When Did Healthcare Become For-Profit in America?
With all of this talk about healthcare reform, the American populace is finally beginning to become curious about the history of healthcare, which is a good thing! Whenever we are faced with a crossroad, we want to learn as much as we can, so we can make a difference in finding the solution to the problem. What better way to find the solution than look to the mistakes of the past and learn from them? Unfortunately, Americans are constantly bombarded with very biased information coming from the news media and others with polarized political viewpoints. The terms “Healthcare” and “Health Insurance” are often conflated, when in reality, they mean two very different things. When someone asks, “When did healthcare become for-profit?”, they usually mean, “When did health insurance become for-profit?” Before people began using health insurance to pay for healthcare, consumers simply paid their doctors either directly or via charity, and the providers of the healthcare earned a “profit” (“profit” simply means that revenue exceeds the cost of doing business).
Non profit status doesn’t save substantial amounts of money on the cost of insurance, nor on the cost of healthcare. In Dr. Keith Smith’s Blog Post, “The Evil Profit Motive, Dr. Smith describes how profit motive ultimately leads to both higher quality and reduction in cost. The driver of healthcare costs is simple to identify. The less the actual consumer of the care is aware of the cost of care, the more care is utilized, and the more expensive care becomes. This is true whether the care is paid for via private insurance or via the government.
The only true way to lower both over-utilization and the cost of healthcare is to remove payment of routine, preventive and predictable healthcare costs from third parties. When this happens, providers of the care are suddenly faced with the need to compete for and please their clientele by increasing quality, lowering prices and making prices transparent. Mounds of bureaucratic cost and red tape are removed from the healthcare provider’s bottom line of allowing them to charge reasonable prices that the vast majority of people can afford, while still earning a profit. This is true with primary care, imaging, and even major medical care such as surgery.
The visual example in the above Table depicts a massive rise in USA healthcare spending after 1970. Given this information, what historical events occurred before and after 1970 that caused this phenomenon?
- 1942 – Stabilization Act passed as a means to allow employers to offer health insurance as a fringe benefit in light of wage controls. One year later the IRS decreed employer-sponsored health insurance a tax deductible benefit resulting in the explosive growth of employer-purchased health insurance. As explained by Dr. Paul Hsieh in Moral Healthcare vs. Universal Healthcare, “When employers pay for health insurance, employees tend to remain largely unaware of the costs involved. And even if they are aware of the costs, because the insurance is paid for with pretax dollars, employees cannot as easily compare its value to that of other benefits such as vacation time, personal days, or retirement savings. Further, because employer-paid health insurance premiums are not taxed as income, many employees come to think of them as a normal condition or an entitlement of employment and feel shortchanged when the employer tries to shift part of the cost to them.”
- 1965 – The creation of Medicare & Medicaid – At the time of creation, Congress estimated that Medicare would cost about $12 billion by 1990. The actual cost in 1990 was $90 billion! The fee-for-service approach first introduced by The Blues and then copied by Medicare and Medicaid paid for even the most minor healthcare needs, simultaneously removing the need for any competitive pricing models while encouraging healthcare providers to provide as many services as possible to maximize revenues.
- 1970s and Early 1908s – In an effort to control explosive health care utilization, Congress passes Edward Kennedy’s HMO Act. HMOs limit utlilization by providing coverage only within a narrow network of participating healthcare providers. Healthy people gravitate to HMOs, while the sicker tend to gravitate towards plans that offer out of network benefits (PPOs). In 1983, Medicare also turns to cost control measures in an effort to control utilization. But cost controls and low reimbursement levels to healthcare providers inevitably lead to shortages, as fewer physicians choose to participate, often having a negative effect on quality of care and timely accessibility.
- 1985 – The Emergency Medical Treatment and Labor Act of 1985 (EMTALA) passes. EMTALA requires that hospitals accepting Medicare patients treat anyone who comes within two hundred feet of an ER, regardless of ability to pay. Shortages of participating primary care providers in the Medicare and Medicaid systems have led to large numbers of people seeking care in the ER, even for the most minor health conditions as a result of the passage of EMTALA. Again, review the Table above to see the massive rise in healthcare expenditures between 1970 and 1990.
I digress. In 1939, only 6 percent of the population had health insurance, and only a small fraction of those insured had employer-sponsored health insurance. Most people simply paid their healthcare providers directly and the small percentage of those in need received hospital care via charity or pre-Medicare government programs. Yet, household out-of-pocket spending as a percentage of total household income remained relatively flat, despite all of the above mentioned government interventions. Essentially, all of the above mentioned interventions resulted in a massive increase in health care spending by third party insurance and government programs turning healthcare delivery into a bureaucratic nightmare of increased regulatory burden and cost, even for the most basic and minor healthcare needs.
Fast-forward to 2010 and the passage of the Affordable Care Act. The primary reason for the ACA was to help those who could not afford health insurance to access healthcare affordably. As you can imagine, the massive regulatory burden and increased costs created by earlier government interventions left larger numbers of people with no ability to afford healthcare without access to a third party payer. The ACA expanded access to personal health insurance and Medicaid, allowing more people to access health care under a third party payment model. The consequence of the ACA, however, was to cause another massive increase in the cost of healthcare and reduced accessibility via narrow networks and limited drug formularies. Today, government legislators are now proposing “Medicare for All” as the ultimate and final solution. Isn’t it ironic that the government always proposes to double down on failed policies, instead of trying something radically American?
It’s clear that years and years of government intervention is what has broken our healthcare system. It’s time to think about how we can return to the ways of days gone by, improving quality while reducing cost. Physicians all over the United States of America are already joining the movement. What can you do, as an American to further the cause?