America’s Healthcare System – Part 2
A Brief History of the American Healthcare System
This is the second essay in Civic Way’s series on the US healthcare system. In our last essay, we introduced this series and referenced related public health system strategies. Today, we touch on how our healthcare system came to be. The author, Bob Melville, is the founder of Civic Way, a nonprofit dedicated to good government, and a management consultant with over 45 years of experience improving public agencies.
Highlights:
The US healthcare system is a byproduct of its seemingly random, often fitful development
Unrelated events, rather than a coherent vision, produced the flaws we endure today—inadequate prevention, physician dominion, employer-based insurance, lax patent laws and rampant profiteering
To build a better system and compete with other developed nations, we must correct these flaws
Introduction
American healthcare is first and foremost a byproduct of its history, not intelligent design. If we are to reform our healthcare system, we must first understand how it came about.
Unlike healthcare systems in other developed nations, the American healthcare system looks like an archeological dig. It reveals no grand vision, just layers of momentous events—World War II, Medicare and Medicaid—and quiet, seemingly unrelated decisions—the birth of the American Medical Association (AMA), federal wage controls, the creation of Blue Cross and the wholesale conveyance of patent rights.
Over time, the US healthcare system emerged from its crude beginnings. In the absence of a coherent design, the system’s key actors became more entrenched and their financial interests more calcified. Not surprisingly, the developed world’s least cost-effective healthcare system—the American system—has a long history of failed reform efforts.
Beginnings
From the nation’s birth to its Civil War, healthcare was primitive by modern standards. Hospitals were rare and most care was home-based. Physicians were unlicensed, unregulated and often inept. Medical schools were pitiful. In 1847, the AMA formed to professionalize the physician trade.
The Civil War and the decades leading to the 20th Century brought some changes. Improved standards and schools for physicians and nurses. Medical advancements like radiology and anesthesia. The birth of veterans’ homes (the precursors of veterans’ hospitals). More hospitals. A bigger, more powerful AMA and the growing myth of physician infallibility. A more fervent profit impulse for hospitals and physicians alike.
Not everything changed. Medical care remained primarily home-based, especially for the wealthy. Hospitals mostly treated the poor. Sepsis often accompanied surgery. Some ideas, like free TB treatment and compulsory health insurance, were fiercely opposed. Healthcare quality and access remained subpar for too many.
The Early 20th Century
The years from 1900 to the Great Depression brought more changes. New diagnostic tools (like the new syphilis test). More new hospitals, including over 50 VA hospitals. A new lobbying group for hospitals—the American Hospital Association (AHA)[1]. Rising costs. The first calls for national healthcare insurance.
The AMA consolidated its power by promoting stronger professional standards for physicians and medical schools. It advocated more rigorous curricula and entry criteria for physicians. It championed hospital privileging and fought any measures it viewed as threats to physician autonomy (e.g., federal cost controls or compulsory health insurance).
These trends continued from 1930 to World War II. Healthcare became increasingly sophisticated and costly. Medical advancements arrived more frequently (e.g., polio vaccines and sulfa drugs). Hospitals proliferated (e.g., many large cities started hospitals for the indigent). New facilities and treatments increased costs.
In the absence of federal action (the New Deal excluded universal coverage), private insurance plans began to spread. In 1933, the AHA formed Blue Cross to cover hospital costs. In 1938, the California Medical Association created Blue Shield to pay other medical costs. Hospital groups began buying pre-paid hospital insurance plans. Since these plans didn’t threaten physician autonomy, the AHA avoided a premature clash with the AMA.
World War II to 1960
World War II not only firmly established the US as a world power, but it also shaped our healthcare system for decades to come. It forced the nation to bring its many medical advancements to scale (e.g., penicillin and new surgical techniques). The 1942 Stabilization Act, with its wage controls, inadvertently persuaded more large employers to offer health insurance to compete for scarce workers.
In 1946, Congress enacted the Hill-Burton Act to fund hospital capital costs and promote free and discounted healthcare. In turn, hospitals used Hill-Burton to boost their political power, and prepare for future tensions with physicians. In 1946, the federal government also bolstered its investment in the VA hospital system, recruiting top medical personnel and building more medical centers (125 by 1948).
In 1954, the government made employer contributions to employee health insurance plans tax-deductible (the benefits remained untaxable). As employer-based insurance covered most US workers, it supplanted other options. By 1960, employer-based insurance became America’s de facto health insurance model.
The demand for universal health insurance and other healthcare reforms did not vanish. FDR, before his death, called for an economic bill of rights, including healthcare. President Truman proposed national health insurance, but it failed for several reasons, including AMA’s tried and true “socialized medicine” attacks and big labor’s indifference (labor unions won private health insurance plans in the auto, steel and coal industries).
Despite the rise of employer-based insurance, gaps remained. Some of the most frequent hospital users, like the elderly, disabled and poor—lacked employer-based insurance. As healthcare costs continued to soar, coverage gaps widened and calls for national health insurance escalated.
A Wild 50-Year Ride (1960 to 2010)
The 1960s brought bold promises, historic reforms, disappointments and the seeds of future flaws.
In mental health, stirring rhetoric set the stage for subsequent regrets. Exposés of inhumane mental hospital conditions prompted calls for reform. President Kennedy pledged to replace institutions with community mental health services. The US slashed public psychiatric beds, but its support for community-based services waned. This often left jails and the streets as the most viable options for those with mental health issues.
In 1966, the Medicare and Medicaid programs were enacted under President Johnson (the 1966 Social Security Amendments). These programs overcame fierce AMA opposition but won support from hospitals and other providers. While these programs did not bring universal health insurance, they broadened coverage (especially for the elderly, disabled and indigent) and remain the most significant healthcare reforms in US history.
The rise of Big Pharma—the large pharmaceutical corporations—began in the 1960s. Congress enacted laws making it easier for drug firms to control, commercialize and advertise patents and products. The NIH made it easier for pharmaceutical firms to increase profits for drugs developed with NIH funding (and reduce the federal share of those profits). Such actions bloated both industry profits and consumer costs.
In addition, our elected representatives—Democrat and Republican—periodically increased healthcare benefits. New Medicare hospice benefit (1982). New Medicaid Home and Community Based Services option (1983). Medicare Advantage (Part C) option (1997). Existing benefit increases for Medicare, Medicaid and CHIP (2000). New Medicare (Part D) outpatient drug benefit (2003). Mental health services (2008). COBRA subsidies (2009). Massachusetts’s universal health insurance plan (2006).
From the 1970s to 2010, healthcare costs skyrocketed, and for many reasons. More Medicare and Medicaid recipients (more applicants met the eligibility criteria). Underfunded public health. Indifference to prevention. Insurance gaps. The fee-for-service reimbursement model. Fragmented providers. Inadequate competition. Runaway drug prices. Weak accountability.
There were some efforts to control costs. The Health Maintenance Organization (HMO). The fixed payment (capitation) model. President Clinton’s healthcare reform plan. With few exceptions, these measures encountered strong headwinds, especially from the AMA, AHA, Big Pharma and insurers.
The inevitable outcomes? Strained federal and state budgets. Closed city hospitals. Uneven healthcare insurance coverage and access. Higher premiums and deductibles, especially for those with chronic illnesses. More and more people forced to choose between healthcare and other essentials (e.g., housing, utilities and food).
2010 Affordable Care Act (ACA)
Considering the pitched political battles it inspired, it is easy to forget ACA’s pragmatic modesty. Based on conservative ideas, it was anything but revolutionary. Building on existing programs, it merely sought to expand coverage and slow cost growth. In the long-term, it also hoped to stimulate more illness prevention, service coordination and outcome-based spending.
The ACA’s improvements were largely incremental. Funding for expanding Medicaid. Stronger standards, more competition and increased subsidies for private insurance plans. It offered a new cost control model—the Accountable Care Organization (ACO), but it retained the fee-for-service model for most primary-care practices.
The ACA did not deliver universal coverage. It left several states (those opting not to expand Medicaid) with high uninsured rates. It did not transform private insurance plans. Its Center for Medicare and Medicaid Innovation struggled. Still, the ACA gave health insurance to 24 million more Americans. It preserved coverage for 31 million with preexisting conditions. It reduced prescription drug costs for 12 million seniors and helped restrain overall healthcare cost growth. ACA may not have been revolutionary, but it improved the lives of millions.
After Obama left office, the ACA survived—barely. The Supreme Court narrowly upheld it. The Senate refused to kill it. The Trump administration, without offering alternatives, tried to eviscerate the ACA. It cut Medicaid funds, imposed new coverage limits and sanctioned junk insurance products. It defunded health insurance marketing programs, cutting enrollment (and coverage) for over 2 million Americans.
The Pandemic
The pandemic’s full impact on the US remains unknown, but some facts are clear. Over a million deaths. Even more hospitalizations. Shuttered school facilities. Stunted child development and deflated educational achievement scores. An economic tsunami with millions of job losses. And over 6 million people lost employer-provided health insurance coverage.
It will likely be years before we fully understand what we did right and what we did wrong. However, we should recognize that the pandemic would’ve been even more devastating but for heroic public and private action.
The federal stimulus packages were pivotal. The 2020 package expanded Medicaid and helped 12 million people stay insured. The 2021 programs cut ACA marketplace premiums, increased enrollment and helped states expand coverage. States used Medicaid waivers to improve access and mandated free Covid-19 treatment. Many private insurers voluntarily waived Covid-19 treatment cost-sharing.
The Lessons of History
There are many ideas for improving our flawed healthcare system. Universal coverage. A single-payer plan. A public option. Joint healthcare and social services. Delegating more physician tasks to nurses and physician assistants. Empowering dental therapists to provide routine care. Fully digitized records management and sharing. Managed care entities. The list goes on.
However, whatever we do, we must redesign the US healthcare system to correct the flaws that are inextricably linked to its historical development, including the following:
The triumph of individual treatment over community prevention
The political primacy of physicians, physician groups and, more recently, hospital systems
The inherent inefficiencies of employer-based insurance
The fragmentation and muddled deployment of healthcare resources
The government’s decoupling of its funded research from the financial returns of innovation
The distortion of medical care by profiteering (and fee-for-service model)
These flaws will be addressed more fully in the coming essays.
[1] The AHA was actually formed in 1898.