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The History of Health Insurance in America (And Why it Sucks)




If you’ve experienced any medical care at all in America, first off, I’m sorry that happened to you. Healthcare in the U.S. is a lot like being at the mercy of the Spanish Inquisition, except that, everyone expects it. And then you have to pay for it, in the dumbest, most complicated way imaginable, while dealing with the side effects and emotional shit fest of whatever it is you might be going through physically. And you have to navigate the complex hellscape of health insurance. Which is the absolute bottom floor of the fifteenth circle of the nightmare realm. It’s so bad that vigilante justice is not only not out of the question, but actually a pretty widely acceptable and celebrated solution. But why is all this our reality? How did we actually get here? Well, curl up by the fire and I’ll take you through the story of health insurance and medical care in America. But don’t get too close to the flames because you don’t want to have to go to the doctor. 


I’m Kevin Lankes, and I’m your host for the formation of history’s stupidest industry. 


Health insurance is a stress-inducing experience at best, and at worst, it’s a life-shattering nightmare that’s laced with the horrific reality that the entire thing is just completely unnecessary. It’s totally self-inflicted. It’s an invention of our own human minds and their endless capability to find ingenious new ways to fleece one another. 


And, fun fact, we have schoolteachers to blame for all of it. Those naughty teachers. Are you passing notes in my class?? Well, here’s a note you won’t forget. 


Health insurance as we currently know it began during the Great Depression. Before the 1920s, medical care, even surgery, was usually performed in people’s own homes. There weren’t any hospital bills to speak of, and healthcare was pretty affordable. Technology and equipment was low-cost and primitive, so there weren’t any fancy innovations or research to pay for either. 


The health insurance industry really owes itself to the shitty labor rights situation at the time. Something called sickness insurance popped up first to protect people from lost wages during recovery time when they had to take days off from work. Additionally, banks and then later employers would have specific funds called sickness funds that covered costs for workers when they got sick. Employers became obligated to pay for medical bills if an employee suffered an injury on the job in the early 1900s. Of course, that was conditional and employers could fudge their way around it by blaming workplace accidents on their employees instead. 


Then around 1910, employers were able to buy insurance through the state, and that meant that they could lower their own costs from workers comp cases by not having to litigate each one individually. At the time, in relative terms, they provided more coverage and benefit payouts than workers get today. 


In the 1920s, most other industrial nations developed nationalized healthcare for their citizens. Except, of course, the U.S. People seem to think this is some new commie plot, but universal healthcare has been the subject of debate in America for over a hundred years. 


Experts and historians believe there are a few reasons that contributed to America’s failure to implement universal healthcare like everybody else. One is that the American Medical Association came out in opposition to universal healthcare because they saw that in workers comp cases, the insurance companies began picking their own doctors so they could mandate where the employee went for care, thus controlling and limiting the amounts they had to pay out. Doctors knew this would be a fight to the bottom, effectively strangling their ability to set their own prices going forward. And the AMA had a lot of influence in the healthcare sector. 


The second thing was that sickness funds were a powerful lobbying force and didn’t want to be replaced by free national healthcare. They covered around 35-40% of workers at the time. 


The third obstacle was that the commercial insurance industry didn’t want a government plan to become available, which is the same problem we face today. It’s hard to take the greed out of the capitalist, so when money enters a field, it’s pretty much impossible to beat it back out again. 


Also in the 1920s, medical tech exploded, lots of conditions were researched thoroughly and became treatable, we began developing cures that fought diseases themselves instead of injuring the body for the chance to also maybe injure the underlying pathology. At this point, doctors also cemented their licensure requirements. They created standards for medical students and degree attainment, and hospitals began receiving accreditation too, and overall the medical sphere became more influential and more prestigious. Costs began to rise significantly for the average family as a result. In 1929, per family medical debt was $103, which is the equivalent of 5% of the annual income at the time. 


And here’s where things really go off the rails and every one of us gets really sad for about a hundred years. 


In 1929, a group of school teachers in Dallas decided things had gone too bananas and they needed to do something to reduce costs for medical care. These teachers had really great intentions, and they thought they were doing a good thing. They just didn’t anticipate how shitty other people could be, and how effectively their maneuvering for social good would be used against them and everybody else. 


They contracted with Baylor University Hospital to receive 21 days of inpatient care per year in exchange for payments of fifty cents a month. This was widely considered in medical lore to be the first instance of modern health insurance that’s comparable to what we have today. It was such a popular idea embraced by pretty much everybody on all sides that other contracted payment systems sprouted up quickly in the years that followed. 


Hospitals loved the idea because it provided them with regular recurring income streams. They just happened to also be a great way for people during the Great Depression to access lower-cost medical care. There were 26 of these plans by 1937, at which time they combined their 600,000 members into the Blue Cross network. After it was assembled into one entity, the Blue Cross network of plans was given nonprofit tax-exempt status and allowed to avoid regulatory expenses that commercial insurance was beholden to. 


Meanwhile, physicians looked at this shit and were like, but mah money! How will we ever grow to be one of the most overpaid professions of all time if we just have to accept what the hospitals and insurance will give us? 


As a brief side note, I think healthcare is extremely important and healthcare workers are extraordinarily valuable, but the remuneration structure in America is just completely insane, especially in comparison to other jobs that are equally or even more valuable. And there’s just no reason for it. Other than the fact that a group of doctors got together to make their own plans so they could continue to set their own fees and drive up costs. The teacher plans were called Blue Cross, so they called theirs Blue Shield. To be fair, a lot of the push came from primary care physicians with private practices who were facing institutionalized healthcare systems from the hospitals, so yes, they had incentive to protect their own livelihoods. There’s nuance in all these developments. This is not black and white. Things that were originally designed for self-protection were manipulated later on through chess move politics to become something else. 


Because there was a third collection of cretins, drums in the darkness, deep in the hollowed caverns of the earth, the commercial insurance goblins, who deceived them all. 


These fine fellows have a little bit of that original obscure Lord of the Rings lore about them. In the first age, the worst of the ancient terrible demons were sent down upon the land and they looked out at the creatures thereupon, ripe for the grift, they immediately shed their demon horns, donned three-piece herringbone suits, and set up shop as health insurance executives. “Bring me my shareholders,” they said. 


Commercial insurers looked around at the success of Blue Cross and Blue Shield and began tweaking their own plans. And I bet you’re going to be really surprised by this, but they made changes based on what would bring in the most amount of money. Unlike the two Blue plans that were regulated as nonprofits, the commercial insurers could do something called experience rating instead of community rating, which means they could charge different premiums for each individual member based on things like overall health risks and preexisting conditions. Blue Cross and Blue Shield had to charge people as community groups, with each community receiving the same rate regardless of other factors. And so, the 1940s saw a commercial health insurance gold rush, with more and more plans popping up to take advantage of unregulated profit. America went from 20,000 plans to 140,000 within a single decade. 


During World War II, there was another cool thing perverted for profit that had begun with good intentions: wage control regulations. Wage control regulations were designed to protect national security by maintaining economic stability during a global crisis. This whole thing kind of blows my mind. Turns out, the U.S. really was always a social democracy, and not a capitalist hellscape, and we fought a long, hard, but losing battle to keep it that way until the hordes of money goblins crawled in everywhere and corrupted just about every single thing they could sink their fangs into.


Companies got around wage control limitations by offering health insurance benefits. It was the one shiny new thing they could offer beyond cold, hard cash they could dangle in front of workers’ faces to poach them from their competitors. And this fact would allow health insurance to grow even more popular to the point where it became an expectation for prospective employees. At this point, just 9% of the U.S. population had heatlh insurance coverage. But because of this change and a couple favorable legislative moves, 68% of Americans would be covered within twenty years. 


By the 1940s, things were moving in an unstoppable direction. FDR tried to get Congress to pass an Economic Bill of Rights that would guarantee healthcare protections to all Americans, but that fizzled out. Same with Truman’s plan for national health insurance coverage, which the AMA denounced as a communist plot. 


This is unfortunate because in the 1950s, healthcare and medical research saw another gigantic improvement. New procedures and treatments were developed, the first organ transplant was performed, vaccines for common diseases like Polio were created. This once again caused the costs of care to skyrocket so much that in the 1960s it was becoming difficult for people to pay for it. 


This pushed the federal government to come up with solutions. In 1965, President Lyndon Johnson signed the law that would create two national health plans. Medicare would cover U.S. citizens over the age of 65, and Medicaid would cover low-income individuals who struggled to pay for commercial health insurance plans. To absolutely no one’s surprise, these plans were an overnight success, and the government suddenly accounted for the largest chunk of cash heading into the healthcare sector. 


The 1990s saw yet another drastic rise in healthcare costs across the board, again due to exponential growth in medical technology and new treatments. This is also a time when HMOs were at the center of the healthcare and insurance debate. Health Maintenance Organizations originally popped up in 1929 for residents of the city of Los Angeles, and then again later in 1945 in the form of the Kaiser Foundation Health Plan specifically geared toward Kaiser Shipyard employees. In the 70s, HMOs took over the health insurance world after a fun conversation caught on tape between President Richard Nixon and White House Counsel John Ehrlichman, who remarked in favor of HMOs that, "the less care they give them, the more money they make.” To which Nixon is heard replying that that sounds “fine,” and “not bad.” 


HMOs were a form of managed care plan that curated medical providers into a selective network that the plan would cover, thus controlling the costs the insurance had to shell out. It’s limiting for the actual patient who may need a provider outside the network, and HMOs require a primary care doctor in the first place to refer them to a pre-approved list of specialists the insurance has decided are cheap enough to work with. 


Did anybody see that Denzel Washington movie from 2002 where he takes a hospital hostage because his insurance won’t pay for his son’s heart transplant? It’s called John Q. I remember watching Denzel on Oprah at the time. In case everyone watching isn’t aware, Oprah used to be an actual talk show host, not just a media mogul. She gave us some good stuff. She gave away lots of cars. Unfortunately, she gave us some garbage stuff, too. Like both these clowns -- Dr. Phil and Dr. Oz. The two of them did a real number on healthcare and health education in America. You could argue that the whole wellness industry just never beomces a thing without them. And you can draw a pretty direct line from their dark emergence to mainstream acceptance of Mercola, and Goop, and Joe Rogan. 


So John Q was everywhere when it came out. All the media promotion and news coverage became so much bigger than the movie itself and led to a giant push to reign in the health insurance industry and create a more humane system of care in America. The backlash against HMOs led to the popularity of PPOs, which were supposed to be better managed care plans but then enshitification ensued and so now we’re back to facing just about the same level of crappy care and restrictions but now the prices are even higher on the consumer end. Of course, the fix didn’t work, but there was a moment there when it seemed like it could. 


That moment also happened in the 1940s with Roosevelt and again with Truman, in the 60s with Lyndon Johnson and the Social Security Amendments that created Medicare and Medicaid, in the 90s with Clinton and his renewed push for universal healthcare, and most recently in 2010 with the Affordable Care Act, or Obamacare. And while Obamacare did eventually pass into law, it was significantly kneecapped by the removal of the government-run public health plan. 


At this point we’re pretty caught up. We’re left with a system that’s just further and further declined into madness while it completely dehumanizes everyone in its grasp, which is, well, everyone. But that’s a topic for another video. This one is about how we got here. And no one could say it better than the CEO of United Healthcare’s parent company United Health Group, Andrew Witty. Witty wrote an op-ed in the Times after the shooting of Brian Thompson wherein he said, “We know the health system does not work as well as it should. No one would design a system like the one we have. And no one did. It’s a patchwork built over decades.” 


But there is one important detail Witty leaves out of this mostly correct assessment, and I have to assume he does so because admitting it out loud would be rather self-implicating. And it’s that drums in the darkness thing again. It’s the fact that at every single step of the game over those several decades that the American healthcare system tumbled together, at every single juncture, we collectively allowed those who stood to gain the most to choose profits over people. Most of us have likely done so unwittingly, in cases where insurance companies simply took advantage of solutions to medical costs like the teachers from Dallas came up with, or intentionally, where our elected representatives literally take lobbying money from the insurance industry in exchange for passing legislation that benefits the executives and shareholders of the companies therein. 


But Witty represents a class of bad actors who willfully profit from others’ suffering, and have historically hunted for opportunities to increase their gain from the public’s loss. Most of these people are generationally wealthy. They don’t even need health insurance to pay for care, but they have access to the absolute best plans that money can buy anyway. They have no idea how their policies and budget-balancing decisions actually affect real people and real lives. If they think about it even once over their fois gras oatmeal with steak tartare marshmallows I would be amazed. 


Right now we are in trouble for many reasons and public health is going to take a back seat to misinformation. There are a lot of things we can do about the current state of healthcare in America, and I’ll bring them to you in the next video. So stay tuned for that. Please consider liking and subscribing to the channel, and donating to my Patreon so I can continue bringing you these videos far into the future. 


I’ll see you in the next one. In the meantime, let’s do some f*cking good wherever we can in our own small sphere of influence. 






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