The Post Reports on Health insurance

Part II: The High Cost of Chiseling
Part III: Is This The Pattern of the Future?

June 7, 1958—Hospitals overcharge insured patients; doctors pad fees; patients demand unnecessary treatment. These are the whispered accusations.
Here are the facts.

In insurance circles, particular honor has long been accorded a group of statisticians known as the crystal-ball boys. With startling accuracy, these experts can predict almost everything from how many appendicitis victims will perish next August to how many children will be born with blue eyes or cleft palates.

“We can usually present such prediction with great confidence,” says one of these men. “But occasionally we have made mistakes, and some of these have been lulus.”

Perhaps the most embarrassing of all these erroneous predictions in recent years was one, which involved the insurance business itself. This was the general failure to foresee the future of health insurance. Originally, health insurance was aimed at protecting the public against the financial shock of sudden severe illness. Also, and by no means incidentally, it was intended to halt state medicine. It was of barely modest size in the 1930s and early 1940s, and most experts predicted it would remain that way or grow only slowly. This turned out to be about as unsound as predicting that Jayne Mansfield would always be flat-chested.

During the last ten years, health insurance not merely grew but practically exploded into a multi-billion-dollar giant ranking with the major businesses of the country. This year, according to the best available estimates, health insurance may finally surpass life insurance in the number of people covered. By the start of 1958, there were roughly 123 million Americans—more than 70 percent of the population—with some form of hospital insurance; 109 million with some form of surgical insurance; and 74 million with some form of nonsurgical medical insurance. Last year, health insurance covered a whopping $4.2 billion, or about one-fourth of our personal-sickness bill for the year.

With the exception of television, or of bootlegging during prohibition days, probably no other peacetime industry has grown so big so fast. On this there is wide agreement among authorities of Blue Cross, Blue Shield, commercial health-insurance companies, medical societies, hospital associations, labor unions, and employer groups.

Among these same authorities, however, there is no complete agreement on what the public wants and is willing to pay for, nor on even such basic points as how many people may practically be covered, what kind of policies they should have, how their health-insurance protection should be delivered, and who should pay how much to whom for what.

Equally important, serious and dangerous internal disputes, which were mainly kept hidden from the public, have recently broken out in a nationwide rash of noisy attacks, disclosures, and denunciations. During the past few months, for instance, patients in some areas were being accused of putting pressure on doctors with demands for luxury treatments, needless diagnostic surveys or “dragnets,” or a few extra days in the hospital, merely on the grounds that they could be covered by their insurance policies.

“We simply can’t turn these people down,” one physician confessed at a Chicago meeting. “Sure, I know this is boosting the cost of medical care. But if I don’t give them what they want, even though I know it’s not justified, they’ll just go to another doctor and he’ll collect the fee.”

At the same time, a few doctors themselves were being attacked by patients, by insurance organizations, and even by their brother doctors for soaking insured patients with big bills, primarily because these patients had insurance. Medical societies, headed by the American Medical Association, were being berated by labor and Government officials for steadfastly opposing what these officials termed “any improvements” in existing health-insurance plans. Insurance companies were being charged with refusing to pay legitimate bills, capriciously canceling individual policies without adequate cause, and terminating protection on most patients when they became old or ill and desperately needed protection. Some of these companies were assailed by the Federal Trade Commission for misrepresentation in their advertising, and a few were under fire for marketing the low-cost “bargain” insurance known in some quarters as a Fourth of July policy.

“This,” explains an insurance expert, “is a policy which sounds good, but is so limited that it will provide coverage for only the most rare events-like being trampled by a bull elephant on Main Street at high noon on the Fourth of July.”

Probably the most heated battles were raging over the deeds or misdeeds of hospitals and their allied hospital insurance system, Blue Cross. Some months ago, for example, investigators set off one sizzling row when they found a Tennessee hospital that was serving as a virtual baby sitter for parents with health insurance.

“It’s really wonderful, and so easy,” one Tennessee woman naïvely admitted. “When my husband and I want to go up to Washington for the weekend, we don’t have to hire us a sitter. We just take the baby to the hospital and say we think it’s got measles or something. They keep the baby for us until we get home. We sign the insurance forms, and it really doesn’t cost anybody anything.”

In one Midwestern state, a medical society survey revealed that more than 30 percent of the patients in typical hospitals were spending a staggering number of needless days in a hospital bed. The cost of that abuse was estimated to be nearly $5 million a year in one state alone.

“Every insured patient who occupies a bed while he has a wart or mole removed, or while he has some simple laboratory or X-ray tests performed,” the investigating doctors claimed, “contributes to the rising cost of hospital operation and the increasing cost of health insurance.”

Similar accusations have been brought in Massachusetts, Ohio, Illinois, Minnesota, Colorado, and California. In New York, it was claimed, hospitals were discriminating against insurance companies or uninsured patients in favor of Blue Cross by giving the latter a 15 percent discount in what was described as an undercover kickback. In Philadelphia, where one of the most vigorous disputes was raging, Dr. Samuel Hadden, president of the local county medical society, blasted hospitals for striving to keep all there beds occupied and letting Blue Cross pay the bill.

“When Blue Cross assumes the obligation to hospitals to keep their beds filled,” he said, “it is running up the costs of illness unnecessarily and is betraying the public.”

Even labor and management, through their mishandling of jointly administered health and welfare funds, have been denounced for costly abuses. Several East Coast probes have revealed that money provided by workers and employers to pay health-insurance premiums was being used to finance strikes, bribe officials, and supply welfare-funded officials with high-priced cars, country-club memberships, and luxurious vacations in Miami, Las Vegas, and Palm Springs.

Partly as a result of all these abuses and shenanigans, as well as because of increases in salaries, drug costs, and the like, the price of health insurance is now rising sharply in some areas. Blue Cross, for example, has recently requested rate increases of 23 percent in Michigan, 40 percent in New York, and 42 to 71 percent in Philadelphia, and has already instituted generally similar increases in Southern California.

These increases, it has been asserted, are threatening to price health insurance out of the market, making it too expensive to be purchased by those Americans who need it most urgently. To thoughtful leaders in almost every field involved, this prospect is frightening.

“This could become a strange and dangerous situation,” says Dr. William Shepard, a vice president of Metropolitan Life, former president of the American Public Health Association, and one of the most highly respected authorities on the economics of medical care.

“Voluntary health insurance,” he notes, “was created in large part to prevent compulsory, Government-controlled health insurance. We all co-operated to make it grow. It has grown rapidly—perhaps too rapidly. Now it is in great peril. If it collapses, it will inevitably bring the one thing it was supposed to prevent—Government control of the practice of medicine.”

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.”

Is This the Pattern of the Future?

Part I: The History of Health Insurance in the United States
Part II: The High Cost of Chiseling

June 21, 1958—Here’s how employees of one company prepay all their family medical bills via a comprehensive group plan. For them, sickness can never mean financial ruin.

For many years, a number of General Electric engineers and executives had been members of a private association called the Elfun Society. At their meetings in Schenectady, New York, and other cities, they talked about community service projects, company improvements and how to invest their savings in stocks and bonds. Also, since many of the members were young men with growing families, they talked informally about school setups, Parent-Teacher Associations, household budgets, and medical bills.

“It’s those medical bills that really scare the daylights out of me,” an engineer said, one evening back in 1946. “We’re on such a tight budget at our house that any serious illness could wreck us.”

“Why don’t you get some health insurance?” a friend asked.

“You mean the kind that’ll pay a couple of hundred bucks if you get sick? That wouldn’t help. A couple of hundred—I could pay that without too much trouble. But what do I do if I get hit with a bill for a thousand dollars? Or two thousand? Even on my salary, that’d be a catastrophe!”

“So get some insurance that just pays the big bills.”

“I tried,” said the engineer. “There isn’t any such thing.”

At the time, the G.E. men discovered, no insurance company was prepared to provide protection against the costs of medical catastrophes. They went to friends in the insurance industry and urged them to try such policies, but they were repeatedly turned down.

“There’s no need for it,” a New York insurance executive said.

“It would be certain to fail,” said a Connecticut expert.

“Maybe it might work,” admitted the representative of a New Jersey company, “but the industry won’t be ready to try it for at least 10 years.”

Finally, the Liberty Mutual Insurance Company, of Boston, agreed to an experiment. Working with a committee of the Elfun Society, it prepared an experimental policy patterned somewhat after automobile collision insurance. There was a so-called deductible, obliging the policyholder to pay the first $300 of the bills for any illness. There was also a co-insurance feature, requiring him to pay 25 percent of the rest of the bill. The ceiling for any one illness was set at $1,500. Introduced early in 1949, this was apparently the first catastrophic or major medical health-insurance policy ever sold.

The experiment succeeded beyond the wildest expectations. The new idea spread from the Elfun Society into General Electric and then into other industries. Other insurance companies adopted the idea, setting the deductible portion anywhere from $100 to $500, and raising the ceiling for anyone illness to $5,000, $7,500, and even $15,000. By 1952, approximately 700,000 people were covered; 2 million by 1954; 9 million by 1956; and 13 million by the end of 1957.

Most of the major-medical policies paid in the form of cash, rather than services, allowed free choice of doctor and hospital, and involved no fee schedule to control the doctor’s charge. At the outset, these provisions won an enthusiastic reception, especially from medical groups. Dr. David Allman, president of the American Medical Association, said last year, “No physician can consider this type of insurance a threat to medical practice.”

Organized labor was not so optimistic. “Major medical,” warned one union leader, “can merely mean more money in circulation to pay higher doctor bills, with the patient no better off.”

Regardless of this and similar objections, the creation of major medical, or catastrophic, health insurance was widely and highly admired, and insurance companies won considerable praise for their enterprise. To insurance executives such a warm reaction was exhilarating and also somewhat unusual. Until recently, health insurance companies were widely depicted as remote, cold-hearted corporations interested in collecting premiums, adamantly refusing to pay justifiable claims, and seeking to amass great profits for their stockholders.

Actually, few major insurance companies are set up as profit-making concerns. Most are nonprofit or mutual corporations; if they make any money, these funds are returned each year to their policyholders in the form of cash, reduced premiums or paid-up insurance.

On the other hand, as some insurance men themselves admit, there have been grounds for hard feelings. In the past, companies have put out individual policies which they could cancel at will if their experience proved unfavorable—a maneuver which one expert describes as “perhaps good economics, but remarkably poor public relations.” More recently, some companies or their more zealous agents have indulged in outright misrepresentation as to what their policies did and did not cover. Last year, the Better Business Bureau of Boston, felt obliged to warn customers that “there is no magic which can furnish broad insurance coverage and sweeping protection at unbelievable bargain rates … one can’t buy steak for the price of turnips.”

Many conservative insurance leaders still view with dismay the efforts to sell health insurance—especially the more expensive individual policies—on an emotionally supercharged level. Some salesmen admittedly utilize such high-pressure tactics. In one how-to-do-it article published last year in the insurance magazine, Accident and Sickness Review, a Chicago agent warned his fellow salesmen against the prospect who “desires to study the plans we have offered and perhaps wants to look into other plans.” Encountering such a client, he said, the salesman should counterattack with approaches like these: “Do you know the exact provisions of your auto insurance or, for that matter, any of your insurance policies? … Would you drive your car without insurance? Does your body or your income deserve less? … You trusted someone to insure your car, life, and so on. If you don’t have coverage, it’s better to have some protection than none.”

In contrast, Joseph F. Follmann, Jr., of the Health Insurance Association of America, has suggested, “In the long run, we believe the interests of the prospect—and thus of the company—will be served best by a chance to size up all proposed plans, carefully and unemotionally, and to select the program which most closely fits his needs and his pocketbook.”

To meet such requirements, insurance companies—along with Blue Cross and Blue Shield—have experimented with such ideas as noncancelable or guaranteed renewable policies, policies which provide at least some coverage for mental disease, Paid-Up-At-65 policies, economical group coverage for farmers, and the new nationwide Medicare health insurance program for military dependents. Among these new experimental ideas was catastrophic, or major medical, coverage, which was greeted upon its introduction with considerable enthusiasm.

Within a very few years, it became apparent that major-medical insurance was by no means foolproof. The deductible and co-insurance features made it difficult for patients to abuse their policies, but not impossible. Even in the absence of fee schedules, and with ceilings as high as $10,000 or more for a single illness, the vast majority of doctors exercised restraint and discretion, but some did not. Unfortunately, an increasing number of physicians in some areas began to render extraordinarily high bills for their services. Only a few months ago, one company in California regretfully announced that it was forced to go back to the restrictive fee-schedule system to keep doctors’ bills in line.

Furthermore, there were growing signs of collusion between physician and patient. In such a conspiracy, investigators discovered, the procedure was usually something like this: Joe Doakes, with a stone in his kidney and a touch of larceny in his heart, would find that a kidney operation—including charges for the surgeon, the hospital, nurses, and miscellaneous items—would cost him $800. Under the terms of his policy, he would have to put out in cash the deductible amount of $200, and then 20 percent of the remaining $600, or $120.