How the Health Insurance Industry is Controlling Our Health Care

Healthcare in the U.S. costs nearly twice that of any other developed country. To understand this imbalance, it is important to review the history of the health insurance industry.

Between 1900 and the 1940s, rural physicians were rare, but competition between urban doctors was fierce. To reduce competition and increase profits, physicians banded together in groups and recruited patients to their “prepaid physician groups,” or “prepaid doctor groups.” Patients could pay into these groups as they offered inexpensive health care from physicians who were acting as their own insurers. Patients paid a monthly fee directly to the physician group rather than to an insurance company.

Shortly before WWII these prepaid doctors groups continued to gain in popularity, leading the American Medical Association (AMA) to take notice and begin organizing to combat them. The physicians who controlled the AMA were afraid that self-insuring, multi-specialty physician groups would eventually evolve into health care corporations. Guidelines were adopted to prevent allowing doctors to insure patients, leaving only insurance companies to offer medical coverage. Any doctors who wished to maintain their AMA membership, professional accreditation and hospital privileges would have to abide by these rules.

The first insurance company, the Franklin Health Assurance Company of Massachusetts was founded in 1850 and insured customers against railroad and steamboat accidents and injuries. By the end of the Civil War the number of insurance companies had grown to 60. From the 1860s to the 1940s, these 60 companies only insured against accidents and provided basic life insurance. Once the AMA forced physicians out of the insurance business, these insurance companies suddenly found themselves writing policies covering medical expenses and hospital procedures and later, providing medical malpractice insurance for both physicians and hospitals.

Under this new system, the physicians (represented by the AMA) and the insurers rarely interacted. Patients went to see their doctors and paid cash for treatment. But as health care became more complex and more expensive, insured patients needed help from their insurers to cover the growing costs of treatment or hospital stays. Now the healthcare system required insurance companies to pay doctors for the services they provided (fee-for-service payment).

But insurance companies are in the insurance business to make a profit and to control rising prices they soon began to require doctors to report (in detail) their actions to insurers and to ask permission to perform many medical services and procedures. The AMA did not feel that insurance companies had the right to supervise physicians and feared these arrangements would adversely affect their earnings and autonomy. This growing lack of cooperation continued through the early 1960s.

In 1965, the federal government intervened in health care with the passage of the Medicare Act. Medicare added millions of elderly, sickly and low (or fixed) income patients into the system and from 1966 through 1973, health care spending increased 12-15 percent each year. Today, U.S. medical care expenditures are the highest in the world. The health care system is now managed by profit-making insurance companies that must act as managers, overseeing doctors in an effort to control costs. There are complex guidelines and regulations that doctors must follow in order to get paid. These doctors must also work longer hours to see more patients in order to make a living.

Health insurance companies focus on reducing their own costs over improving health care. Profits remain more important than results as they continue to create barriers to quality care leading to much higher out-of-pocket costs for patients.

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