The Birth of Health Insurance

Flexner Report

The Birth of Health Insurance - Health ArchitectureFor most of U.S. history, most Americans paid for their health care out of pocket. The upper class could buy any health care plan they desired, the middle class could afford most needed health care, the poor mostly went without; however, few questioned the system. To a remarkable extent, the following present-day aspects of the medical profession and the U.S. health care system are significantly influenced by the 1910 Flexner Report. The Flexner Report [1], written by Professor Abraham Flexner, is a study that analyzed medical education in the United States and Canada under the aegis of the Carnegie Foundation. The report recommended American medical schools to enforce higher admission and graduation standards with the goal of achieving a more evidence based approach to medicine. Nearly half of American medical schools did not fulfill the standards advocated in the Flexner Report.
The following present-day aspects of the medical profession are consequences of the Flexner Report [2]

  • Medical training adheres closely to the scientific method and is thoroughly grounded in human physiology and biochemistry. Medical research adheres fully to the protocols of scientific research;
  • Average physician quality has increased significantly;
  • No medical school can be created without the permission of the state government. Likewise, the size of existing medical schools is subject to state regulation;
  • The cost of health care has vastly increased;
  • Medicine in the US and Canada has become a highly paid and well-respected profession.

The 1930s

The Birth of Health Insurance - Health Architecture
During the 1930s Great Depression, millions of middle and upper class Americans lost their jobs, savings, and the ability to pay for medical care. Consequently, many doctors and hospitals were vulnerable to bankruptcy. In response, the first major insurance programs such as Blue Cross and Blue Shield were developed by the American Hospital Association and the American Medical Association [3]. These two plans (collectively known as “the Blues”) continue to play an important role in the U.S. health care system, currently insuring about one-third of all Americans [3]. The overall purpose of the Blues was to protect the hospitals’ and doctors’ incomes while providing Americans with affordable medical care. Various different types of health insurance programs began to develop in the 1930s.

The Government Steps In

The Birth of Health Insurance - Health Architecture

Although the rise of health insurance enabled most Americans to afford health care, by the 1960s, it was evident that most poor Americans and middle-class retirees could not. In response to the rise of the civil rights movement, in 1965 President Lyndon Johnson and Congress authorized two new health insurance programs, Medicaid and Medicare, which originally focused on care for the elderly above the age of 65. Medicaid concentrated on insuring the poorest Americans while Medicare insured Americans with permanent disabilities or elderly people above 65 years. With the government covering medical bills for millions of Americans, the incomes of people related to the health care industry skyrocketed.

The Rise of Commerical Insurance

As the profit in the health care industry continued to flourish, commercial insurance companies entered the field in large numbers. Initially, insurance companies such as the Blues were all nonprofits; however, companies began to focus on earning a profit for their investors. The “actuarial risk rating” began to consume the industry rather than community rating. While using the actuarial risk rating, insurers maximize their profits by charging people different premiums based on their predicted health risk or even by refusing to insure those with high risk [3]. For example, people with potentially high risk such as allergies, back strain, kidney stone, or diabetes were charged with higher premiums or denied all together while “healthy” individuals were charged exceptionally low rates. As a result, commercial insurers attracted low-risk clients leaving sicker clients to the nonprofit insurers.

The Managed Care Revolution

By the 1980s, the amounts spent by the government and insurers to cover health care cost has exponentially increased which has led to the rise of managed care. Managed care refers to any system that controls costs through closely monitoring and controlling the decisions of health care providers [3]. In order to monitor the cost, managed care organizations enforced cost through utilization review, which is where doctors must receive approval from the insurers before they can treat a patient.

The rise of managed care organizations led many to question the impact on the outcome of patients and health care. In addition, people began to address the impact of the for-profit motive. Though both for-profit and nonprofit costs were controlled by the manage care organization, one strives to generate profit while the other do so to free the funds needed to improve services for their members. One major study found that for-profit managed care organizations scored lower than nonprofit on all 14 indicators of quality of care, including rates of childhood vaccinations, mammograms, and appropriate treatment of diabetes [3].

Despise the clear evidence that managed care make an insignificant difference in patient outcomes, some people opposed the idea of managed care. Some of the undesirable aspects of managed care were dropped due to the “Patients’ Bill of Rights”. For example, legislators have opposed the early release of women from hospitals soon after birthday even though early release typically is safe because it reduces women’s changes of contracting infections in the hospital [3]. Overall, through the media managed care was easily targeted simply because it reduced an individual’s choice.

1. Flexner, Abraham (1910), Medical Education in the United States and Canada: A Report to the Carnegie Foundation for the Advancement of Teaching, Bulletin No. 4., New York City: The Carnegie Foundation for the Advancement of Teaching, p. 346, OCLC 9795002, retrieved April 20, 2013
2. Barzansky, Barbara;Gevitz, Norman(1992).Beyond Flexner: Medical Education in the Twentieth Century(1. publ. ed.). New York: Greenwood Press.ISBN978-0313259845.
3. Weitz, Rose. The Sociology of Health, Illness, and Health Care: A Critical Approach. Boston, MA: Wadsworth/Cengage Learning, 2013. Print
4. David, Karen, Cathy Schoen, and Kristof Stremikis. "Mirror, Mirror on the Wall." How the Performance of the U.S. Health Care System Compares Internationally. The Common Wealth Fund, June 2010. Web. 01 May 2013. <>.

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