Harry Nelson

“Prehistoric” U.S. Healthcare

In considering the U.S. healthcare system, there are many unusual features that relate to how the system evolved historically.  Why, for example, do most people get their health insurance coverage through their employer?  Given that we have such significant federal programs, why are they limited to the elderly and disabled (Medicare) and the poor (Medicaid)?  As background for looking forward at our healthcare system, it’s useful to take a brief look back at our “prehistoric” system and where and how we started.

U.S. Healthcare Before the 20th Century

In the first 150 years after the founding of the United States, the American healthcare system looked very different. If you were to travel back in a time, for example, to 1800 and ask Americans about their health insurance coverage, you would draw only confused looks. Other than a 1798 federal law providing “for the Relief of Sick and Disabled Seamen” through a program that sailors paid into and then received care, there was no federal or state health care program. Nor was there private health insurance coverage.

Hospitals played a very different role. Rather than being centers for the best possible care, hospitals were centers of infection and disease. Only those who could not afford private care were condemned to be forced into hospitals. Anyone with the means received care at home. In a time before the virtues of handwashing and the mechanisms of the spread of germs and disease were well understood, hospitals were dangerous places to be.

Physicians and other healthcare professionals were unregulated, and medical education was not standardized. (The United States rejected progress that was made on these fronts in Europe out of a libertarian impulse.) U.S. physicians provided care strictly on a private basis for those with the ability to pay (or donated their services in charity-based hospitals, many of which were founded by Catholic and other religious groups in furtherance of their mission. Many physicians and others promoted remedies that, to say the least, did not survive into the age of evidence-based medicine. The term “quackery” is often applied to pre-twentieth century American medicine, deriving from the Dutch word “kwakzalver,” or “salve hawkers” for those who shouted to sell their dubious health remedies.

In the mid-19th century, there were discussions of expanding healthcare services. In 1854, President Franklin Pierce vetoed a bill that would have created institutions for the deaf, blind, and insane, expressing concerns about federal intrusion into matters of state law. In the aftermath of the Civil War, the federal government also constructed hospitals throughout the South under the auspices of the Freedmen’s Bureau to care for freed slaves.

Early 20th Century Emergence of Employer-Based Healthcare Coverage and Discussion of National Health Coverage

The idea of a national system to provide healthcare first emerged in the early 20th century. Britain enacted one of the earliest national healthcare insurance systems in 1911, and progressives within the United States campaigned (unsuccessfully) for a similar program offering state-guaranteed health insurance. Beginning in the late 19th century and expanding in the early decades of the twentieth century, the system of purely private care and charity-based hospitals was supplemented by the earliest employer-based healthcare coverage, which were known as “sickness funds.” Employees would pay into a company fund that would cover their needs if they became ill. This linkage between employment and health coverage came to be one of the defining aspects of the American healthcare system, in contrast to systems in other countries.

The New Deal programs of the 1930s, following the Great Depression, represented another step forward in the development of the modern healthcare economy. President Franklin D. Roosevelt originally intended for publicly funded healthcare programs to be part of the Social Security system. He was forced to abandon these plans in response to objections from, among others, the physician community.

In the absence of government programs, the 1930s and 1940s were a time when the earliest national and regional private organizations emerged as forces on the American healthcare landscape. Hospitals developed their own insurance programs covering physician and hospital care, most successfully, the Blue Cross Blue Shield programs, which were sold to employers to offer broader healthcare coverage. Kaiser Permanente emerged in the 1940s after Henry Kaiser developed a system to contract physician services for his employees and then made the option available to the public

As the American economy boomed and millions of veterans re-entered the workforce after World War II, employer-based health insurance coverage grew into the primary means by which Americans accessed health care. In 1951, the Internal Revenue Service ruled that employer-paid premiums for health insurance were a tax-deductible expense, ensuring the centrality of employer-based coverage in the United States This was an era when unions successfully negotiated for expansive health benefits for their members. By contrast, when President Truman called for a universal system of care as part of his Fair Deal in 1949, he encountered significant resistance to a public system of care.

The linkage of health insurance coverage to employment had several consequences. First, as the American economy expanded in the 1950s and 1960s, the size and scale of the private insurers grew. Blue Cross and Blue Shield, and more broadly the insurance industry emerged as a powerful interest in the dialogue about national healthcare.

While employer-based healthcare coverage provided care for the overwhelming majority of working families, it left several key gaps, including the elderly, the disabled, and the poor, including single mothers and children.  These gaps are precisely why our two largest federal health programs address specifically these populations (Medicare for the elderly and disabled; Medicare for the poor).  In essence, our federal health system’s entire function has been to plug the gaps left by the private marketplace.  This historical evolution contributes to an uphill battle for advocates for a national, single-payor system.

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