From Humana's Website wrote:Before 1920, doctors didn't know enough about diseases to really provide much useful care to sick people and therefore they didn't charge very much. Only a few big employers offered health insurance; everyone else paid out of their own pockets. Most patients were treated in their homes.
When doctors began learning more about diseases and effective treatments, they started charging more - more than most people could afford. They also needed to treat people in hospitals to take advantage of new medical technology, which further added to the costs. Couple that with the start of the Great Depression, and the situation was even worse.
The birth of a healthcare solution
To help ease the healthcare problem, Baylor Hospital in Dallas created a system - which eventually became Blue Cross - to help people pay their hospital bills. As science, medicine, and hospitals grew more sophisticated and more successful, more people turned to hospitals and doctors for care - and costs continued to rise. Blue Shield insurance for doctors' services started gaining ground in the late '30s as a way for doctors to protect their interests and their payments.
Competition and government intervention
The success of the Blue Cross and Blue Shield model encouraged other insurers to enter the healthcare market. And the shortage of labor during World War II encouraged employers to offer health insurance as an added benefit to the employment package. Soon it was a commonplace for employers to provide health insurance - and the government to provide tax incentives to do it. This happened at a time when many other countries were moving toward national health insurance - where the government pays for and regulates healthcare services.
The Blues turn course
In the early days, the "Blue" system - a nonprofit organization - charged everyone the same premium. However, when private, for-profit insurers entered the market, they charged premiums based on: Age, Gender, Health status, Pre-existing medical conditions
These private insurers ended up insuring the healthiest people and avoiding the sickest ones, which meant more profit for the company. The Blues had no choice but to follow their lead.
Interestingly, each time the subject of national health insurance was mentioned, it was soundly trounced, even though most other developing countries were heading that way. Doctors, through the American Medical Association, were able to stave off government control of health insurance.
Establishing the commercial health insurance system
From 1940 to 1960:
The supply of health insurance increased as commercial insurance companies entered the market
The use of healthcare increased as medical technology became more sophisticated
The government encouraged employers to offer health insurance as part of employee compensation packages
Union negotiations during the 1940's also reinforced the employment-based health insurance system. By the 1960s, it was clear the system of private health insurance in the United States was well established and in no danger of being dismantled. However, there were glaring problems. The poor, day laborers, workers for small companies that didn't provide insurance, the self-employed, and those who had no job also had no health insurance. And once workers retired from their jobs - usually at age 65 - they lost their health insurance and moved into old age without a healthcare safety net.
After John F. Kennedy was elected president in 1960, the climate toward national health insurance was somewhat more favorable. But the American government realized the only way to successfully enact government-sponsored healthcare was to start slowly; the elderly was a natural target segment.
Medicare and Medicaid History
The elderly and the poor were among the most medically needy in society and were the least likely to be covered by an employer's health insurance plan. To keep doctors from opposing a newly proposed legislation - which led to Medicare and Medicaid - legislators agreed that the government would reimburse doctors at their "usual, customary, and reasonable rate" for taking care of the elderly and the poor.
This means doctors stood to gain a great deal from Medicare. The bill was passed in 1965 and consisted of two parts:
Part A covered hospital services
Part B covered doctors' services
In addition to Medicare, Medicaid was enacted as a federal-state program to provide medical services for the indigent. Although both programs started small, expenditures in Medicare and Medicaid grew dramatically in the late 1960s as the programs began to gear up. Since then, Medicare has evolved into Original Medicare - provided by the government - and Medicare Advantage - provided by private insurance companies that contract with the government to provide this insurance to seniors.
By 2001, Medicare and Medicaid made up 32 percent of all healthcare expenditures in the United States.
