Healthcare Cost Containment: A Short History Part I––The Doctors

When it comes to current events, Americans lack a sense of history. In the past 30 years I've seen run away healthcare inflation blamed first on the doctors, then on consumers, then lawyers, and then on the insurance industry, as though there can exist only one villain at a time, and forgetting that the prior set of issues were never remedied before we moved on to the next set. I'm now realizing that my career in medical benefits followed the trajectory of cost containment efforts. So here's a little bit of history on what brought us to this point.

In his book, Dr. Howard Dean makes the interesting point that most of the existing healthcare systems of the industrialized nations hearken back to the situations they found themselves in post-WW II. The UK, for example, had no remaining healthcare infrastructure while citizens were in dire need of medical care. The government had no choice but to take over the healthcare system, which they have since continued, not just out of tradition but because they made it work. In the US employers began offering healthcare coverage as a free benefit when wage controls prevented salary increases. Unfortunately for us, what seemed like a good idea at the time has turned into a failure.

When I began working as a medical claims examiner in the late 70s, first with New York Life and then John Hancock, the system that had been in place for some 30-plus years was just beginning to show signs of unraveling. With the exception of Blue Cross-Blue Shield, most employer healthcare products at the time were sold by life insurance companies. As they were not big money-makers they were bundled with more lucrative group life insurance plans.

Back then there were generally only two types of plans. One was straight "Major Medical," a plan with a deductible (standardly $100). After meeting that deductible (which sounds ludicrously low, but remember with lower costs it could take quite some time to meet), the insurer paid 80% of the charge, the insured, 20%. The second type of plan was a mix of "Basic" and "Major Med." Under these plans basic flat fees were paid for certain services according a schedule. E.g. an office visit might qualify for $15. Charges over that amount then fell into the Major Med portion subject to deductibles and coinsurance. Attesting to the vast changes in medical care in just three decades, we actually had a schedule listing a fee for just about every medical service, test, or procedure offered at the time. We rarely received a claim for anything not on the schedule, and the majority of services and procedures recurred so frequently that we were able to memorize the payments. The most important thing to note here, however, is that while the payments might be divided between insurer and insured, the provider always received 100% of the charge, usually without question.

Toward the end of the 70s, several factors came together causing insurance companies and the Carter administration to start looking for ways to contain medical costs.

• A new generation of doctors didn't know what it was to charge patients directly or wonder if they could pay. With faceless insurance companies picking up the tab, there was no reason for providers––doctors or hospitals––not to pad the bills a little here and there.
• With the growing use of antibiotics, development of vaccines, and new drugs and procedures being discovered every day, the public began to see doctors and hospitals as a way to a cure rather than pronouncers of imminent death. Consumers visited their doctors more regularly, underwent more surgeries, and became more demanding of services.
• New developments led to an explosion of new specialities, and more and more young med students began choosing the more lucrative and generally less demanding specialties (and in fairness, they were probably more mentally challenging as well), over general practice.

Employers' cheap added benefit was quickly turning into a very expensive one and they began leaning on insurance companies to do something about it. Thus were born the first "reasonable and customary" restrictions, complicated formulas imposed on charges––usually physicians' charges––to determine if they were too high. The problem was, it didn't have teeth. Only Blue Cross-Blue Shield required doctors to accept the reasonable and customary fee for assigned benefits (benefits paid directly rather than reimbursed to the patient), and many physicians began pulling out of the Blues because of it. Most insurers would simply send statements to the doctor and patient stating what charges were excluded.

I suppose the notion was that the insured would get wise to the physicians and call them out on it. Only, in those days arguing with doctors was like arguing with the Pope. They were considered infallible and they were not beyond excommunication. So patients usually picked up the charge after giving poor claims examiners like myself an earful. Or else the doctor would send some twenty-five page medical report to dazzle us with detail and get us to to reconsider, which, more often than not, is what occurred.

And that, my children, is how the first feeble attempts at healthcare cost containment failed. It is also why a favor a managed care or at least an outcomes-based component of any new reform plan.

Part II will be about the healthcare consumer as villain. However, in between I may not be able to resist focusing on some of the wild lies out there meant to scare people off reform.