Although the US, in comparison with other Western countries, was a latecomer to social insurance and the public provision of insurance for health services, it was largely in the America of the 1960s that formal economic analysis of health care first began to take root, and American ideas and practices have long since dominated health economics; hence American ideas are the focus of this and the next article. The efflorescence of American health economics emerged from (and helped alter the course of) antecedent traditions of American thought about health insurance, which began in the early twentieth century. For a bit more than the first-half of its history, ideas about health insurance took form in and evolved from the work of two overlapping groups of analysts: a broader one, whose members took a normative perspective animated by questions of social politics; and a smaller group whose members aimed more specifically to improve public health. Figures in both were reformers and activists; they hoped to advance what they understood to be the public interest. Their normative vision little exploited formal economic analysis, which, at least in its modern, mathematized mode, was at that time only incompletely developed and thus unavailable to reformers as a basis for analyzing health policy; but the aspirations of the emergent social sciences often informed their vision.
Only during the 1960s, under the then prevailing liberal dispensation, when a significant social surplus was available to sustain expanded forms of collective provision, did formal economics of a sort more familiar to modern practitioners begin to make itself felt in application to public policy. Economists developed formal rationales for governmental involvement in the economy and articulated the principles that should govern public programs. In the case of health policy, figures such as economist Kenneth Arrow (1921–) held that much of health care qualifies as a special set of services that require collective subsidy (if not indeed public provision). This agenda gradually fractured, however, as diverse forces, both inside and outside economics, undermined a once broad faith in the value and propriety of governmental intervention in the economy, in the capacity of experts (particularly those in governmental employ) to achieve desirable goals, in the utility of regulatory regimes, and in the capacity of society to gain consensus about the goals of public policy. Convictions wavered even about the value of health services, at least at the margin. As economics developed and honed the tools to analyze public policy, analysts toned down, but did not abandon, normative orientations, and the role of the economist and expert became less that of reformer and more that of the servant of diverse interests well beyond the traditional ranks of policymakers. Gradually, the major concern became markets, at first as the best means to realize broad social goals, and later, as commitments shifted away from fostering collective provision, to serve and facilitate individual choice.
Advocates of older normative views have hardly disappeared, but their approaches, reflecting social and cultural traditions that had been eroding since especially the 1970s, have been routinely contested by advocates – both within economics and without – of markets and limited government. The public debates that preceded the Obama reforms, i.e., the Patient Protection and Affordable Care Act (PL 111–148, as amended by the Health Care and Education Reconciliation Act, P.L. 111–152; henceforth, ACA), passed at the end of March, 2010, and the persistence thereafter of pervasive disagreement in health care about the goals of public policy and the roles of government, show that both economists and Americans broadly remain profoundly divided about these questions. Many economists, by professional interest and training concerned with markets, have often presented themselves as representing a value-free perspective on questions of public policy; yet many of their critics, including other economists more rooted in traditional approaches to policymaking, find that their colleagues’ claimed neutrality implicitly harbors values inimical to those rooted in older approaches, that they still sought to honor as collective commitments. Economic analysts of health insurance and related areas, despite the drift of the profession in favor of markets, still reflect the diversity of values and beliefs about the proper goals and means of public policy; neither health economics writ large nor the parts of it most directly connected with insurance have eliminated this diversity, but they have provided powerful and influential frameworks for defining, discussing, and analyzing the issues.
This article opens with discussion of several historical frameworks useful in exploring the history of American thought about health insurance and provides elements of a taxonomy of both researchers and advocates of various forms of health insurance. It then describes the earlier history of thought and advocacy in the context of the social politics that emerged in the early-twentieth century and persisted until the late-1960s and early-1970s. It takes up underlying notions of social solidarity, their tensions, and their relevance to health insurance. It next exhibits the emergence of a market-oriented perspective and its corrosive effects on ideas about social solidarity. The following article explores the two principal bodies of thought that called for market-based approaches to health care, notes their early connection with calls in the late- 1960s and 1970s for expanded public insurance, elicits the main elements of these traditions, and links discussion with contemporary developments, particularly in the light of the evolution of markets on the ground. The article concludes that in America health economics has done much to enable analysts to formulate and analyze policy questions, but that policy discussion about health insurance remains highly contested. What is clear is that the US, despite recent reforms, is not moving toward a uniform system of National Health Insurance (NHI), but continues to fragment care and coverage, organizing subsidies by income, race (through the proxy of poverty), and age. What is at stake for the future is thus not this fragmentation; but the extent to which recent reforms that aim to expand entitlement and improve benefits will survive the vagaries of administrative complexities and future political developments. Economists, meanwhile, continue to dominate analysis of these policy questions.
Historical And Conceptual Frameworks
Various frameworks have been proposed for understanding the history of health insurance in the US; this section takes up three of them. In one, Daniel M. Fox has characterized three normative models for research on health care and health policy, social conflict, collective welfare, and economizing, this last having eclipsed the former two, especially since the 1980s. In another, Paul Starr divided the field into three eras during the twentieth century, according to the ways in which advocates of health insurance addressed the costs of sickness, direct and indirect, individual and social; and in his recent book, he has revised this model in the light of subsequent developments. In a third, Deborah Stone drew attention to persistent conflicts in American insurance arrangements between ‘the solidarity principle’ and ‘actuarial fairness,’ that is, in terms that describe the opposing social and economic functions that insurance has been taken to perform.
Advocates of the two older models in Fox’s scheme were those possessing knowledge of the nascent social sciences and used them in support of expanding health services and improving access to them. Under social conflict, researchers held that health services, like food, clothing, and shelter, are essential; but that those better-off (or dominant) tend to withhold them from those less well-off (or belonging to socially subordinate or marginal groups). Expanding access and improving benefits under social conflict therefore became the subject of struggle on behalf of the poor and vulnerable; research aimed, inter alia, to document lack of access, its causes, and its consequences. Under collective welfare, researchers regarded health services as special, because they determine personal wellbeing if not indeed survival, and that attitudes of social solidarity, rather than conflict, require cultivation to bring more of the benefits of medicine to more people. Research tended to exhibit, inter alia, the consequences for health of diverse levels and goals of expenditure. Both models reflected not only a conviction, owing to the scientific innovations that began in the late-nineteenth century, that health services were effective, but also a commitment to social politics to provide citizens with shelter, in policy areas thought of fundamental importance, from the market arrangements that otherwise prevailed in economy and society.
Under the recently ascendant economizing model, in contrast, researchers have thought of care as largely similar to other commodities, best organized through markets, and they have regarded research as best conducted by exploiting economics (and several other sciences, especially epidemiology and biostatistics). Research has concerned the effectiveness of services, the functionality of reimbursement mechanisms and institutional arrangements, and the means to minimize the costs of expensive programs and to structure and fine-tune markets to improve efficiency and opportunities for choice. Under the economizing model, researchers have adopted a less openly normative posture, aiming less to press for new programs than to analyze for policymakers what exists and how (in the light of policymakers’ values) it might be improved. In shifting from the older models to the economizing one, researchers, as Fox had once put it, moved from reform to relativism.
The two older of Fox’s models dominated the first two of the three eras that Starr marks out in the history of health insurance. The earliest, that of ‘Progressive Health Insurance,’ represents the body of ideas that was prominent in the American Progressive Era (roughly, 1900–20) and that focused on sickness as one cause of poverty (via the consequent interruption of wages to workers and their families), as well as on the social causes of sickness. ‘Sickness insurance,’ as it was initially called, to be provided on the state level, would serve workers as a cushion against lost wages and, through its financing, create incentives to exploit public-health measures and industrial reforms that would reduce the extent of sickness and thereby improve national efficiency. Starr’s ‘Expansionary Health Insurance,’ dominant in the period from the 1930s to the 1960s, marked a redirection of researchers’ concern from lost income and public health to the direct costs of care. Introduced especially by the work of the Committee on the Costs of Medical Care (CCMC), active from 1927 to 1932 under philanthropic support, they focused on the rising costs of medical care (especially hospital services), owing to scientific innovation, and on the inability of both working and middle classes to meet them (particularly in view of their highly unequal incidence); but, in view of the benefits of care, called for insurance both to cover costs and to expand the health system.
This same period witnessed the first appearance in the US of significant programs of voluntary health insurance. These programs, did not, however, stop reformers from pressing for NHI in the 1940s and beyond. Around 1930, Blue Cross plans, fostered by the American Hospital Association, provided hospitalization insurance initially to employee groups and, starting roughly a decade later, Blue Shield plans, under the control of medical societies, provided insurance for physicians’ services. Governmental policies emerging in the war years encouraged the spread of voluntary insurance (inter alia by permitting collective bargaining over fringe benefits, by making health insurance a fringe benefit untaxed for employees, and by allowing employers to deduct the costs of insurance from their taxable incomes). The labor movement, although in principle committed to public provision, nevertheless preferred this privatized form of the welfare state. Reformers still nurtured hopes of creating NHI, and especially from the 1940s they repeatedly tried and failed to secure it. Only in 1965 did they achieve a partial victory with the passage of Medicare (a federal program that provided health insurance for the elderly) and Medicaid (a federal-state program that provided insurance for some of the poor), as new titles under the Social Security Act of 1935. Medicare largely reflected a social-insurance approach, but Medicaid, enacted as a reform of antecedent welfare programs, lay in the world of welfare and public assistance.
Although the partnership of social insurance with public health that marked American interest in health insurance from the beginnings persisted into the 1940s, the concern for health insurance gradually grew more fully allied with social insurance and its advocacy became associated more with the founders, architects, and administrators of the Social Security system than with experts in public health. In envisioning health policy for the postwar years, the Public Health Service developed proposals for federal support of medical education and research as well as planned hospital construction and expansion of personal health services under public-health auspices. Some features of this program, albeit in forms that accommodated medical and other interests, did emerge in the postwar years, but as a potential site for public provision, especially for the poor, public-health institutions gained little support. At the same time, figures from public health grew less active in pressing for either direct public provision of services or insurance. Meanwhile, a mixed public–private system grew dominant, consisting of nonprofit Blue plans, their for-profit competitors, and the two large governmental programs, Medicare and Medicaid, created by legislation of 1965.
These two public programs have worked under different administrative arrangements and operated in different policy environments. Administratively, Medicare lay under the Social Security Administration until 1977, when President Carter’s incoming Secretary of the then Department of Health, Education, and Welfare (HEW), Joseph A. Califano, Jr. (1931–), moved it, together with Medicaid, into his newly created Health Care Financing Administration (HCFA; becoming in 2001 the Center for Medicare and Medicaid Services). Medicaid had been lodged in the welfare bureaucracy of HEW, where it had its own bureau, something it lost at HCFA, where it was overshadowed, morally and substantively, by Medicare. These administrative changes reflected Califano’s goal of gaining administrative control over health and other programs in HEW and preparing the ground for NHI. Indeed, champions of Medicaid had generally aimed to sever its links with welfare and worked to render it a suitable vehicle for NHI by reducing state-by-state variations in the program and imposing broad standards of eligibility, benefits, funding levels, and accountability. However, whenever NHI was on the table, Medicaid received little attention, seen either as a thing to be dismantled under NHI or absorbed into it. Medicaid thus became no foundation for NHI but a large, diverse, and complex program for certain uninsurable people, for several categories of the poor, for the frail elderly, and for some of the disabled. Its opponents, however, tried to undermine its character as an entitlement and pressed for devolution of its administration and management to the states. Under the ACA, Medicaid is to serve as one element not in a broad system of NHI but as one enhanced and streamlined element of the larger health system, affording coverage to most of the poor, whereas other elements, public (especially Medicare) and private, continue to cover other groups. The ACA thus crowns an incremental strategy that preserves and reforms diverse preexisting forms of health insurance and financing, thereby perpetuating the difference between the poor and those with private coverage or social insurance.
Reformers saw Medicare and Medicaid as only a way-station on the route to NHI and, at the end of the 1960s, they renewed their push, hoping to cover those still uninsured (then approximately 10% of the population) and improving what often appeared to be inadequate benefits. Expansionary thinking persisted, though the gradually dawning implications of Medicare and Medicaid, which lodged large and rapidly escalating costs in the public purse, inspired the idea that NHI would provide the levers to rationalize the health system and rein in costs. Reform of the health system, dependent on governmental supervision and regulatory measures, would render affordable the expansion of entitlement. At least as late as the mid-1970s, passage of NHI, understood in this spirit, looked imminent; its failure, however, and the recession of 1974–75, which ended the long, postwar economic expansion that had fueled diverse public programs, now gave wider scope to novel ideas about health care policy. The prevailing consensus that had sustained standard modes of organizing and financing care, via fee-for-service payment of largely freestanding hospitals and solo or very small group physician practices, began to break down. So, too, did the conviction that NHI would have to take the form of a single system, governmentally mandated, planned, and regulated. New, and often conservative, voices had begun to suggest that market based approaches to care could offer public policies that were efficient and accountable, and liberals pressing reform began to heed this advice, while persisting in emphasizing redistributive concerns, social equity, and (for some time) planning the organization of care.
Thus in the 1970s, began Starr’s third era, that of ‘(Cost-) Containment Health Insurance,’ whereas at the same time, policymakers and the researchers they financed, employed, or consulted felt the pull and fostered the growth of Fox’s economizing model. Concern with expansion of entitlement persisted but in a manner that could foster rationalization of the health system and rein in cost escalation. As Starr remarks, pressure for and resistance to NHI had become competing versions of ‘comprehensive reform’ of the health system. From the conservative side, comprehensive reform revolved around diminishing traditional regulatory and other barriers to the functioning of markets in health care, application of stricter antitrust enforcement (especially to rein in the anticompetitive powers of the medical profession), and support for novel organizational arrangements such as ‘health maintenance organizations’ (HMOs). On the liberal side, comprehensive reform still meant universal coverage but, as the actions of Senator Edward M. Kennedy (1932–2009) increasingly revealed, involved a willingness to abandon demands for a single public system (like Medicare), to incorporate private innovation in the organization and supply of health services, and to exploit the power of competition to foster efficiency. In the hope of devising system-oriented reforms, economists and other researchers began to focus on market-oriented precedents and innovations.
Two new groups of reformers emerged, the one consisting chiefly economists like Mark V. Pauly (1941–), Martin Feldstein (1939–), and Joseph P. Newhouse (1942–); and the other, comprising a diverse group of professionals, including Paul M. Ellwood, Jr. (1926–, a physician with background in rehabilitation medicine); Ellwood’s associate, Walter McClure (1937–, who came to health policy from physics); Alain C. Enthoven (1930–, an economist with background, inter alia, in defense policy); and Clark C. Havighurst (1933–, a professor of law deeply interested in antitrust). Both groups hoped to exploit the persistent interest in improving entitlement to foster a more frankly market-based system. The former group aimed to create supply-side measures that would enable consumer choice in a market setting, relying on consumer sovereignty at the point of service to discipline the supply side and using income-graduated subsidies to bring the poor into the market; the latter, while exploiting similar thinking, also believed that the problems of health care could be remedied only by transforming the supply side of the market through HMOs to apply incentives directly to physicians and competition at the point of enrollment and prospective payment by capitation to encourage efficient practice. These newer approaches to public policy, although initially exotic-seeming to policymakers and to most earlier experts, gradually grew familiar, and market-based health care, as analyzed and explored by economists such as these and those receptive to their influence, became the dominant mode of thinking about health policy. The very intellectual foundations for thinking about public policy had been transformed.
Stone’s classification also exploits historical analysis but it takes up a different set of the social and economic functions of insurance from those Starr emphasized. Her central question is how one should regard medical care: as something to which citizens have a right or as merely another commodity available to consumers through markets. This bifurcation has manifested itself between the divergent appeal of equity as understood in the commercial insurance industry (‘actuarial fairness’ being Stone’s term for risk-rating of insurance) and equity as understood among advocates of social conflict and collective welfare as providing for need medically defined (Stone’s ‘solidarity principle’). Actuarial fairness operates by fragmenting communities into ever narrower risk groups, by emphasizing the differences among groups and by fostering the perception that individuals are responsible primarily for themselves and far less for others. Taken to its logical conclusion, actuarial fairness could shrink the risk group to the individual level, ending the mutual aid provided by insurance. Overall, actuarial fairness distributes care in inverse relation to need (however conceived), and it undermines among citizens a sense of participation in community and a conviction that community members possess mutual obligations.
In this analysis, the solidarity principle acts in the opposite direction, by broadening risk pools, by emphasizing shared traits among members of groups and members’ reciprocal responsibilities and by assuring that the healthy subsidize the sick. The solidarity principle thus preserves mutual aid through the mechanism of social insurance. The historical dimension of Stone’s study lies in its recounting the emergence, development, and deployment within the life-insurance industry of underwriting as a means to reduce subsidies across risk classes; the entry of underwriting into commercial health insurance markets; and the appearance of its diverse forms of exploitation in health-insurance mechanisms. The study also points to developments current as of when she wrote that had conspired to expose to scrutiny the propriety of actuarial fairness; however, Stone finds actuarial fairness so deeply rooted in American culture that she ends her discussion on a pessimistic note about the prospects for health reform, than becoming a reinvigorated topic. However, recent reforms that aimed to expand entitlement indeed have entailed limits on underwriting. The ACA rests on the principle that price, efficiency, and generally value for money should be the focus of competition among insurers rather than characteristics of individuals, such as their preexisting conditions and health status.
If Stone’s analysis emphasizes subsidies across risk groups, so that the healthy subsidize the sick, Starr’s emphasizes a different social function of insurance, subsidy across income classes, so that the rich (or the better-off) subsidize the poor (or less well-off). Because in both cases financial obstacles loom large (in the latter because the poor lack ability to pay and in the former because serious illness can entail major economic loss), discussion of ‘ability-to-pay’ can obscure the distinction between the two kinds of subsidies. The earlier history of health insurance in America separated them fairly clearly, later they grew blurred, but in the ACA they have again become more distinct. The early Blue Cross plans, which emerged in the 1930s to provide the working and middle classes with hospital insurance, usually as a fringe benefit of employment, rested on community rating; i.e., they charged the same premium to subscribers regardless of risk class. The healthy subsidized the ill, but the extent of redistribution was modest, given that most subscribers, being of working age and employed, were largely healthy. The appearance of competing commercial insurers, which exploited experience rating, forced the Blue Cross plans to constrain or abandon community rating, thus squeezing out the subsidy across risk classes. The rise and development of managed care, especially in the 1990s, reinstated the subsidy across risk classes, in that managed care plans promised comprehensive benefits on a capitated basis to all members of an insured employment group for the same premium. However, the ‘managed-care backlash’ of the late-1990s, which rested in great measure on the perception that the utilization controls exerted by managed care organizations were a back-door way to renege on the commitment to provide comprehensive benefits with low copayments, led employers and insurers to back off from utilization controls and employ a diversity of more or less flexible, networked products to cater to the wishes of both employers and employees. One result was new constraints on the subsidy across risk classes.
In the case of the American Medicare Program, the basic program, Part A, hospitalization insurance for the elderly (who had not participated in the Blue plans) took wing as a way to provide the elderly a governmentally financed version of Blue Cross. However, in this case, the boundary between the two kinds of subsidy grew blurred. In part, the elderly, having left the work force, lacked income to pay for insurance; the program therefore subsidized those who were less well-off financially. However, it was the actuarial practices of commercial insurance, the exclusion of the elderly from the community rating offered by Blue Cross and the eventual departure of Blue Cross from community rating that had in effect turned a risk class – the elderly are sicker and, with purchasing power, would use more care – into an income class. By fragmenting risk pools, private underwriting made health insurance and thus care unaffordable to many of the elderly. Similarly, any groups facing high prices because of high risk or no prices because underwriters had labeled them ‘uninsurable’ could not afford (or perhaps even find a venue in which to consider the possibility of affording) to pay. A risk group becomes an income group needing a subsidy. The Medicaid program, for the poor, primarily subsidizes an income group, but to the extent that its beneficiaries have lower health status than the rest of the population and thus constitute a risk group, the program subsidizes across risk groups, i.e., healthy (and better-off) taxpayers subsidize care for the unhealthy poor; the same effect can be seen among the low-income elderly on Medicare. The diversity of programs in other advanced countries also exhibit many such complexities in the nature of the subsidies that social insurance provides.
In the US, convolutions of this kind have made for difficulty in maintaining the political stability of public programs. Neither its supporters nor its opponents thought of Medicare as an end point or irrevocable commitment in social policy; rather its opponents have continued to criticize it and attempted reforms that would reduce its costs, its economic prominence, and its character as an entitlement, whereas its defenders have seen it as an expression of social-insurance principles that they have sought to extend to the entire population. However, persistent lack of a coherent rationale for the Medicare program, whether in the failure to tailor its benefits to its target populations or to provide cogent justification for it as an element of social policy, has made it possible for diverse interpretations to come to bear on it that continue to fuel debates about its future and its reform, particularly as its costs have continued to grow. Although its proponents have seen it as a partial realization of a right to care, some analysts have argued that a different sort of stability is what had anchored health care entitlements in America: programmatic rights. Controversial programs have often found stability less in a clear rationale in social policy than in the persistence of existing programs on the ground; in their support by activist courts, congressional entrepreneurs, and activists who looked to the federal government (and not the states) for leadership in social policy; and in the expectations accumulating since the New Deal among beneficiaries (current and future) that government bears responsibility for alleviating social problems. Sometimes controversial programs like Medicare thus became invested with ‘programmatic rights’ that stabilized their politics. Medicare may indeed have become cloaked in such rights, particularly insofar as it had been sold by its founders as a form of insurance for which beneficiaries, while in the labor force, paid through payroll deduction. However, in the current policy environment – characterized by the high cost of governmental programs and large, governmental deficits – programmatic rights seem unlikely to sustain support for these two large public health care insurance programs. If advocates are to preserve them, clear articulation of rationale and reforms in financing and may become essential.
A similar analysis clarifies the ACA. It offers both kinds of subsidy that Starr and Stone discuss: across risk groups (and hence the importance of risk adjustment under its provisions; and across income classes (as embodied in its reforms of Medicaid and in the construction of state insurance exchanges for subsidized purchase of insurance by those not covered under employment-related or public-insurance programs). The two functions of social insurance have thus become more evident under the ACA (although persistent fragmentation of risk pools still keeps them less than fully distinct). The public, however, little understands the provisions of the act. Although the gradual implementation of its provisions would likely clarify its meaning and elicit support from its beneficiaries, its political viability, in view of the controversy surrounding it, seems dependent on the success of its advocates in articulating for it a clear rationale; in tuning its provisions to suit its target populations; and in assuring a worried public still focused on programmatic rights and confused about assaults on the legitimacy of entitlements that hitherto favored programs will not erode; and in parrying claims that budgetary imperatives must entail transformation, as opposed to reform, of costly public programs. Because many cost-control measures employed in other advanced countries have thus far proven politically unacceptable in the US, advocates of public programs have struggled to find means to rein in costs while upholding the legitimacy of continued, high levels of spending in public programs of health insurance.
Social Politics And Social Science: Securing Refuge From The Market
Analysis of health insurance began in the context of thought about social politics. From the late-nineteenth century through the end of the New Deal, American analysts of social problems participated in a largely North-Atlantic culture of social politics, in which shared conceptions of social vulnerability to the transformations wrought by industrial capitalism inspired a cluster of convictions about social policy. Thus, industrializing nations needed broadly similar policies, less to achieve specific, shared goals or a common form of polity (e.g., a welfare state or a social-insurance state) than to shelter some features of social and communal life from the reign of the market. There was also a sense that some countries had moved farther or faster in that direction than other, lagging ones (especially America) and an expectation that experiences in one country could be studied for their utility to others and perhaps imported with modifications. In America, reformers felt the appeal of European experience and hoped to import foreign ideas and modify them to suit American conditions. To analyze both European experience and American possibilities, many reformers aspired to exploit the then nascent social sciences. Some possessed either formal training in the social sciences or, in their capacities as journalists, social critics, rationalizers of business and intellectual brokers, substantive knowledge of them. A major element in the emergence of the social sciences was the tension between the participation of social scientists in reform and advocacy on the one hand and, on the other, their exercise of dispassionate scientific objectivity to gain fundamental scientific knowledge, i.e., the tension between Fox’s reform and relativism. Those early health reformers who came from the ranks of social scientists and from public health clearly understood themselves as exploiting their scientific knowledge in the service of social reform. Although their reformism eventually moderated and narrowed, the change was gradual and never complete. Only beginning in the late-1950s and especially in the 1960s, did analysts harness formal and recognizably modern economic analysis to health policy, and in that context as well, normative considerations, while circumscribed, have marked even the most ostensibly positive analyses.
Thus Starr’s Progressive Health Insurance had much in common with later thinking about health insurance, but it articulated more explicitly than later proposals the rationale for distributive justice. Capitalist development, as reformers saw it, having imposed most of its costs but few of its benefits on labor, left workers facing primarily four risks, unemployment, accident, illness and old age, all of which portended the impoverishment and immiseration of workers and their families. To remedy the problems resultant from the realization of these risks, reformers recommended social insurance and, specifically in the case of health care, they pressed for ‘sickness insurance’ primarily to cover its indirect costs, especially loss of income. They understood that such measures would require political support and exerted themselves in various ways to achieve it. Reformers like Isaac Max Rubinow (1875–1936) aimed to enroll fellow reformers into a coalition, to which they hoped to recruit leaders of the major interests (business, labor, the medical profession). A reform tradition descending from John R. Commons (1862–1945) at the University of Wisconsin hoped to create support by showing that the workers, industry, and the public possessed shared interests in workers’ well-being. Reformers aimed, in a word, to create a broad sense of social solidarity that would undergird reform coalitions. However, these reformers failed to parry opposition from diverse, well-organized interests, and, in the Progressive Era, their efforts came to naught.
In Starr’s expansionary era, however, advocates again pressed for health insurance, this time emphasizing the direct costs of medical care and the social costs resulting from deficiencies in its accessibility and limitations on its availability. In doing so, however, they rarely let notions of social justice take center stage. Instead, reformers and advocates emphasized two things: the efficacy of care and the peculiar economic features of health care and the health sector. With regard to the first, reformers became deeply impressed with the advances in medical science during the late-nineteenth and early-twentieth centuries and convinced that care was of tremendous value. They therefore articulated the notion of need, urged from the outset of the expansionary era in the work of the CCMC. The committee invoked insurance not only as a mechanism to enhance access to needed services, but, out of the conviction that the health sector was inadequately developed to meet the needs of even those who could afford care, also as a method to finance the expansion of health resources (hospitals, clinics, technology, and trained personnel).
Not only efficacy suggested the importance of care but also the apparent implications emergent from early economic analysis of health care and the health sector. Analysts repeatedly identified and characterized the poor fit of health care, as opposed to most conventional commodities, with the standard tools and procedures of economic analysis, and these economic peculiarities seemed, in advocates’ minds, to reflect the special moral and social significance of health and health care. Thus, analysts showed that health care differed from other commodities in several economically significant ways – in modern terms, that the demand for health care is derived from the demand for health; that health care exhibits externalities (costs or benefits involving parties outside of a transaction); that providers and patients-qua-consumers exhibit informational asymmetries (i.e., consumers are ignorant of what had recently become a recondite and technical field of scientific medicine inaccessible to those without long and arduous training); and that patients experience uncertainty regarding both the need for and effectiveness of care. In its simultaneous possession of these economically distinguishing characteristics, health care, in the eyes of reformers, was very nearly unique. In the light of these peculiarities, society had limited the extent to which market principles applied to health care, for example, through professional self-regulation, nonprofit organization of hospitals, support for programs to enlarge the health sector and to facilitate access to it; and charitable and philanthropic arrangements that served both poor and the middle class. As seen by advocates of insurance, the economic peculiarities of care, precisely because of its often little-articulated moral significance, had given rise to social arrangements that replaced standard market arrangements and thereby expressed underlying commitments to social justice.
However, corrosive forces were at work. These elicited more explicit articulation of noneconomic rationales for distributing care equitably. From the early-1970s and lasting in significant measure to the present, some voices, concerned about costs and mindful of the lack of knowledge about the effectiveness of care, expressed skepticism about the value of especially high-technology care, at least at the margin. Notions of need, that is, having begun to grow intellectually exiguous, newer analysts such as Mark Pauly began to suggest that consumers, as opposed to experts, should be allowed to exercise choice in a relatively unfettered market. In response to such growing uncertainty about the value of health care and its implications that markets need not be constrained, some proponents of redistributive policies found an additional rationale for the nonmarket arrangements prevalent in the health sector – they directly express the existence and value of social cohesiveness, of inclusive sentiments about the poor and the sick, of a will to maintain and preserve the dignity of all citizens, and of a tendency to evaluate positively lives that are not conventionally economically productive (children, the elderly, and the disabled). Figures holding these views sometimes accorded the intangible features expressed in redistributive measures in health care a priority that equaled or exceeded that of the substantive economic benefits (reduction of individual and social costs) that access to care could bring. More recent analysts, responding to the eclipse of distributional rationales for public programs under pressure of market-based health policy, have taken a similar approach, to exhibit and therefore justify perpetuating the solidarity foundations that public programs seemed to them to possess even beyond the value of the concrete medical benefits they confer.
The Eroding Aura Of Medicine And The Opening To Market-Based Thinking
Cultural developments, emergent or newly prominent after World War II, exerted corrosive effects on the notion, long animating reformers, that health care and its providers possessed special qualities. Paradoxically, the organized medical profession itself was one agent of this change: while defending itself against governmental intrusion into medical care aimed at advancing entitlement to coverage, the profession portrayed the purchase of medical care as just another consumption decision, one often overshadowed by consumers’ preferences for other goods and services. Lack of ability to pay seemed beside the point; supposedly unmet need, from this perspective, should be regarded not as a reflection of deficient public policy but as an anticipated outcome of a consumer society in which demand (not need) dictated the distribution of care. Health care, as another commodity, belonged not in the purview of redistributive policies, but in that of the market, where consumers could take of it what they wanted. Of course, for physicians the market was the one they had helped create and preserve, but upholding it in the face of consumerism would prove more and more difficult, for if the services that physicians purveyed were not so special, neither were the purveyors. Factors that diminished the personal ties in physician–patient relationships and substituted a remote professionalism led patients to take a more dispassionate view of their doctors. An increasingly well-insured suburban middle class viewed medical care as it did other, especially professional services, that is, as routinely available for purchase and subject to scrutiny with a consumer’s eye. Social scientists, moreover, had revealed with some surprise that the highminded professionalism of medicine seemed to cover professionally self-interested behavior. Culturally, health care formed part of the broader changes in the culture of consumption and individualism that gave precedence to the market ahead of government and politics and that gave priority to free choice over paternalism and sentiments of social solidarity and inclusiveness. Consumers increasingly expected to make market choices for services that reflected their own sense of what they wanted and needed.
This was the state of affairs that emerged in the beginning of the 1970s and set the stage for the appearance of market based health policy: traditional reformers pressed for a governmental program of NHI in the light of their conceptions of solidarity and social justice; cost escalation, particularly under Medicare and Medicaid, suggested the need for systemic reform; medicine and its practitioners itself suffered loss of prestige; some newer voices began to doubt prevailing notions of need, thought of care as a commodity, and claimed that health care should be allowed to operate in the market; and traditional advocates of NHI responded by emphasizing that broadened entitlement to care can express and foster solidarity and social justice. Meanwhile, the social sciences, especially economics, began to suggest novel policy ideas that, their practitioners held, could accomplish system reform and redistributive goals better than further application of prevailing policy methods. The next article takes up the immediate cultural and intellectual developments that gave scope to market-based notions of health policy, it pursues the intellectual history of market-oriented health care, and it suggests how the evolution of markets have both reflected and affected novel policy positions.
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