Today we are still arguing over who’s responsible for the high cost of healthcare. Get the facts on health insurance in this investigative three-part series from 1958.
[See also: "Fixing Our Healthcare System" from our Sep/Oct 2012 issue.]
The High Cost of Chiseling
Part I: The History of Health Insurance in the United States
Part III: Is This The Pattern of the Future?
June 14, 1958—Crooks rob union welfare funds, ‘ghost surgeons’ operate, and needless hospital stays cost millions a year. Here’s what such abuses mean for all of us.
On an August afternoon in 1953, a Bronx labor leader named Tommy Lewis was ambushed and shot to death in the corridor of his apartment house. A few moments later, the man who shot him—a convict on parole from Sing Sing—was killed by a policeman.
“That seemed to wind up everything,” a New York police official said afterward. “We had the killer. No mystery, no loose ends. But the shooting didn’t make sense. We decided to investigate a little further.”
Lewis, then 35, had been president of a local janitors’ union for the past 12 years. Union spokesmen could offer no reason for the murder. His widow claimed he had no enemies.
The police investigation never did provide a completely satisfactory explanation for the crime. What it did reveal, however, was something destined to be far more significant—a trail that led from Lewis to a questionable insurance broker, and finally to the union’s million dollar health-insurance fund.
Lewis and his cohorts had been robbing that fund of hundreds of thousands of dollars. They had paid themselves enormous salaries, commissions and “service fees,” put their relatives on the payroll, borrowed huge sums for personal use, altered checks, and falsified records. In addition, and perhaps more important to the 5,000 members of the union, the fraud meant that their supposed health-insurance protection had been wrecked. There was not enough money left to provide adequate coverage for hospital and doctor bills.
“You can’t trust anybody!” one outraged member told reporters. “We all put our money into that thing. And those crooks robbed us blind.”
“What the Government should do, it should take over everything,” said another. “What this country needs is Government medicine.”
To casual observers, this first batch of complaints over one relatively minor episode of till-robbing seemed to hold no great menace for the growing voluntary health-insurance program of the nation. But the investigation did not stop with the shooting of Tommy Lewis. Even before that murder, New York State investigators had been looking into the affairs of the insurance agency, which handled the janitors’ health-insurance fund. The shooting intensified and expanded their search.
On orders of the governor, a corps of lawyers, accountants, and professional sleuths dug into more than 250 other health and welfare funds, and examined hundreds of witnesses under oath. What they found, the report of the deputy superintendent of insurance said, was a “tragic record of abuses … dissipation of assets, excessive expenses, unsecured and seldom-repaid loans, nepotism, kickbacks, and graft.”
In a confectionery-and-tobacco-drivers’ union, for example, the fund administrator—a former official of the union had himself appointed for life, with sole power to hire, fire, and set salaries for himself and his staff. He had the fund provide $85,000 to purchase from his own cousin a summer-resort property assessed at $10,500. Administrative expenses ran so high that the fund was mired in debt.
The president of a bar-and-restaurant-workers’ local with 1,200 members had himself appointed administrator of health-insurance-and-welfare funds at a salary of $41,000 a year. He justified this sum by claiming, “Good administrators deserve good pay.”
The heads of another union fund gave themselves more than $32,000 a year in compensation, spent most of their time in Florida and Catskill resorts, and let the fund supply them with three expensive cars, plus credit cards to keep the cars filled with gasoline.
In still another union, nearly a third of all health-insurance benefits were paid to the top union officers, many of whom claimed “heavy medical bills” which, later, they were unable to substantiate.
In several instances, insurance agencies or insurance companies were found to be so hungry for the union’s health-insurance business that they bribed union officials with secret rebates or commissions.
In making these and similar disclosures, the New York investigators emphasized that not all the blame could be given to larceny-minded union officers. Part of the abuse—perhaps an equal part—could be charged to management representatives who were serving as trustees of the various jointly administered funds.
Too often, it was discovered, these employer representatives had found it advisable to look the other way when the till was being robbed or had even dipped their own fingers in the pot.
It was likewise emphasized that most union health-and-welfare funds were being operated efficiently and honestly, and that the exposed miscreants represented only a small minority. Nevertheless, it was estimated that this minority was stealing as much as $15 million a year in New York alone.
The New York report was immediately followed by violent denunciations from national labor leaders. Both Walter Reuther, of the C.I.O., and George Meany, of the A.F.L., ordered local officials to clean their houses or be kicked out of office. At the same time, state legislatures were asked to pass laws, which would prevent all such skulduggery in the future. By January of 1958, however, only about half a dozen states had approved such laws, and President Eisenhower sought Federal legislation, which could do the job.
Among those who most vehemently expressed their indignation at the plundering of union health-and-welfare funds—of which two dollars out of three were earmarked for health insurance—were many physicians, including several leaders of organized medicine and editors of important medical journals. These crimes, they said, were weakening the whole structure of voluntary health insurance and bringing closer the threat of Government intervention, compulsory health insurance, and state medicine.
“Such depredations can only help to destroy the confidence of the public in our present system of voluntary prepayment,” one medical editor declared.
Unfortunately, it soon became apparent, the record of doctors themselves was not entirely impeccable. Insurance-company officials and special medical committees were reporting that some doctors were indulging in what could be described at the best as highly questionable activities. Instead of charging according to the value of their services or even according to the patient’s ability to pay, they were charging according to the insurance company’s ability to pay.
Typical was the history-making case of a West Coast waitress who underwent surgery for which the usual fee in her community was about $100.
“I thought I was going to be all right,” she told representatives of the local county medical society. “The health insurance policy I have with my union was going to pay me $85, and all I’d have to put out extra would be $15. But the minute that surgeon found how much the insurance would pay, he raised his price to a hundred and fifty.” The waitress added, “If that’s the way the doctors do it, I want the Government to take over medicine.”
Her complaint helped lead to a complete revolution in the setting of fees in California, and later in other states (The Saturday Evening Post, February 12, 1955). But this control of fees has by no means become universal.
At a recent medical meeting, for example, Dr. W. J. McNamara, associate medical director of Equitable Life, listed a few of the excessive bills sent to his company for payment. He revealed that one patient with an annual income of $2,500 was charged $2,500 by a surgeon for a lung operation. Another with the same income was charged $1,500 for a stomach operation that normally costs less than $500. A woman whose husband made $6,000 a year was billed $1,200 for a minor gynecological operation, and a $4,000-a-year worker was charged $1,000 for a minor bone operation. A common laborer underwent surgery for the amputation of one arm and the repair of a fracture of the other; his surgeon’s bill alone was $2,500, and his total medical expenses ran to more than $4,000.
Evidence of other abuses has been turned up with the routine notices, which many Blue Shield plans send to their subscribers as a periodic report on how their health-insurance dollars are being spent. Such a letter might read something like this: “Dear Sir: Your Blue Shield plan has paid the sum of $150 to John Doe, M.D., for performing an appendectomy on you.”
In Pennsylvania, one of these routine statements brought the following intriguing reply from a subscriber: “I am glad you paid my doctor $150. But he did not take out my appendix. He removed a small wart from my neck.”
Another subscriber replied to a somewhat similar notification by writing: “You people obviously don’t know how to keep records. My doctor didn’t treat me 11 times last month. He saw me only once.”
Still another wrote: “How could you pay Doctor Jones for removing my gall bladder? I do not know any Doctor Jones. My family physician, Doctor Brown, told me that he did the gallbladder operation himself.”