May 28, 1949—For the eighth time in 10 years the American people are being urged to let the Government pay their doctors for them, with money collected from the American people. The system is called compulsory health insurance, and the theory is that everybody who doesn’t have enough medical care today will surely have it tomorrow, because the Government will see to it that he does.

Between theory and practice there is a tremendous gap, much of which is currently being filled with arguments. Many of them fall in a familiar groove, but they are pitched this time against a more substantial background than heretofore, namely, the actual experience of 48 million residents of Great Britain under a comprehensive National Health Service. The scheme entitles everyone in Britain, visitors as well as citizens, to all medical, dental, and hospital care at the expense of the taxpayers.

Curiously, Britain is being called to give testimony for both sides of the American controversy. Many of those who want compulsory health insurance cite the British plan as a shining example for us to follow. Their opponents, including the American Medical Association, point to the same program as a warning of dire things to come if we adopt any Government-directed system and propose, instead, an extension of voluntary health insurance, with financial help from state and Federal governments.

What is the story? Should Britain’s 11 months of nationalized medicine—socialized if you use the broad definition of that term—cause us to embrace or reject the compulsory plan so insistently advanced by President Truman, Federal Security Administrator Oscar R. Ewing, and the Wagner-Murray-Dingell group in Congress? In this article we shall look for an answer by examining the Administration’s health insurance plan in the light of the British experience.

The explanation for the two-way character of the British evidence is that, where there are as many people of intelligence and good will as one finds in England, no plan for the care of the sick will be a 100 percent failure—at least not at first. Most people are willing to give it a sporting chance. Even the British doctors, while swearing under their breath—and sometimes audibly—at Minister of Health Aneurin Bevan and the scheme which he and Parliament pushed through over their opposition, are trying sincerely to make it function. And certainly the majority of the working people—whose purchasing power has for years been much below that of Americans at comparable jobs—welcome a form of medical care supported mainly by taxes on the middle- and upper-income groups.

Yet it is highly significant that nearly everyone with whom I talked in England had some reservations about the scheme. People felt that too many were abusing it and thus jamming the traffic in the doctors’ offices, that many physicians were being overworked and underpaid, that dentists and eyeglass dispensers were making a killing, that the administrative machinery was cumbersome, slow, and inefficient. Even one of the government’s own regional officers remarked that “most people would not be so mad as to take over such a large thing all at once.”

The temptation to buy the whole package at one time is very great in this period of increasing dependence on government. In fact, the first danger in any proposal for government medicine lies in the ease with which it can be glamorized. Like the bodybuilding courses that come with a pair of 25-pound dumbbells, it looks magnificent on paper. Unfortunately, the result is usually far short of the pictorial promise in the advertisement. The dumbbell system has one advantage, though. If, after a few weeks, you are dissatisfied with your rate of deltoid development, you can stow the dumbbells in the attic and forget them. State medicine is not so easily shucked off, once you have installed it.

A good many of the British people admit they bought Bevan’s system a bit too hastily, and they now confess to a feeling of disillusionment. They had been won over by the bright promises of everything for everybody. Now that the scheme has been in operation almost a year, their enthusiasm has dimmed.

Three North of England women expressed this reaction in strikingly similar terms. Said a hospital superintendent, “I was for the plan, but this transitional period sometimes makes you wonder if it is worth while.” Then she added, “But I do think it will work out eventually.”

A miller’s wife, formerly a nurse, remarked, “I thought beforehand that nationalization of the hospitals would be good, but now that I’ve seen how it works out, I think I was wrong. … The county hospitals are operating 10 automobiles where they were running only one before. … Everybody feels he must get what he can out of the government before someone else does.”

And a woman doctor, brushing a wisp of blond hair out of her eyes as she signed a sheaf of certificates and orders, confessed, “I was for the plan, but now we family doctors seem to be in danger of becoming simply form fillers and traffic officers, shunting people to this hospital or that specialist.”

Some of the British criticism of the National Health Service is bound up in a growing dislike of the whole idea of the welfare state, in which food, housing, fuel, and now medical care are at least partially provided by the government.

One of England’s leading medical scientists, head of an important government council, feels so strongly on this point that he told me, “If I were a young man in England today, I would get out and go somewhere else. I don’t object to seeing that the poor get enough to eat,” he said, “but why should I be taxed to the limit to put bread in the mouth of the employed worker, who should work hard enough and be paid enough so that he can buy his own food without heavy subsidies?” The comment is frequently heard in England that so much subsidizing is destroying the people’s initiative.

While the British health program differs in details from the compulsory health-insurance measure of Senators Robert F. Wagner and James E. Murray; and Congressman John Dingell; and their cosponsors, the two plans are cut on the same basic pattern. Both spread the wings of government-directed medicine over all or nearly all of the population. Both lean heavily on central government authority. And both are compulsory in that all wage earners and taxpayers must pay for the services, whether or not they approve them or make use of them.

The scope of the new Wagner-Murray-Dingell bill is not quite so broad as that of Bevan’s plan, since the former would cover only those under Social Security, with a few additional categories. But the trend is to broaden Social Security to take in almost everyone. “We aim to have everyone who is the head of a family become taxable,” explains Mr. Dingell, “so that he and all his dependents under 18 would be entitled to benefits. … Why, this is the most liberal proposition in the world.”

Many of Mr. Dingell’s opponents think his bill is far too liberal. Why, they ask, should tax-supported medical care be offered to everyone, the $10,000-a-year man as well as the family getting along on $1,500? The coverage of government medicine is one of the crucial issues of the whole controversy. Both sides agree that no one who needs medical care should be denied it because he is unable to pay. The opponents of compulsory insurance maintain that it is in the American tradition that those who are able to care for themselves and their families should not lean on government for help. The Wagner-Murray-Dingell group maintain it is too hard to determine who is able to care for himself and who isn’t, and that the easiest and fairest way is to make medical care freely available to everyone on the basis of compulsory wage deductions.

Mr. Dingell recalls that his own family lacked means for adequate medical care when he was a boy. “I contracted diphtheria,” he said, “at a time when it cost 25 dollars a shot for anti-toxin. My family couldn’t afford that, and I guess I was one of the very few who pulled through without it.”

He declares that he has seen people refused admission to hospitals because they had no money, and he cites the case of a man brought in from the street in Detroit with third-degree burns. “Because no one, including the policeman who brought him in, could insure the fellow’s bill,” Dingell said, “the patient was turned away from one hospital and had to be carried clear across town to the city receiving hospital. Under a system in which every hospital knew the Government would pay every patient’s bill, this would not have happened.”

December 9, 1944—Your recent doctor’s bills probably shared the envelope with a leaflet warning you against “socialized medicine.” The leaflet, sponsored by the National Physicians Committee, explains that, if anything like the Murray-Wagner-Dingell Social Security Bill passes, doctors will become state jobholders with no more personal interest in your tonsils than could be expected of the clerk of bills at the city hall. Friends of the medical-care sections of the Wagner Bill protest that the National Physicians Committee doesn’t really represent the docs, but the fact remains that your family doctor, who is wearing himself out by his efforts to spread medical care as far as he can, thinks his number is up.

Right or wrong, this is what most doctors think, and if you doubt it, the thing to do is ask your doctor. He will probably talk your arm off, but after all you get a $250 amputation for nothing. I can testify that there is no better way to outlast the other patients in the waiting room of a doctor’s office than to stop saying “Ah” long enough to introduce some such line as this: “Doctor, I heard on the radio the other night where a fellow was explaining that only reactionaries were against this Wagner Bill.” I have tried this topic on all sorts of doctors, from orthopedists to the plain general practitioner (G.P. Joe, as I suppose he will be known from now on). The result is practically always the same. My researches indicate:

1. That American doctors are against socialized medicine or any modification thereof which subordinates them to bureaucrats, makes them salaried officials, or interferes with their professional standards.
2. That American doctors are definitely interested in making medical care available to more people, and in plans to pay doctors’ bills on the insurance principle—provided such plans are nonpolitical.

The fact that any group should want anything else is a complete mystery to the doctor. He is driving himself at top speed to meet the demands on him, and is baffled by sociologists who think he could trot from bed to bed faster, if only the Federal Government would take over. Caught off guard, he is likely to give you something like this:

“You pay for your groceries, give the landlord his monthly check, and pay the undertaker a fabulous sum to bury you. But just let the doctor identify a strep infection in time, fix you up with the proper sulfa drug, and send you a bill for $28, and down you sit to write to your congressman demanding that doctors be sovietized and medical expenses subsidized by the state. I don’t get it.”

You say, if he hasn’t shut your face with a clinical thermometer: “But, doctor, there are a lot of people who simply can’t pay medical bills. Furthermore, even the average middle-class man with a good salary is knocked for a loop if he is hit by a $500 operation that keeps him from work for a couple of months. Nobody is blaming the doctor or expecting him to support his patients when they are flat on their backs. The problem is to find a way to help people pay for medical care, so that the doctor won’t have to treat the poor for nothing, hoping against hope to land enough rich men who don’t mind paying $2,000 to have an appendix lifted.”

Of course, your doctor hasn’t been listening. He has been waiting for you to stop talking, maybe snapping a nose elevator in the air to calm his nerves.

“You mention the people we treat free in clinics. Do you know what will happen to them under state medicine? In our clinic they get the attention of the best men in the profession. When Wagner and Murray get through with medicine, no doctor of any standing will ever see such a patient. Why? Simply because there will be a fee attached, and you can be pretty sure that some shyster with a brother-in-law at the city hall will grab all those cases.”

“All right, all right,” you interrupt, pushing aside the stethoscope, “but something has got to be done.”

“Sure,” agrees the doc, “but understand at the outset that you are dealing with the services of highly trained professional men and not with something you can dish out over the counter at the supermarket, or, if the customers can’t pay, through the Surplus Commodities Corporation.”

Let’s not assume from all this that the doctor has done nothing to meet new conditions. Actually, he has done quite a lot to put himself on a semi-collective basis. The individual doctor can no longer afford to equip himself with all the expensive machines and gadgets used in modern practice. If he lives in a city, he probably works around a hospital where he can treat his very sick patients and consult with other doctors on cases that puzzle him. If he is a country doctor, he does the best he can. Doctors have for years grouped themselves together to feed an assembly line of diagnosis and treatment without benefit of politicians. The trouble is that relatively few laymen can afford this attention. Some crotchety doctors think the patient isn’t missing much.

Because modern medical care is expensive, we have free clinics, special arrangements for the middle-class poor, and a gradual extension of treatment in hospitals at standard prices. Recently, a writer in Medical Economics protested that hospitals were providing too much medical care administered by salaried doctors and thus presenting a menace worse than “socialized medicine.” Obstetrics at flat rates, X-ray treatments, salaried anesthetists, and tonsillectomies “packaged to include surgical as well as hospital costs in one fee” were among the marketing schemes complained of. “It is time the medical profession prepared to defend the stand to which it gives lip service,” said the article. “It takes more than strong language at the AMA meeting once a year to turn the tide. We are approaching a day when physicians will be merely a class of skilled laborers, readily hired and fired by their community medical centers.”

To the man in the doctor’s waiting room this sounds like the corner grocer worrying about the supermarket. The layman is indifferent to the dilemmas of doctors because he isn’t familiar with them. At any rate, he was before the National Physicians Committee began its campaign to tell the customers how state medicine would affect them. The committee reports that its surveys reveal a trend away from socialized medicine as a result of the family doc’s mild words in his own behalf.

The patients never wanted state medicine anyway, but only some sort of prepayment scheme which would make it possible for a man of modest income to pay his own medical bills. Actually, the doctors want this too. They welcome patients who carry health insurance and many of them encourage and participate in group-insurance and group-medicine plans. But they don’t want a system, like that proposed in the Wagner Bill, in which the qualifications of doctors, educational standards, and the right to specialize in practice are determined by a board headed by the Surgeon General.

Because he isn’t much on politics, the doctor messed up his case pretty badly at first. Consequently, he got himself sued under the antitrust laws and pictured to the untutored as a leech who translates the oath of Hippocrates into English as “Never give a sucker an even break.” Actually, every man knows that his own doctor is a faithful and hard-working practitioner whose personal convenience is always at the mercy of his most capricious patient. We all know doctors who perform endless labors for nothing and treat the indigent as faithfully as their few wealthy customers. But so bad have been medical public relations that advocates of state medicine have succeeded in creating a doctor who doesn’t exist at all—a cold, calculating, selfish, reactionary politician whose object is to keep a very few people just well enough to pay exorbitant bills, but not healthy enough to dispense with the doctor. That picture, however, is changing. People are coming to find the bedside manner of Wagner, Murray, and Dingell a little unctuous.

The doctors have more to do—and I’m passing this along to the next doctor who treats me, if the door is handy—and that is to understand a little more fully than some of them do now that the public is not much interested in socializing them, but is genuinely concerned with the costs of medical care as a real problem in the lives of most people. Pari passu, the social planners may as well climb down from their high horse and interest themselves in the development of medical care on evolutionary lines, and by doctors, instead of a device to make doctors into political functionaries, thereby making the lot of the patients, including the poor ones, worse instead of better.

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.