital. This would lead to the difference we see today in high reimbursements for surgeries and lower reimbursements for primary care including health care, preventive care, pediatric care, and mental health care.

Another important development in the 1920s was the consolidation of insurance companies that offered medical policies. The driver of this was that if the health insurance company made a lot of money in a particular year, then the organization would help the member to avoid paying out. Remember that at the time, the idea of ‚Äč‚Äčinsurance was for people to pay together to the insurance company as a group so that if anyone needed expensive care, then the money would be paid out of the pool of money. The organization acted as an insurer for the insurance companies. The first insurance company was Blue Cross, which was founded in 1929.

During this time, employers began offering health care benefits as an employment benefit. In the beginning, the employer took care of the risk of these costs, but soon companies emerged and provided insurance to the employers where the insurance company had the accident and the employers paid to the insurance company. In 1939, the insurance companies that provided such services to employers came together to form Blue Shield. The insurance company’s alliance initially focused on the lumber and mining industry in California.

Initially, insurance companies reimbursed patients for their expenses. Therefore, health care providers, such as doctors and hospitals, are paid a fee. In other words, if a doctor or hospital bills a patient’s insurance, then the patient pays the doctor’s or hospital’s expenses. The insurance company will return the patient for paying medical expenses. Therefore, the cost of health care was changed by market forces. Fees were driven by “supply-and-demand” and “what the market will bear”. This is the basis of our entire concept of the capitalist system.

However, two things began to change in the 1970s. The first was technology. In the 1970s, we saw the development of the first ventilators and, as a result, the first dedicated units within hospitals to provide intensive, life-sustaining care. Medical technology began to increase. Advances in computer technology, such as the results of NASA’s Apollo Project, gave us that computer assisted tomography x-rays, or CAT scans, were first used in hospitals in 1979. MRI and PET scan technology soon followed in the 1980s. Advances in cancer treatment gave us new chemotherapy options. The number of antibiotics used to treat infections increased. Permanent devices such as pacemakers and artificial connectors also became popular in the 1980s. A major breakthrough in organ transplantation occurred in 1983 with the discovery of cyclosporine as an immunosuppressant to prevent organ rejection and host immunity. Before this, organ recipients were expected to live for only a few days. Bone marrow transplantation was also developed in the 1990s as a treatment option for some of the most aggressive cancers. All of this new technology became very expensive. Furthermore, in the capitalist system, hospitals were motivated to compete with other hospitals by offering the latest and greatest technology at ever-increasing prices. Very quickly, hospital bills had to increase to cover these costs. In addition, new medical professionals have been created around new technologies such as medical specialists in ICUs, heart surgeons who provide heart valve replacement and coronary artery bypass surgery, and orthopedic surgeons who specialize in transplants.

The second major change was the introduction of malpractice charges. Before this time, people knew that nothing was perfect and that doctors, being human, could not guarantee good results for everyone. However, encouraged by the promise of new, developing technologies and advances in medical science, patients and their families always expected better results. All the lawyers were eager to take advantage of this untapped legal resource. Due to the advancement of expensive technology and the expectation that these technologies should be available to everyone everywhere, lest a wrongful charge may arise, the cost of medicine in the United States of America has skyrocketed.

In the early 1990s, it was clear to insurance companies that they needed to do something to reduce their high premiums. After all, he was responsible to the insurers to have enough money to pay. They also had investors to consider who expected to receive shares of stock. It was at this time that the insurance companies stopped paying hospitals and doctors whatever they charged and began to negotiate contracts with them to pay lower prices for the services provided. From this perspective grew concepts such as Healthcare Maintenance Organizations (HMOs), managed health care plans, and Preferred Provider Organizations (PPOs). In all of this, the insurance company acts as a middleman, negotiating higher prices from employers up front, while negotiating lower payments for healthcare providers in the background. The insurance company, in the middle, makes a profit. The unfortunate result is that hospitals are stuck between high costs and low reimbursement. As a result, many hospitals across the country are closed and health care is becoming increasingly difficult to provide. Some say that incentive medicine, or a single payment method, is the answer. We will explore this in the articles of the Miller Report.

You can find all previous Miller Reports online www.WMillerMD.com.

Dr. Miller is a clinical assistant and Chief of Staff at Adventist Health Mendocino Coast Hospital in Ft. Bragg, California. The opinions shared in this week’s column are those of the author and do not represent those of the publisher or Adventist Health.