Because the pioneers in U.S. health insurance were nonprofit, charitable organizations, they were developed to provide a social function beyond creating a profit for shareholders or syndicate owners. However, the social objective was not always to benefit consumers. Blue Cross was first organized to provide for the financial survival of the American voluntary, nonprofit hospital system during the period of the Great Depression. Although organized medicine initially opposed the new insurance schemes as unwanted intrusions into the privacy of the patient-physician relationship, Blue Shield was eventually formed as a preventive measure to keep mechanisms for paying physicians under the direct control of organized medicine. Provider cooperative prepaid group practices, such as Kaiser Permanente, were formed because some reform-minded physicians believed that prepaid group practice was a more satisfying and socially responsible way to practice medicine.
These nonprofit institutions were chartered in the public domain and were guided by boards of directors who were reminded that they represented society at large, rather than a group of stockholders. The corporate cultures that emerged under this influence generally produced organizational behavior different from that found in commercial insurance companies (Greenlick, 1988). The nonprofit corporations possessed a sense of mission to the community, a sense nurtured by their close ties to community hospitals and physicians' organizations. In the 1970s, pressured by their large corporate customers to contain costs, the nonprofit insurers began to behave like their competitors, the commercial insurance companies, and moved from community rating of premiums to experience-rating practices. Consequently, premiums increased for high-risk groups, making it difficult for the most needy to maintain health insurance coverage.
COMMUNITY-RATED VERSUS EXPERIENCE-RATED PREMIUMS. In an institutionalization of the concept of solidarity, the pioneer U.S. health insurance organizations originally used community-rating principles to fund their programs. In pure community rating, the premium is set by estimating the required budget for the covered population for the next year and dividing the total budget by the number of people expected to be covered. The result is the premium charged to each member of the population for the coming year. Thus, all employers in an insurer's service area would be charged the same per capita premium for their employees.
By contrast, in an experience-rated system, the approach favored by commercial carriers, the most recent available claims experience is analyzed to define a risk profile for specific groups. These risk profiles are applied to the next year's expected total budget to calculate group-specific premiums. Experience rating increases the premiums for groups that include high-use subscribers and reduces premiums for groups that include infrequent users. Consequently, people with serious and chronic health problems, who most need the risk-sharing of health insurance, are forced to pay higher and higher premiums, until they can no longer afford the cost of coverage (Greenlick, 1989).
As experience rating became more common, people with preexisting health conditions were frequently excluded from insurance coverage. This led many states during the 1980s to create special high-risk pools for "uninsurables." The practice also made health insurance too expensive for thousands of firms with small numbers of workers, especially those where even one worker had recently experienced a high-cost illness episode. The shift toward experience rating by nonprofit insurers has led to a disturbing incongruity between a social policy that favors free market practices in U.S. health insurance and a prevailing public expectation that private health insurance should fulfill a social insurance function.
COMPREHENSIVE BENEFIT PACKAGES. Because pioneer health insurance organizations had among their objectives supporting the providers of care, they designed insurance plans based on comprehensive benefits that would cover not only infrequently needed high-cost services but also many low-cost services that might be used regularly by most subscribers. The idea of comprehensive benefits was very popular with the employees whose employers were paying most, or all, of the premiums for health insurance. This popularity was supported by the post-World War II belief that economic growth could permanently keep pace with new demands. During the 1960s and 1970s, most Blue Cross Blue Shield and prepaid group practice plans covered, with little deductible or coinsurance cost to the insured, most of the costs of physician, laboratory, X-ray, emergency room, and hospital medical and surgical services. During the 1970s, insurers increasingly added coverage for prescription drugs. To keep pace, commercial insurance companies increased the breadth and depth of their coverage, particularly for low-risk groups.
The preference for comprehensive benefits contributed to the explosive rate of growth in the health services industry during the postwar era. In 1940 healthcare accounted for 4.1 percent of the gross national product (GNP). It had expanded to 7.2 percent by 1970, reaching 10.7 percent in 1985 (Eastaugh). By the late 1970s, a chronic sense of crisis afflicted business and government administrators of health insurance budgets. Cost-containment strategies that used deductibles and coinsurance to reduce the use of health services by insured persons achieved only modest success. However, these typical casualty insurance mechanisms conflicted with the social insurance function of health insurance and were hotly debated among health insurance reformers in the early 1990s.
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