Health concepts and applications

Health

Thomasson, Melissa. (2002). From sickness to health: The 20th century development of U.S.

health insurance. Explorations in Economic History 39, 233 -- 253.

doi:10.1006/exeh.2002.0788

One of the extraordinary, noteworthy features of the U.S. healthcare system is its reliance upon employment as a contingency of healthcare coverage. This is often cited by critics as a cultural practice, born of the U.S. fear of socialized medicine, and by advocates of the system as reflective of American's desire for individual choice regarding healthcare. However, Melissa Thomasson provides a refreshing non-ideological study of the link between insurance and employment in her article "From sickness to health: The 20th century development of U.S. health insurance." Thomasson suggests that far from being a product of politics, this association rose out of practical features of the healthcare market during the 1930s, features that have now grown obsolete.

The American market for healthcare was born in the late 1920s. Before, there was no demand for insurance, given that healthcare was cheap, and medicine was largely ineffective (Thomasson, 2002, p. 235). In the 1930s, this began to change, one reason that Thomasson focuses on data spanning from 1931 -- 1955 from hospitals and state agencies. "On the demand side, results show that increases in the demand for health insurance resulted from rising income and improvements in medical technology. Government policies that promoted a link between health insurance and employment lowered the real price of health insurance and further stimulated demand in the 1940s and 1950s" (Thomasson 2002, p. 234). Hospitals entered into agreements with insurance companies such as Blue Cross and Blue Shield to keep costs manageable and to keep demand for in-network patients up. By "providing benefits in the form of services instead of a cash indemnity, the [employer] prepayment plans limited the problem of moral hazard," or overuse of unnecessary treatments (Thomasson, 2002, p. 237). "Marketing the plans to groups of employees allowed the hospital plans to overcome problems associated with adverse selection," as some healthy as well as unhealthy people would be covered, and balance one another out in a long-term fashion. "In addition, having employers deduct premiums from employee paychecks lowered the administrative costs associated with selling insurance," as these costs were born by the employer (Thomasson, 2002, p. 327). In short, the system 'worked' at this time for patients, hospitals, insurance companies, and the government.

Blue Cross plans also benefited from special state-level legislation that allowed them to act as nonprofit corporations, to enjoy tax-exempt status, and to be free from the usual insurance regulations. Physicians, although they initially opposed all forms of health insurance, created Blue Shield in deference to the demand for Blue Cross insurance, and in fear of more government regulation if some costs were not borne by the industry (Thomasson, 2002, p. 237-338). World War II wage and price controls also meant that one of the primary incentives employers had to attract scarce reserves of high-quality employee was offering benefits, including health insurance (Thomasson, 2002, p. 240).

Supply and demand of services and labor thus both conspired as corollary historical forces to increase the prevalence of private insurance in the American model. The improved quality and supply of healthcare drove up demand and prices, which caused individuals to seek healthcare insurance. Physicians, in response to employer-created insurance, began to provide their own plans. Insurance plans made it favorable for hospitals to increase their supply of patients, and employers could attract scarce labor by offering insurance.