U.S. Health Care Coverage and Costs: Historical Development and Choices for the 1990s

The phrase comes from Enthoven Alain C. and Kronick Richard , “A Consumer-Choice Health Plan for the 1990s: Universal Health Insurance in a System Designed to Promote Quality and Economy, I.” New England Journal of Medicine 325 (1989):854–59 (first of two parts).

Even with heavy use of endnotes, not all points can be referenced, and not all good references can be cited. General accounts not always cited but probably of most interest to readers include: Califano Joseph A. Jr. , America's Health Care Revolution: Who Lives? Who Dies? Who Pays? New York: Random House, 1986, especially chapter 3, pp.36–57 (most readable, if poorly documented overview); Congressional Research Service, Health Insurance and the Uninsured: Background Data and Analysis (Washington, DC: U.S. Government Printing Office, May, 1988a, Committee Print, Educ. and Labor Serial No. 100-Z, Energy and Commerce 100-X, Special Comm. on Aging, 100-I) (description and data); Iglehart John K. , “The American Health Care System,” New England Journal of Medicine 326(1992):962–67, 1467–72, 1715–20 (three-part series); Paul Starr, The Social Transformation of American Medicine (New York: Basic Books, 1982) (classic historical-political analysis of medical profession); and Wilson Florence A. and Neuhauser Duncan , Health Services in the United States (Cambridge, MA: Ballinger Publishing Co., 1982, 2d ed.) (descriptive overview of delivery and financing, as well as public health and regulation).

On the early limits of medicine, see, e.g., Thomas Lewis , The Youngest Science: Notes of a Medicine Watcher (New York: Viking, 1983) and Shorter Edward , The Health Century (New York: Doubleday, 1987). On hospitals see, e.g., Stevens Rosemary , In Sickness and in Wealth: American Hospitals in the Twentieth Century (New York: Basic Books 1989). Harvard Professor L. Henderson is the source of the contemporaneous quotation, calling the year 1912 “a Great Divide,” according to Richard Harris, A Sacred Trust (New York: New American Library, 1966), 5.

See, e.g., Mehr R.I. , Fundamentals of Insurance, (Homewood, IL: Irwin Richard N. , 1986).

On foreign developments, see, e.g., Iglehart John K. , “Germany's Health Care System,” New England Journal of Medicine 324 (1991):1750–56; Schieber George J. Poullier Jean-Pierre and Greenwald Leslie M. , “Health Care Systems in Twenty-Four Countries,” Health Affairs 10 (1991):22–38. On the U.S., see, e.g., Hirschfield Daniel , The Lost Reform (Cambridge, MA: Harvard University Press, 1970).

All such early figures come from Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1970 (Washington, DC: U.S. Govt. Printing Office, 1975).

Shadid Michael , A Doctor for the People, (New York: The Vanguard Press, 1939); Greenberg Ira G. and Rodburg Michael L. , “Note: The Role of Prepaid Group Practice in Relieving the Medical Care Crisis,” Harvard Law Review 84 (1971):887–1001.

On the Blues, see generally Anderson Odin W. , Blue Cross Since 1929 (Cambridge, MA: Ballinger Publishing Co., 1975); Eilers Robert D. , Regulation of Blue Cross and Blue Shield Plans (Homewood, IL: Irwin Richard D. , 1963); Sylvia Law, Blue Cross: What Went Wrong? (2d ed.) (New Haven: Yale University Press, 1976); Starr, supra note 2.

Bureau of the Census, supra note 6, at 74–75 (price indices were created only for 1935 and subsequent years).

For a descriptive analysis, see Craig Victoria C. , Federal Tax Policy: Its Effect on Health Care Costs, Coverage and the Uninsured (Alexandria, VA: Council for Affordable Health Insurance, October 1992). Not only was fringe-benefit insurance untaxed, but out-of-pocket spending was also deductible for individual taxpayers whose expenses exceeded a threshold (deductibility has been restricted over time). For the theory of economic effects, see Pauly Mark V. , “Taxation, Health Insurance, and Market Failure,” Journal of Economic Literature 24(1986):629–675.

See, e.g., Bovbjerg Randall R. , “Insuring the Uninsured through Private Action: Ideas and Initiatives,” Inquiry 23 (Winter 1986):403–418.

Anderson Odin W. , “Compulsory Medical Care Insurance, 1910–1950,” The Annals of the American Academy of Political and Social Science 273 (1951):106–113.

On NHI in this era, see, e.g., Marmor Theodore R. Feder Judith and Holahan John , “Introduction,” in National Health Insurance: Conflicting Goals and Policy Choices, Feder Judith Holahan John and Marmor Theodore R. (eds.) (Washington, DC: Urban Institute Press, 1981). On insurance market shares, see the annual HIAA Source Book, cited in Table 2.

On experience rating and Blues versus commercial practice, see generally Starr, supra note 2; Congressional Research Service, supra note 2; and Fox Daniel M. Rosner David and Stevens Rosemary A. (eds.), Between Public and Private: A Half Century of Blue Cross and Blue Shield in New York, Journal of Health Politics, Policy and Law, 16 (1991):64l–805 (symposium issue). Of course, high costs of a Blues plan can also be due to poor performance or unduly generous payments to providers.

On public coverage, see, e.g., Marmor Theodore R. with Marmor Jan S. , The Politics of Medicare (Chicago, IL: Aldine Publishing Co., 1973), pp.9–38; Rosemary Stevens and Robert Stevens, “Medicaid: Anatomy of a Dilemma,” Law and Contemporary Problems 35 (1970):348–425.

See Appendix Table 1 for the precise dollar breakdowns of spending that underlie Figure 1-a's percentages.

Bureau of the Census, supra note 6, page 81.

See, e.g., Marmor with Marmor, supra note 15, at 39–57; Eugene Feingold, Medicare: Policy and Politics, A Case Study and Policy Analysis (San Francisco, CA: Chandler Publishing Co. 1966); American Medical Association, The Case Against the King-Anderson Bill (H.R. 3920): AMA Statement before the Committee on Ways and Means, House of Representatives, 88th Congress (Nov. 21) (Chicago, IL: American Medical Association, 1963).

Part A was funded by dedicated federal taxation; Part B by enrollees' voluntary “premium” payments (which have never covered much of the cost) plus general federal revenues.

For a recent source on Medicare, see Iglehart John K. , “The American Health Care System—Medicare,” New England Journal of Medicine 326 (1992):1467–72; on Medicaid, see Congressional Research Service, Medicaid Source Book: Background Data and Analysis [Committee Print 100–AA, 100th Congress, 2d Session], (Washington, DC: U.S. Government Printing Office, November 1988).

Gibson Robert M. and Waldo Daniel R. , “National Health Expenditures, 1980,” Health Care Financing Review 3 (September 1981):1–54, Table 5, page 39.

See Commerce Clearing House, Medicare and Medicaid Guide (Chicago, IL: CCH, 1993; looseleaf service, updated biweekly, each page dated), at paragraph 17, 298. See also Stevens and Stevens, supra note 15, at 365, 395–96.

See, e.g., Feder Judith (eds.), supra note 13, especially the chapters on provider payment. With regard to the analogy of reimbursed transportation, note that even the choice of walking, taking a taxi, or renting a car is in fact affected by the reimbursement rules, as all business travelers know. And taxis often cost more near hotels in recognition of the availability of this third party payment mechanism.

Professor Uwe Reinhardt E. , a Princeton economist, frequently uses this slight exaggeration to good effect in his speeches.

For a dicussion of CPR, see, e.g., Holahan John , “Physician Reimbursement” 73–128 in Feder (eds.), supra note 13; on various alternatives, see generally Glaser William A. , Paying the Doctor (Baltimore: Johns Hopkins University Press, 1970).

At any given time, patients and providers have an incentive to use medical care up to the point at which its marginal value equals the patient's payment; the decision-making individuals have no accountability for the resulting social costs. These points were not commonly recognized prior to the 1970s, though they now seem commonplace, having been made from various perspectives. See, e.g., Fuchs Victor R. , Who Shall Live? Health, Economics, and Social Choice. (New York: Basic Books, 1974); Hiatt Howard H. , “Protecting the Medical ‘Commons’—Who Has the Responsibility?” New England Journal of Medicine 293(1975):235–241; Havighurst Clark C. and Blumstein James F. , “Coping with Quality/Cost Trade-Offs in Medical Care: The Role of PSROs,” Northwestern University Law Review 70(1975):6–68. The leading empirical estimate is that a fully insured population costs about 40–50% more than one with a high deductible, Manning Willard G. , “Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment,” American Economic Review 77(1987):251–277. Insurance coverage is not the only determinant of spending, however; medical capabilities (often called “technology” but not limited to machines), population demographics, broader economic trends, and consumer preferences also matter. It is notable, for instance, that in the 1960s, health spending also grew rapidly as a share of total economies in other developed countries, with very different financing (Appendix Table 2). Newhouse, supra Table 1, suggests that growth over time relates more to other factors than to insurance.

Sloan Frank A. Blumstein James F. and Perrin James M. (eds.), Cost, Quality, and Equity in Health Care: New Roles for Health Planning in a Competitive Environment (San Francisco, CA: Jossey-Bass, 1988), especially in chapter 3, summarize the evidence on planning's performance, as seen in the mid-1980s after over a decade's experience. It is worth noting that in other regulated industries, such as electric power and telephone, when prices are set on a cost-plus or rate-of-return basis, utilities respond by investing in capital, which raises fixed costs and allows them to argue for higher prices.

For fuller coverage of this era, see Falk I.S. , “National Health Insurance: A Review of Policies and Proposals,” Law and Contemporary Problems 35 (1970):667–696; Kennedy Edward M. , In Critical Condition: The Crisis in America's Health Care (New York: Simon and Schuster, 1972); Fuchs Victor R. , “National Health Insurance Revisited,” Health Affairs 10 (1991):7–17; Marmor T.R. Boyer Richard and Greenberg Julie , “Medical Care and Procompetitive Reform,” Vanderbilt Law Review 34 (1981):1003–28 (this entire issue, pp. 349–1158, is devoted to “procompetitive” ideas of the late ‘70s and early ‘80s).

See, e.g., Bovbjerg Randall R. and Curtis Richard E. , “States Are Confronting Adverse Side Effects of Health Competition,” Business and Health 4(1987):49–50 (no.3, March).

On these developments, see, e.g., Ginsburg Paul B. , “Inflation and the Economic Stabilization Program,” 31–51 in Zubkoff Michael (ed.), Health: A Victim or Cause of Inflation? (New York: the Milbank Memorial Fund, 1976).

For one summary, see Brown Lawrence D. , “Introduction to a Decade of Transition,” Journal of Health Politics, Policy and Law 11(1986):569–583 (covering 1972–1986).

See, e.g., Feder Judith Holahan John Bovbjerg Randall R. and Hadley Jack , “Health,” in The Reagan Experiment, ed. Palmer John L. and Sawhill Isabel V. , 271–306 (Washington, DC: Urban Institute Press, 1982); Vanderbilt Law Review, supra note 28 (entire issue).

See generally Committee on Ways and Means (U.S. House of Rep.) Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means, 1989 Edition (Washington, DC: U.S. Government Printing Office, 1992, No. WMCP 101-4, March 15), 287–377 (hospital payment), 378–420 (physician). See also the annual reports of the respective advisory commissions, e.g., Prospective Payment Advisory Commission, Medicare and the American Health Care System: Report to Congress (Washington, DC: ProPAC, June 1993), especially pp. 45–50; Physician Payment Review Commission, Annual Report to Congress, 1993 (Washington, DC:PPRC), especially pp. 89–255.

On rate setting, see, e.g., Eby Charles L. and Cohodes Donald R. , “What Do We Know about Rate-Setting?” Journal of Health Politics, Policy and Law 10(1985):299–327; on competitive approaches, Christianson Jon B. Hillman D.G. and Smith K.R. , “The Arizona Experiment: Competitive Bidding for Indigent Medical Care,” Health Affairs (Fall 1986):88–103; Melnick Glenn Zwanziger Jack and Bradley Tom , “Competition and Cost Containment in California,” Health Affairs 8 (Summer 1989):129–136.

On benefits in the 1980s, see generally Chollet Deborah J. , Employer-Provided Health Benefits (Washington, DC: Employee Benefit Research Institute, 1984). On “competitive” developments, see, e.g., Congressional Research Service, supra note 2, especially pp. 121–166 (overview); Califano, supra note 2 (pro-private, competitive approach); Reinhardt Peter Nippert, “Competition in Health Care Delivery of the U.S.: Panacea or Poison? A Critical View,” Health Policy 20(1992):301–308 (critique).

On the lack of good evidence that managed care programs achieve cost savings sytem-wide, see Linda Blumberg, “Managing Health Care Reform: Managed Care and its Implications for Managed Competition” (Washington, DC: The Urban Institute, 1993) (submitted for publication). See also Congressional Budget Office, Managed Competition and Its Potential to Reduce Health Spending (Washington, DC: Congress of the U.S., CBO, May 1993).

The year 1980 was the peak year for coverage, with declines ever since, according to HIAA data not presented. Table 2 shows a drop of about 10% since then, but it is not possible to be precise about the drop, because the HIAA changed the way that they report coverage in 1986, omitting people who bought “indemnity” coverage (Table 2 note). Including them would have raised the totals by some amount, depending upon how many of the indemnity policies duplicated other policies.

The drop shown is from 72.7% to 68.2% for private coverage only; combined public-plus-private coverage dropped from 3.7% to 3.3%. However, the 1980 figures are known to understate coverage because of the way the survey questions were asked, especially about coverage of children. Improved surveying raised the private-only percentage for 1991 from 68.2 to 69.6, and the public-private from 3.3 to 4.2. Table 4 intentionally understates the extent of 1990 coverage to keep the data consistent with 1980; the 5-point drop still holds true, assuming that the under-reporting of coverage was similar in 1980.

See generally Marilyn Moon, Medicare Now and in the Future (Washington, DC: Urban Institute Press, 1993) (chapter 5, pp.106–137, covers the catastrophic experience).

See generally Chollet, supra note 35; Congressional Research Service, supra note 2; Julie Kosterlitz, “Unrisky Business,” National Journal (April 6, 1991):794–797; Levit Katharine R. Olin Gary L. and Letsch Suzanne W. , “Americans' Health Insurance Coverage, 1980–91,” Health Care Financing Review 14(1992):31–57 (no.1). Enthoven Alain C. , with characteristic verve, complains on behalf of the “pseudo insured, that is, with insurance that won't be there when they need it….” Committee on Labor and Human Resources, U.S. Senate Achieving Effective Cost Control in Comprehensive Health Care Reform (Washington, DC: U.S. Government Printing Office, 1992, 102d Congress, 2d Session, S.Hrg. 102–955, Dec 16 & 17), page 33.

The CPI-medical index is not perfect, as it does not adjust for changes in the mix and quality of services over time, nor for prices actually paid rather than quoted by providers. See, e.g., Newhouse, supra Table 1, pp. 10–11. It somewhat overstates the extent of inflation, especially in recent years. No better data are available, however.

See, e.g., Newhouse Joseph P. , “Medical-Care Expenditure: A Cross-National Survey.” Journal of Human Resources 12(1977):115–125 (first analysis of health spending and GDP); Schieber George J. Poullier Jean-Pierre and Greenwald Leslie M. , “U.S. Health Expenditure Performance: An International Comparison,” Health Care Financing Review 13(4)(1992):1–88 (Summer) (using the OECD Health Data File also used to produce Appendix Table 2). The “cross-national elasticity” of health spending to GDP means that a 10% rise in GDP is associated with a 40% rise in medical costs. U.S. spending has always exceeded the trend line estimated from other developed countries, and the U.S. deviation has widened during the 1980s, ibid. The best descriptive analysis of recent economizing efforts in other countries is Jeremy Hurst, The Reform of Health Care: A Comparative Analysis of Seven OECD Countries (Paris: OECD, 1992) (published as updated by OECD Secretariat). Culyer A.J. , “Cost Containment in Europe,” Health Care Financing Review Annual Supplement (1989):21–32 is one of the articles finding greater cost containment by governments bearing high shares of cost.

Other reasons for feeling that the U.S. could spend less include research on cost sharing, see, e.g., Manning , supra note 26; “small area variation” studies finding much lower usage in some places than others, e.g., Wennberg John E. , “Dealing with Medical Practice Variations: A Proposal for Action,” Health Affairs (Summer 1984):6–32; and judgmental reviews of the appropriateness of certain procedures, e.g., Chassin M. , “Does Inappropriate Use Explain Geographic Variations in the Use of Health Care Services?” JAMA 258(1987):1–5. How much spending or growth in spending could be cut with little or no effect on services is unknown.

See Burner Sally T. Waldo Daniel R. and McKusick David R. , “National Health Expenditures Projections through 2030,” Health Care Financing Review 14(1992):l–29, page 11; Congressional Budget Office, Projections of National Health Expenditures (Washington, DC: Congress of the United States, Congressional Budget Office, October 1992) (Table 1 at xi); Office of Management and Budget, Executive Office of the President of the United States, A Vision of Change for America (Washington, DC: OMB, February 17, 1993, page 11).

Interested readers may want to refer to several recent symposium issues of leading journals, including: JAMA, Caring for the Uninsured and Underinsured, 265(1991):2491–2567; Health Care Financing Review, Annual Supplement: 1–107 (1991); Inquiry, Universal Access to Affordable Health Care 29 (1992):113–273; Health Affairs, Managed Competition: Health Reform American Style? 12:(Supplement 1993):7–293; Journal of Health Politics, Policy and Law, Comparative Health Policy, 17 (1993):613–957. Useful books include: Enthoven Alain C. , Health Plan: The Only Practical Solution to the Soaring Cost of Medical Care (Reading, MA: Addison-Wesley, 1980) (a forerunner of “managed competition”); Aaron Henry J. , Serious and Unstable Condition: Financing America's Health Care (Washington DC: The Brookings Institution, 1991) (centralized controls through a “single payer”); Paul Starr, The Logic of Health Care Reform: Transforming American Medicine for the Better, (The Grand Rounds Press, 1992) (“managed competition” within a “global budget”).