Private Health Insurance Is Not the Answer

Healthcare reform is in the air.

Ideas for dealing with the 46 million Americans without medical insurance seem to be popping up faster than new cases of the winter flu. President Bush proposes to use tax deductions to help people buy individual plans. California Governor Arnold Schwarzenegger wants to make it mandatory for everyone in his state to obtain insurance and would force employers who don't provide coverage to pay into a fund.

Democratic Presidential candidate John Edwards would raise taxes on the affluent to pay for subsidies to help those with low incomes obtain policies. Some members of Congress are promoting insurance purchasing pools for small businesses. An odd bedfellows coalition including the Business Roundtable, AARP, the Service Employees International Union and Wal-Mart is pushing for some kind of expansion of coverage but is not saying what form it should take.

What these varied plans have in common is the assumption that, at least for the foreseeable future, most of the working population (and their dependents) will continue to receive coverage through private insurance carriers. Public officials across the political spectrum are, in effect, seeking to expand the customer base for a highly profitable industry.

Surely, it is a good thing to provide coverage to the uninsured, but it is remarkable that almost everyone assumes that coverage has to come from for-profit (or, in some cases, private non-profit) providers. Despite the overwhelming evidence from other industrial countries -- and even domestic programs such as Medicare -- that government-run health plans are much more efficient, the U.S. political class seems to be on a mission to save private insurance.

A Paternalistic Reform?

To understand the current debate, it is helpful to recall some of the tortured history of health insurance in the United States. In the late 19th Century European countries began adopting government-funded social insurance plans, but the U.S. failed to follow suit. When progressives made a push in the 1910s there was opposition not only from corporate interests but also from organized labor. AFL President Samuel Gompers denounced national health insurance as a paternalistic reform, fearing that its adoption would weaken the role of unions in improving the living conditions of workers.

Consequently, Americans both rich and poor continued to pay the vast majority of medical costs out of pocket. That began to change in the 1930s. While the Roosevelt Administration focused on retirement benefits and unemployment insurance at the expense of health coverage, physicians and hospitals struggling to survive the Depression set up private group insurance plans to bolster demand for their services. The most successful of these were the non-profit multi-hospital plans that grew under the rubric of Blue Cross. These were later followed by Blue Shield plans, which covered outpatient physician services. Once the Blues paved the way, commercial insurers also entered the field, though their coverage tended to be more restricted.

After the end of World War II, there was great momentum toward expanding the portion of the population with some form of sickness insurance. In 1945 President Harry Truman proposed a national program establishing a right to medical care and protection from the "economic fears" of illness. But once again, opposition to government involvement in healthcare emerged, this time reinforced by a Cold War hysteria about "socialized medicine" stoked by groups such as the American Medical Association.

As Truman's plan went down to defeat, what grew in its place was a system of employer-provided coverage, stimulated by aggressive bargaining on the part of unions that had come to regard improving employee benefits as a mission as important as increasing wages. This put pressure on non-union employers to follow suit, and by the mid-1950s, about two-thirds of the country was getting coverage through either their own jobs or those of spouses or parents. The Blues, which held the largest share of this booming market in the early postwar period, began to fall behind the commercial carriers by the late 1950s.