Health care is a fairly recent phenomenon. The demand for doctors and hospitals was very slight before 1920. Western medicine was in a primitive state and most people just put up with their maladies. There was little reason to pay someone for a service that one of your family members could perform just as well or better. Often, treatment actually made a patient worse off.

By the twenties, things began to change. There was a great influx of population to the urban centers. The medical industry was progressing rapidly and the hope of a cure, rather than just trying to comfort the patient, became a reality. Demand for health care began to increase.

The American Medical Association also began a concerted effort to limit the licensing of doctors. Stringent guidelines were imposed and the number of medical schools dropped from 131 in 1910 to 81 in 1922. Correspondingly the number of doctors decreased creating increased demand for their services and higher fees.

The American College of Surgeons was formed in 1913. Again, strict standards were imposed on surgeons and hospitals and the level of care rose appreciably, along with the price of care.

While the original guidelines of both of these organizations did much to further the development and quality of health care, the enactment of unnecessary regulatory measures with the coordination of governmental agencies continues to ensure the demand for doctors always remains high. Today it is done primarily to preserve a monopoly of service rather than to raise the level of health care.

Both doctors and the hospitals at the time accepted fee payment based on ability to pay. Doctors varied their fees from zero to full fee depending on the means of their patients. This had much the same effect that a social insurance care system would. Those who had the ability to pay subsidized those who did not. The doctors acted as managers of the system. They have since fought any attempt to remove this power to charge fees as they see fit.

It appears all those involved at the time, whether doctor, hospital or patient realized the importance of providing care to as many patients as possible. Without any third party payer, most needy people could receive some treatment.

The first organized payment system became established during the Great Depression. Hospitals began to offer monthly plans at a set fee. Patients were assured of care at a low monthly rate and hospitals received a steady income stream, which was sorely lacking at the time. Both parties benefited from the arrangement.

Although these plans brought a needed flow of revenue to hospitals, they also introduced fierce competition between the hospitals. To reduce competition, hospitals began to group together and offer plans covering many hospitals. Under the auspices of the American Hospital Association, this network eventually became Blue Cross.

Government intervened by bestowing a non-profit tax free status for the Blue Cross system. Legislation also removed any reserve requirement, allowing Blue Cross to compete with little or no back up funds. In exchange for these concessions, Blue Cross offered its plans to individuals, regardless of their income level and health status. Hospitals who received the Blue Cross certification promised to continue providing services even when funding was low.

Fear of the possibility that hospitals would insure physician’s services and the possibility of health care legislation growing out of the Social Security program propelled doctors to institute their own plans. Government granted these plans the same tax exempt and freedom from reserves that it had granted Blue Cross. Physicians reserved their right to charge fees above and beyond the guidelines of the plans. This system became known as Blue Shield.

This increased demand for health insurance encouraged commercial companies to step in. The 1942 Stabilization Act created wage and price controls but encouraged employer provided insurance programs by exempting them from both wage controls and taxes. The shift to employer provided commercial health insurance began with a vengeance and is still the norm today. Employers used insurance to attract workers in place of prohibited wage increases and the tax exempt status help foster the conversion.

Compulsory insurance came to us in 1965. Medicare was a two part federal program. Upon reaching 65 all citizens were automatically enrolled in Part A, which was a hospital insurance program. Part B was supplemental medical insurance that included physician’s services. Patients were responsible for the difference between the fees and Medicare payments.

Medicaid followed close behind with a federally coordinated state program that provided medically assistance for the indigent. The federal guidelines established a minimum level and the states individually determined the amount of care beyond that.

By now, the Federal government was into health care in a big way. The elderly were not only the most medically needy but also the group least able to afford care. The poor were also in great need. This forty year transition took us from voluntary care organized by the medical professions, to a commercially based system of selective insurance and finally to a government subsidized institution of care for those with limited ability to pay.

Government intervention into the health insurance system began with the tax and reserve incentives given to the Blue Cross and Blue Shield plans. This was done to encourage care based on need rather than ability to pay.

While this seemed to work, the entrance of commercial providers tilted the scales. With the ability to selectively choose patients and the tax breaks given to them by government legislation, commercial providers were able to undercut the Blue insurance groups and gain a dominant share of the healthy clients. This left a greater share of unhealthy and expensive client-patients in the hands of Blue Cross and Blue Shield, eventually spuring their conversion to commercial for profit organizations utilizing the same selective process as the already existing commercial providers.

The Federal Government then responded to this condition with the Medicare and Medicaid programs. While this seemed to once again solve the problem of those who needed care but couldn’t afford it, it created its own problems.

It is extremely inefficient in terms of service to insure large numbers of people who are not under any great risk, as the commercial companies were doing. With a large percentage of the population insured either through commercial or government insurance, the supply of funds flowing toward the medical industry was enormous. This caused an obvious inflationary effect.

Government entered the market first to subsidize the hospital and doctor created plans that were instituted to bring in all patients, rather than to cover those that needed catastrophic care. The natural function of insurance is to spread the risk of catastophic occurrences throughout a large group. This utilization of insurance to cover all treatment and cost served to inflate and reinforce the ever increasing fees and charges of the industry.

Private companies then saw the profit potential in undercutting the rates while offering insurance only to only healthy patients, undermining the ability of Blue Cross and Blue Shield to carry all patients without going out of business. Because of this, Blue Cross and Blue Shield converted over into private carriers and operated in much the same manner.

Government again intervened and provided coverage for those who were now priced out of the system with the Medicare and Medicaid plans. While this accomplished the intent of covering all who needed care, combined with the selective and subsidized private systems, this added even more fuel to the inflationary factor within the industry.

This short history shows just how far our system is from a market model. Once a system is established and entrenched and many benefit from it, it is difficult to initiate any true reform. Instead, secondary and tertiary interventions occur, which just seem to add more and more layers and reinforce the problems that are already in place.

It is no wonder we have the most expensive health care in the entire world.