Insurance laws always benefit one player over another

Craig Hall, Publisher
Craig Hall, Publisher

In my last column, we ended with government slipping its nose into the insurance tent under the guise of “committees” and “commissions” on how to best manage the solutions hospitals, doctors and other providers came up with to attract customers and receive payments for services that came as a result of the Great Depression. (Please note as you read this it was only a pretty good depression until government started fixing things, but I digress. Back to the topic at hand.)

As with all good government legislation and regulation, efforts benefited the big players while picking winners and losers. The big winner in hospital-based health care was Blue Cross, which got to set up “competition-free” zones for its providers whether they were single or multiple hospital markets. While each type of plan had its pluses and minuses in terms of choice benefits or cost shopping benefits, the fatal flaw was that one entity was choosing winners and losers based on approval.

Also occurring during that time was the argument of whether or not these plans were insurance or prepayment of services. Government simply couldn’t allow  consumers and providers to decide this for themselves. Otherwise, why did states have insurance commissioners and legislatures? The big sticking point was whether or not these organizations needed to keep reserves as insurance companies were required under regulations to meet future claims. Hospitals argued their reserves were their ability to provide care, not assets along with the future care they provided.

As all things go when taking into account “the good of the people,” the government simply had to get involved — and once again picked winners and losers. In New York (much like how things go in California today — never a good thing) something called “enabling legislation” was created out of thin air that allowed Blue Cross plans to run as non-profits exempt from insurance regulations. This ruling also gave its insurance commissioner the ability to review Blue Cross rates and established a board to oversee participating hospitals comprised, of course, of the directors of the participating hospitals. All good things if one is a Blue Cross hospital. And a big win for government because now it could manage these entities like utilities.

Also during this time along came Blue Shield, much like Blue Cross except it was created for prepaid services for doctors instead of hospitals. Also, Blue Shield paid consumers, who in turn paid providers. These plans increased consumers’ abilities to choose their own doctors — a good solution to single-hospital provided plans that limited choice.

With the success of the health maintenance and preferred provider plans, commercial insurance was beginning to think of ways to get its share of this burgeoning marketplace. Given that “health” was considered uninsurable to these entities due to unpredictability, it needed to come up with a new solution. Enter hospitalization coverage. Most of these plans covered hospital visits and surgeries — events much more easily predicted — with one big plus: They paid the provider direct.

So the free market responded to a crisis in the health care marketplace with multiple solutions that made medical care more accessible, lowered costs and helped the health of hospitals and the people they served. All good things. But control and money were soon becoming just as important.

A final arena coming into play during this time were prepaid group practice plans, something making a rebound today. These groups initially began around the turn of the century and gained momentum during the depression. Simply put, consumers paid a doctor an annual fee for care. These entities quickly sprang up around the country and were popular with consumers. In case you were wondering why they get a separate mention than the others above, the answer is simple: They were greatly opposed by hospitals, physicians and government based “commissions” that governed the industry.

Doctors at these clinics found themselves expelled from local medical societies, which in turn took away hospital privileges because one had to be a member for access. Many of the doctors were denied licenses due to their membership in these clinics, some even for association with them. As a result, many of these plans actually built their own hospitals to provide care and give their doctors access to facilities. The main reason for all of the opposition was simple: It affected the income of doctors who were part of other plans. Just as today, folks with more money were paying higher rates for medical care versus lower-income patients who couldn’t afford to pay (think Medicare and Medicaid payments versus what insurance companies pay for the same treatment). Folks paying more simply joined these prepaid plans to save money.

As all things go when it comes to money, there was collusion amongst hospitals to deny access to doctors outside their systems, limiting consultations with outside doctors and lawsuits galore. In the end, group practices won out, but were still excluded from many medical societies.

All because the best-quality, free market solution brought more affordable care to all who wanted to join.