Today’s mosealth care politics revolve around how to patch up a medical care system built through an uneasy combination of government and private market power. The U.S. health care system exists in a nebulous space between market discipline and government planning—where profit motives are misaligned and government programming lags behind private sector developments.
This public-private amalgam adds complexity to health care politics, which, though sometimes difficult to understand, nevertheless elicit passionate outcries from citizens on both sides of the political aisle. Indeed, over the past six or seven decades, both political parties have proposed major health reform plans and have encountered electoral difficulties when they were viewed as undermining access—particularly middle-class access—to health insurance.
Part and parcel to this history, Democrats encountered fierce voter opposition when they passed the 2010 Affordable Care Act. The ACA expanded Medicaid, mandated that everyone purchase coverage, and granted subsidies to low-income buyers to access state insurance exchanges. Middle-class and working-class voters who resented mandates and worried about rising premium prices and deductibles, helped drive subsequent Democratic Party losses at the polls. Now, as Republicans attempt to roll back and replace the ACA, they have faced a storm of criticism for lacking solutions to costs problems and for reducing coverage rates, especially among vulnerable populations.
To understand how we arrived at today’s political scene, it’s crucial to understand how the health care system’s economic structure has driven debates about costs and coverage. The U.S. system is built on a particular economic model—the insurance company model—which has pushed up health care costs and made insurance difficult to afford. For the first three or four decades of the twentieth century, the health care marketplace accommodated numerous ways of financing and delivering medical services. Unions, businesses, farmers’ associations, consumer cooperatives, African American fraternal orders, and ethnic mutual aid societies all experimented with different ways of delivering medical care to members. One popular model was the prepaid physician group. Prepaid doctor groups offered medical care to individuals and families in exchange for a set monthly fee. Since they usually hosted doctors from a variety of medical specialties, prepaid groups offered patients holistic care in one place. Moreover, because physicians acted as their own insurers, they were financially incentivized to hold down costs while still providing ample care, which was necessary both to attract additional customers through patient referrals and to prevent patients from developing graver and more costly illnesses.
However, the American Medical Association (AMA) opposed these myriad ways of arranging health care. Leaders of the physician professional association feared that these community health care plans—whether run by unions, farmers, or doctors—would either develop into medical corporations that usurped physician autonomy and pay or would, by organizing the market, make it easier for government officials to intervene in medicine. AMA resistance was aggressive. To punish doctors who participated in non-sanctioned health care arrangements, AMA leaders pressured hospitals to withdraw admitting privileges from offending physicians and worked through state boards, which were stacked with their members, to revoke medical licenses. These attacks successfully shuttered many of these alternative plans and stunted the health care market’s overall development.
AMA actions to stymie the health care market only provoked political calls for reform. The 1930s saw the first sustained efforts to introduce federal funding of health care. Though President Roosevelt ultimately decided not to pursue health care reform in the 1935 Social Security Act, he did form a special committee to study legislative proposals and held a national conference to consider the issue. In 1939, Senator Robert Wagner (D-NY) introduced legislation to fund state medical care programs. By the early 1940s, reformers envisioned a more centralized system that placed the Social Security Administration in charge of financing and managing health insurance. While unsuccessful, these legislative efforts convinced AMA leaders that they needed to promote the private market—they needed a health care financing model that they could advocate as preferable to government reform.
So the AMA created, practically out of thin air, the insurance company model. AMA leaders thought they could protect the doctor’s professional position by allowing only insurance companies to finance health care—at least insurance companies were located far away from most physicians. The AMA decreed that insurance companies could not question physicians about how they practiced. They were to pay doctors, moreover, not on a salaried or per-capita basis, but on a fee-for-service basis, compensating doctors for each and every service or procedure they performed. Fee-for-service reimbursements encouraged doctors to over-supply care for the insured and, therefore, became a primary driver of rising health care prices. Insurers begrudgingly entered into this clearly poor bargain in order to supply business clients with group insurance for their workers and to help physicians defeat “socialized medicine.”
The insurance company model began to take hold in the market during the 1940s. However, because it was an inherently expensive way to finance care, only about one-quarter of the population owned coverage at the end of the 1940s. Furthermore, because insurers feared the costs associated with underwriting such a product, they only offered bare-bones policies, which usually covered between 60 and 80 percent of a patient’s hospital bill. Medical services outside the hospital were rarely included.
Almost all policymakers recognized that the insurance company model was inherently costly. This insight propelled health care politics for over two decades as both Democrats and Republicans attempted to either subvert or repair the model. President Truman led his famous attempt to create universal coverage at the end of the 1940s. The Truman proposal would have undermined the insurance company model by funneling resources to prepaid doctor groups and other plans that officials identified as more cost efficient. But, through a massive campaign that employed radio ads, brochures, pamphlets, physician office signage, traveling speakers, canned newspaper articles, and roadside billboards, the AMA and business allies defeated the Truman bill. Yet the AMA could not defeat criticism of the faulty insurance company model. Consequently, Republican President Eisenhower and congressional members from both parties, many of whom had fought Truman’s legislation, sponsored their own reform proposals to create a more efficient and equitable system. These reform plans were less comprehensive than Truman’s universal scheme but, nonetheless, attempted to address cost and coverage concerns. For example, President Eisenhower’s Reinsurance plan offered subsidies to insurance companies when they incurred losses in the course of insuring elderly or chronically ill subscribers. However, because the bill would have established a government foothold in medicine, the AMA and most insurers opposed the bill.
Though these myriad legislative proposals failed, collectively, they pushed doctors and insurers to rapidly grow the insurance company model. Physicians and insurers contended that they had to expand the insurance company model as quickly as possible to thwart all government reform efforts. This idea became a mantra at AMA meetings and insurance industry conventions, through their speeches, and in professional and industry publications. In order to prove that they could expand insurance and meet social goals without federal interference, insurance executives and physician leaders allied to transform health coverage from a high-end product for a select few into a mass consumer good. Insurers also converted their product from a minimal mechanism that partially protected against hospital bills into a device for covering almost all costs associated with medical care.
Through the 1950s and 1960s, as insurance coverage grew, costs began to skyrocket. Thus, insurance companies began erecting institutions that, in the name of holding down costs, would allow them to supervise physicians. Insurers cultivated their own medical expertise and gradually brought physician work under their purview. Doctors filled out additional paperwork to justify patient treatments to insurers, physicians increasingly had to obtain permission from insurers to admit patients to the hospital, and utilization review committees began to evaluate doctor treatments to weed out excessive services and bill padding. As insurers implemented cost controls, they gradually began to manage the way medicine was practiced. In a grand ironic twist, physicians now faced the very corporate oversight that AMA leaders had initially feared and had attempted to evade by assembling the insurance company model.
This organizational build up in the private sector eventually made the insurance company model seem natural or inevitable—patients, health care providers, insurers, and policymakers grew more accustomed to its policies and processes and forgot about alternative models.
But there was one more step in the process of embedding the insurance company model into the health care system. When Democratic policymakers created Medicare in 1965, they adopted the insurance company model. They did so to couch their reform plan as ideologically moderate and to harness the private market’s administrative capacity. Policymakers appointed insurance companies to administer the program of elderly medical benefits and to act as financial intermediaries between the government and service providers.
Since Medicare’s passage, the vast majority of reform bills—whether Democratic or Republican—have attempted to accommodate the insurance company model. In the 1970s, Health Maintenance Organization (HMO) legislation and the Health Planning Resources Development Act won passage but then fumbled the goal of reducing medical costs and making coverage more affordable. During the same decade, efforts to create comprehensive health coverage failed, including President Nixon’s attempt to augment the insurance company model through an employer mandate and expanded Medicaid program. Policymakers continued tinkering with the system; for example, additional bills amended Medicare and state Medicaid programs for the poor while a 1986 act required hospitals to treat all emergency room patients. HMOs and other forms of “managed care” became increasingly popular during the 1980s and 1990s as government officials and insurance companies sought additional avenues for depressing costs, usually through increased monitoring of physicians and hospitals. Indeed, the 1993 Clinton plan for universal insurance heavily emphasized managed care plans to push down costs.
The ACA proved just how difficult it has been for policymakers to reform the health care system by restructuring the insurance company model. Democrats originally proposed a “public” insurance option that they hoped to price low and load up with generous benefits in an attempt to, over time, weaken the insurance company market. However, that provision was ultimately defeated. So like its legislative predecessors, the ACA also assembled atop the insurance company model.
Now, as Republicans try to repeal the ACA, they’re finding politically palatable options difficult to locate. Whatever faults it had, the ACA at least expanded coverage. That’s why the most recent Republican plan, so-called “Ryancare,” has found little support among liberals, moderates, or conservatives: it not only fails to bend down the cost curve but also reduces population coverage rates.
As this history shows, Republicans have a long history of attempting to reform health care to enlarge insurance coverage. If they embrace this past, then they can look beyond the insurance company model for ways to reduce costs in order to create a universal or, at the very least, comprehensive system of medical insurance. Moreover, historical models, such as prepaid doctor groups, which offered low-cost and high-quality care, provide politicians with robust, viable reform options.
Christy Ford Chapin is an Assistant Professor of History at the University of Maryland, Baltimore County. Her book Ensuring America’s Health: The Public Creation of the Corporate Health Insurance System was published in 2015.
 Though HMOs, initially, were an attempt to recapture the efficiencies of prepaid doctor groups, they ultimately conformed to the insurance company model – insurers continued to finance physicians.