In 1929, Baylor Hospital was struggling. With a growing list of unpaid invoices and delinquent accounts, the hospital system found itself one step from receivership. Things looked bleak.
Enter a public school teacher, turned lawyer, and former superintendent of The Dallas Independent School District, Justin Ford Kimball. Assuming the role of Vice-President within Baylor Health, he restored solvency to the struggling hospital, and in so doing, set the foundation for what would become a unique industry, health insurance.
Born on a farm near Huntsville Texas, graduating from Mount Lebanon College in Louisiana, Justin Kimball would continue his formal education receiving an M.A from Baylor University, conduct postgraduate work at The University of Chicago, and earning a law degree from The University of Michigan.
Due to a stressful schedule, and subsequent poor health, Kimball would resign from the school system per his doctor’s advice. He was just as quickly asked to perform a lecture series, and accepted a professorship at Southern Methodist University in 1925. Four years later, Kimball was appointed Vice-President of Baylor health extensions in Dallas, Texas.
This is where Kimball’s lived experience and professional history would come full circle and change healthcare. Upon reviewing hospital accounts, Kimball quickly realized many of the unpaid balances and delinquent accounts belonged to teachers. Having established a sick fund during his time as superintendent, Kimball had unique insight on the finances and obligations of both teachers receiving care and the hospital providing it.
Through some calculations, he landed on a plan whereby teachers paid a monthly premium of 50 Cents, which completely covered a two-week hospital stay. Teachers and the hospital would worry less about financial hardships. His program would provide teachers health care at a reasonable monthly rate and a struggling hospital system with steady monthly income to avoid bankruptcy.
After insuring teachers, Kimball’s plan was opened to employees at the Dallas Morning News. Despite their initial hesitation, when a librarian named Marry Green was hospitalized with appendicitis only hours after signing up for the plan, and her care was fully covered, newspaper employees quickly signed up.
The insurance program would become so successful, Baylor stopped enrolling workers in 1934, with 23,000 individuals covered to that point. The plan would spread to other Texas cities, San Antonio, Houston, eventually becoming a statewide hospital plan.
By 1939, Kimball’s original plan was modify into three weeks of coverage; with the first week costing $5 a day for a private room, $3.50 for a bed in a ward, and up to two more weeks fully paid for by the monthly premium.
While accident or injury insurance did exist as far back as the mid 1800s, true health insurance, which covered illnesses, doctor and hospital stays did not. He may have not known it at the time, but Justin Kimball had in effect created modern day health insurance, and set the foundation for what became amongst the nation’s largest health insurers, Blue Cross and Blue Shield.
From BCBS to Medicare
In only fifteen years, from 1940 to 1955, the number of insured Americans would skyrocket from 10 percent having coverage to over 60 percent. This remarkable growth came courtesy of three main factors. First, Blue Cross and Blue Shield plans were popular among enrollees and made financial sense. Due to technological advancements and innovation, healthcare costs were steadily rising, paying for these services directly proved prohibitive for many patients. Second, The 1942 Stabilization Act, intended to limit inflation and wages, curb competition for scarce workers during World War II, effectively incentivized companies to offer benefits, chief among them, being healthcare. Finally, life insurance companies like Cigna and Aetna saw opportunities in the health insurance space, quickly entering this burgeoning market to offer their own plans.
Be it teachers or factory workers, health insurance was increasingly linked to employment. Those working for corporations were offered employer sponsored plans and the self employed purchased affordable coverage through an expanding marketplace. By the mid 1940s, one class of citizens quickly became the largest uninsured group in America; Seniors.
The notion of government run insurance began with a letter to Congress from President Harry Truman in 1945. Truman’s vision for a healthcare fund would be open to all Americans, but would not come to pass.
There would be another push during The Kennedy Administration, when a study revealed over 56 percent of Americans over the age of 65 lacked any health coverage. This gave rise to The Medicare Program, which would finally be signed into lay under Lyndon B. Johnson on July 30th, 1965. Harry Truman and his wife Bess were the first two beneficiaries.
A tandem program administered by states, Medicaid, was created alongside Medicare to cover low income Americans along with the disabled. Thus creating the first government sponsored, administered, and funded insurance plans in America.
When healthcare got expensive
With nearly everyone covered under public or private health insurance by the early 1970s, healthcare prices just kept rising. Adjusted for inflation, healthcare expenditures per capita increased 6-fold, from $1,832 in 1970 to $11,172 in 2018. In that same period, healthcare spending went from 6.9% of GDP or 414 Billion Dollars (adjusted for inflation) to 18% of GPD 4 Trillion Dollars. Medicare spending alone has gone from $45 Billion (adjusted for inflation) in 1970 to nearly $800 Billion by 2019.
Mr. Kimball’s policy, would be an absolute steal today, essentially consisting of a $75-$52.5 deductible, and a $7.50 monthly premium (inflation adjusted). This is a far cry from the rates employers currently pay, which average $12,000 for an individual and $18,000 for family plans.
As was the case with expanding health insurance, growing prices were once again due to multiple factors. Americans simply kept spending more on healthcare; we have higher rates of chronic health ailments, obesity, and an aging population (the median age went from 28 in 1970 to 39 today). The U.S also pays more than other countries for the same drugs and procedures; this discrepancy has created yet another industry, medical tourism. Americans regularly visit other countries including India, Singapore or South Korea for various procedures. For profit health insurers like Cigna, Aetna, and United increasingly insure only healthy adults and those less likely to become ill, focusing mainly on profit and less on patient care. The advent of multiple middle men, including Pharmacy Benefit Managers and Health Maintenance Organizations, have made drugs more expensive and access to care more difficult. Other added costs, including liability insurance, research and development are routinely passed down to consumers.
Rising costs increasingly made health insurance cost prohibitive and many Americans decided against purchasing coverage. This, once again, created a vast swath of uninsured Americans. On March 23rd 2010, president Barak Obama signed The Affordable Care Act, commonly referred to as “Obamacare”, into law.
Perhaps The Affordable Care Act’s greatest success was bringing the total number of uninsured Americans down from 44 Million to 27 Million. Contrary to what many believe, this law was not in and of itself a form of insurance, it simply expanded on existing plans. It also intended to remove obstacles for coverage.
For-profit insurers were increasingly avoiding or limiting coverage for those with pre-existing health conditions; The ACA eliminated this practice. It also increased funding and expansion of state Medicaid plans, allowed young adults to remain on their parent’s insurance plans up to age 26, and mandated all adults, especially healthy ones, purchase health insurance. The ACA provided an approved marketplace to do so, the idea being, with more healthy individuals in the system, costing insurers less money, rates would go down, and for a while they did.
In December of 2019, through a legal fight courtesy of The Trump Administration, a court struck down the individual mandate, the only cost containment tool within The ACA. Despite promises of a better, cheaper, more comprehensive healthcare plan to replace “Obamacare”, The Trump Administration has failed to deliver. In the first six years of The Affordable Care Act, per capita health spending increased a little over $1,300; in three years of the Trump Presidency the increase is a little over $1,000, a similar increase in half the time. As you can imagine, prices continue to rise.
President-Elect Joe Biden, who previously served as Vice-President under Barak Obama, well versed when it comes to the Affordable Care Act, has proposed including a public option in his health care plan. This means, along with the ability to purchase health insurance from the likes of BCBS, Aetna, Cigna and others, you will have an option to purchase a government run health plan similar to Medicare.
The situation doesn’t have to be so dire, we can bring healthcare costs down, and there are multiple ways to do so.
Being the largest purchaser of prescription drugs on the planet, Medicare should be able to negotiate drug prices. Rather than a Medicare type public option, individuals should be allowed to purchase a Medicaid plan directly from their state. Such a plan would cost about four thousand dollars less than private insurance, increasing competition, and bringing prices down. We can also ensure patients receive more preventative care, expand government funded urgent care facilities, and decrease reliance on hospital visits.
Most importantly we need to create and encourage programs to improve our overall health. Without that, nothing else matters.