How Health Insurance Was Born

By Dr. Rachot Vacharothone, Owner of Medallus Medical

A Brief History

The practice of prepaying for medical care initially involved prepayment directly to doctors and hospitals for whatever limited services they could provide. Then it quickly transformed to prepaying a third-party administrator—a middleman—instead. This allowed members to access larger health systems and more facilities. This was the birth of the US health insurance industry—Blue Cross being the first insurance company (Blue Shield was founded a few years later.)

The beauty of these health insurance plans was that they increasingly allowed members to access a variety of medical procedures at various hospitals and doctors across the country, as opposed to limited procedures by fewer doctors and hospitals in a given geographical area. This was when consumers started to pay higher prices for their medical care— marking the time when the control of healthcare dollar shifted from the hands of consumers and medical providers to the hands of health insurance companies.

For the past several decades, health insurance premiums, although slowly rising, were for the most part financially tolerable and affordable by consumers and their employers.  One reason the premiums remained tolerable was there were many smaller health insurance companies throughout the nation  amidst the giants like Blue Cross Blue Shield, UnitedHealthcare, and Cigna, competing with one another for customers. Such competition helped keep the premiums down.

Then the market underwent drastic change. According to a Zacks Equity Research report published in 2012, since 1996 the healthcare industry witnessed acquisitions worth approximately $90 billion, resulting in dominance by a few players. From 1990 to 2000 there were approximately four hundred big and small mergers and acquisitions, decreasing the competition among insurance companies. The McCarran-Ferguson Act of 1945, which exempted “business of insurance” from the federal anti-trust law, made the situation worse, resulting in the eventual collapse of competition in the health insurance market.

The System is the Problem

The transformed healthcare system in our country itself is the root cause of our current healthcare crisis and its high costs for consumers.  It incubates a dysfunctional dynamic among the insurance companies, the healthcare providers, and (most certainly) the patients.

The fee-for-service system has escalated the cost of healthcare services.  This becomes readily apparent when you look at what it takes to actually perform some of the most basic services.  The current system enables middlemen (insurance companies) to control the private healthcare sector by charging higher and higher insurance premiums as they try to recover the costs of the overuse of expensive and advanced medical care.

In the meanwhile, consumers agreed to access services without giving thought to price because they have good employers who provided good insurance that conveniently “covers everything.” Our system now fails us: It causes financial stress, higher mortality rates, and less access to needed medical care. We simply need to rationalize medical care costs by avoiding the unnecessary use of advanced medicine and begin to regulate insurance reimbursements for procedures ordered outside medical guidelines.

What is the solution?

The Affordable Care Act (ACA) was passed in 2011 to be the solution of our healthcare crisis. However, as we can see, it is far from being the right solution. The ACA is producing more and more high-deductible health insurance plans that push consumers to forego their medical care and medications, resulting in sicker and less healthy patients, decreased visits to doctors, and increased visits to specialists and hospitals when their conditions become more advanced due to the delay of seeking help.

The decrease in patient visits (and therefore revenue) to private clinics pushes independent practices into merging with conglomerates, resulting in more employed providers incentivized to perform more expensive, and often times unnecessary, procedures—making our health insurance premiums even higher.

To fix the problem, one must think “automobile” and “auto insurance.” We don’t ever pay annual escalating costs for our auto insurance. Why? It is because auto insurance are not used for regularly needed maintenance or expected repairs, where as we use our health insurance for “everything” including inexpensive doctor visits that are historically and presently paid by health insurance at 2 to 3 times its value.

Because of their high deductibles, many consumers are realizing that paying for doctor visits with cash is less than incurring the balance for the same doctor visit after insurance claim processing. Therefore the best solution to keep our healthcare costs down is for consumers to use their own funds to pay for doctor visits and reserve their health insurance for expensive major medical needs.

Better yet, the ultimate solution is for consumers to pre-pay their doctors at minimal per month fees, which collectively can result in generating enough pre-paid revenue to support doctor practices without having to bill health insurance plans. This results in patients receiving care at less costs, doctors staying independent and not influenced to order expensive procedures for conglomerates, and health insurance plans being reserved to pay for only necessary expensive medical care.

The end result is higher access, more affordable basic care, healthier consumers, and lower health insurance premiums for major medical coverage.

Healthy Magazine

Healthy Mag is staffed by a team of journalists, researchers and health experts who have a goal of presenting you with useful information that you actually want to read.

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