Why is this even a thing?: A discussion on the US healthcare system

I had the opportunity recently to speak to some people who are less politically active than myself. Obviously, the issue of healthcare has been in the news recently and they asked me some interesting questions. They heard the US healthcare system being compared to the universal healthcare systems around the world, and they wanted to know why our system was so different.

The reasons for the current state of the American healthcare system can be traced back directly to the state of the country coming out of World War II. But, it was more than just the war itself, it was the entire political situation that developed in the post-war years, and beyond, that brought us to our current predicament.

At the end of WWII, the economies of the world’s major powers had been decimated. By war’s end, the Allies had obliterated not only entire industries in the Axis countries (Germany, Italy, and Japan) but the cities that contained them. In fact, the two targets of American atomic bombs were two of the last industrial cities left standing on the home islands of Japan. By the time the war ended, little was left in the urban areas of the Axis Powers.

Ostensibly, England, France, and the Soviet Union were on the winning side of the war, but as they were in close proximity to the fighting, and within the range of the bombers and rockets of the enemy, they were not exempt from decimation. The entire European continent had been laid to waste.

In 1946, only one nation was left standing, seemingly undamaged, from the carnage of war: the United States of America. Separated from the conflict by two oceans, the nation’s industry had tuned up in response to the war effort, stumbling out of the doldrums of a Depression and making the US the pride of the world.

A side note here about the war time economy: it’s been well studied how those left at home responded as millions of young men went off to war. While a generation of men went to Europe and the Pacific, women and men who couldn’t fight went to work. For many women, it was their first opportunity, and maybe their first inkling, that they could enter the workplace. They weren’t doing it for any reason other than patriotic duty.

In the months before and after New Year’s 1946, industrial America was already beginning to swing from a war-time economy to a peace-time one. Employment was available everywhere. In fact, in 1945–46, the United States had negative unemployment, meaning that there were more jobs available than people to take them. But this was to be short lived.

As 1946 progressed, soldiers started returning home. Those young men who had left their jobs, or maybe never had a job before, started looking for work. While many young women, some of them war brides, were happy to return to their homes and pre-war lives; others had found a new life and sense of purpose in the workplace and didn’t plan on giving that up easily. It was a time of changing political and socio-economic tides. So what does employment have to do with health insurance?

The history of health insurance is really a story of the 20th century. Medical care before the 1900s was, for the most part, subjecting to guessing and trial and error. During the civil war, thousands were amputated rather than having their wounds treated. Antiseptics, for all their importance today, weren’t common practice until after the turn of the century.

After the Civil War, and its decimation, the federal government did establish the first system of national medical care in the South. Known as the Freedmen’s Bureau, the government constructed 40 hospitals, employed over 120 physicians, and treated well over one million sick and dying former slaves. Keep this in mind, for the future discussion. The hospitals were short lived, lasting from 1865 to 1870.
 By the 1920s, doctors didn’t charge very much as there were few guaranteed solutions. Doctors generally provided little more than emergency care for those who were sick. Most people paid out of their own pockets and most patients were treated in their homes. Only a few big employers offered health insurance, but it was very uncommon.

Early industrial sickness insurance, purchased through employers, was one influential economic origin of the current American health care system. These late-19th-century and early-20th-century sickness insurance schemes were generally inexpensive for workers. Their small scale and local administration kept overhead low, and because the people who purchased insurance were all employees of the same company, that prevented people who were already ill from buying in. Thus, at the beginning of the 20th century, Americans were used to associating insurance with employers, which paved the way for the beginning of third-party health insurance in the 1930s. 
 When doctors began learning more about diseases and effective treatments, costs went up and thus expense also went up. Doctors needed to treat people in hospitals to take advantage of new medical technology, which further added to the costs. Just as these new developments were arising, the start of the Great Depression made the situation even worse.
 To help ease the healthcare problem, Baylor Hospital in Dallas created a system to help people pay their medical bills. As science, medicine, and hospitals grew more sophisticated and more successful, more people turned to them for care. As more came for care, and technology developed, costs continued to rise. Insurance, through the hospital, for doctors’ services started gaining ground in the late ’30s as a way for doctors to protect their interests and their payments. This system eventually became known as Blue Cross and Blue Shield.
 The success of the Blue Cross and Blue Shield model encouraged other insurers to enter the healthcare market. The shortage of labor during World War II encouraged employers to offer health insurance as an added benefit to the employment package to entice more workers. Soon it was a commonplace for employers to provide health insurance. As this became common practice, the government provided tax incentives to do it. From 1940 to 1960, a completely commercial health insurance program developed. 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, through private insurers, as part of employee compensation packages. Union negotiations during the 1940’s also reinforced the employment-based health insurance system.

As 1950 approached, the tone had been set for the remainder of the twentieth century; although, of course, no one knew that. While the draft would continue for another quarter century, it would no longer require the massive numbers of men that WWII had. The heights of the military-industrial complex known during WWII would never been seen again; but it would continue to exist in some form. The economy was at its pinnacle of strength, but the devastated European economies were rebuilding quickly and poised to make a challenge to US supremacy. And the US, for the last time in its history, had zero unemployment.

In 1951 the IRS declared group premiums paid by employers as a tax-deductible business expense, which solidified the third-party insurance companies’ place as primary providers of access to health care in the United States. But another set of actions was at work.

In the 1930s there was a movement in the House of Representatives to address what they saw as the growing threat of Communism in the United States. The House Un-American Activities Committee was organized in 1938 to investigate possible subversive activities of private citizens, public employees and organizations. Famously, this committee held hearings on Communists in Hollywood leading to the Blacklist. In 1945, the previously created Special Committees became a Standing (or permanent) Committee. Further, in 1950, Senator Joseph McCarthy began rocketing to the public forefront in the fight against Communism and in 1953 would begin holding his own hearings in the Senate. Americans began to live in fear of being accused of being Communists, or even holding Communist sympathies.

Meanwhile, in Europe and Asia, there was a fear about very real Communists taking advantage of a weakened society, but they had far more important concerns: staying alive. In the weeks, months, and even years after the war ended; the people still struggled in their day to day lives. For most, their survival depended on their governments: from food, to shelter, to healthcare. All across the world, public healthcare systems, of all kinds, sprung up to offer services to the citizens of their countries. They were not concerned about the connections to Communism or Socialism.

Back in the US, in the early days after the success of Blue Cross and Blue Shield, private insurers were eager to get a piece of the insurance business. Blue Cross and Blue Shield’s status as a nonprofit company meant they had to charge the sick and healthy the same premiums. But as private insurers got into the business, they were not held to the same restrictions. Private health insurers could offer employers better insurance rates because generally only young, healthy people were employed and this group was less likely to use the coverage, which meant more profit for the company. Thus, the commercial health insurance business took off. President Harry Truman called for universal health care as a part of his Fair Deal in 1949 but strong opposition stopped that part of the legislation. As this system matured, doctors, through the American Medical Association, and insurance companies, threatened by having their power and profit challenged, used their influence to kill it. Any attempt that survived the initial culling process that is.

When America became fearful of the subversive power of the Communists, it shunned any program that possible held the stain of Communism. For the average American, a system of socialized medicine; whether it was the National Health Service style of the UK or the single-payer systems that developed elsewhere; danced to close to the Communist style for comfort. Besides, most Americans thought, why would we need a system like that in America? We had great thing going here. Health insurance was cheap. It was provided by employers. It covered your entire family. Once you retired, you kept that coverage through your pension plan.

By the 1960s, it was clear that the world would have two very different health care systems. Most of the West treated healthcare as a matter of right. That simply by being a citizen of a country, a person deserved access to healthcare and that access would be provided. But, in the United States, a system of private health insurance, where health care was a for-profit endeavor by all parties, was well established and in no danger of being dismantled.

We won the war and beat the Reds. Take solace in that when you’re dying from a treatable and/or preventable disease.