 Welcome to Free Thoughts. I'm Trevor Burris, and I'm Aaron Powell. Joining us today is Christie Ford Chapin, an associate professor of history at the University of Maryland, Baltimore County, and a visiting scholar at Johns Hopkins University. She's the author of Ensuring America's Health, the Public Creation of the Corporate Healthcare System. Welcome to Free Thoughts, Christie. Thank you for having me. Your book is a fascinating history of how we have a convoluted and dysfunctional medical system or how we got there, and a big player in that book is the American Medical Association. When did the American Medical Association start and what was it like at the beginning? Well, it was founded in 1847, and when it was founded during the 19th century, it wasn't particularly powerful. It was during a period before the discovery of germ theory, so physicians were having a lot of difficulty just establishing themselves as a profession that was prestigious and convincing their patients, for example, that they had expertise that was over and above, for example, perhaps a midwife or some type of alternative practitioner, like a eclectic practitioner or a homeopathic physician. And but that so by the, say, 1880s or so when they started getting more professionalized? Yes, so the 1880s is with the discovery of germ theory. So the first time we have effective medications and vaccines and such. And that was very widely covered. It wasn't like this was something that occurred in academia and nobody knew what was going on. This was covered in the newspapers and people were very excited about all the things that were going on with medicine. And so this gave the AMA and physicians a lot more power and what they had wanted for so long, going back to the 18th century, is licensing laws so that only so that they could have some type of control over who could call themselves a physician and practice as a doctor. There were some weak licensing laws that were already in place. There had been some past at the end of the 18th century beginning the 19th century. A lot of those were actually overthrown during the 1830s and such during the the Jacksonian period. So now that they had this new expertise and they were starting to enjoy a lot more social standing, they were using that power to get licensing laws either strengthened or passed at the end of the 19th and beginning of the 20th century. And this was really key to the power that they would exercise over the healthcare market because with their control, the power they had over hospitals and the power they had over licensing boards, they were able to act the AMA association. Its leaders were able to act as the regulators of the healthcare market. At the time that they were doing this, that they were agitating for licensing, how many physicians were members of the ANA? Like what portion of them were? Was it most of them? Well, at the end of the 19th and beginning of the 20th century, they would have still been in the process of establishing medical associations in states, counties and cities. So that's one thing that that gave them a lot of powers. You have the national association headquartered in Chicago. Then each state has an association and then physicians join the association if they're accepted at the local city or county level. So during this period, as you can imagine with, you know, the country expanding out west, they're still expanding the association. But I would say the height of their membership you really see during the post-World War II period, but they're building up to that. Saved by the early 1950s, they have about 70 to 75 percent of physicians who are practicing. And well, 70 to 75 percent of physicians, but you could imagine that people, for example, who were still in training or retired might not belong. So at that point, they were, you know, all through, I would say the first half of the 20th century, they were growing in power. So then when they were pushing for the, when they were first pushing for the licensing, was there much debate? Were there physicians who disagreed with this or was it kind of all physicians, whether they were members or not, were pretty on board with licensing? Most physicians were on board with licensing, even the ones who hadn't gone to fully accredited medical societies or even there were physicians who do, excuse me, fully accredited medical schools. There were even physicians practicing at the end of the 19th and beginning of the 20th century who had only done an apprenticeship and that's it. But with the licensing laws, they would have grandfathered all them in. So the vast majority of your physicians would want this because they would understand that it would cut down on the supply of medical practitioners and increase their fees. It seems that the story kind of kicks off after we have the licensing and the increased professionalization of doctors via the AMA in the first few decades of the 20th century, but it really kicks off in the 1930s when things have changed a bunch. We have more corporatized system. We have a bigger economy. We have even more professionalized medical guild and they start being concerned about how people are paying for healthcare. So talk a little bit about what was going on there. Okay. So if you can imagine with the discovery of germ theory and all the excitement around medicine and all the new treatments that work so well and the advances in surgery and such, medical prices were rising. So people being clever as they are were finding all kinds of different ways to pay for healthcare. They wanted to have some mechanism of budgeting for it because, as you know, with healthcare costs, you can have a incur large costs very quickly and it could be very difficult to forecast and budget and save for. So what you ended up having happen is that all kinds of different groups came up with ways of financing and delivering healthcare. So for example, you had unions using a portion of their membership fees to contract with physicians and even hospitals. And unions had all types of different models. They even had one type of model where they actually just employed physicians to work for them. You also had businesses experimenting with different models. For example, they might just hire a physician and have that physician on staff to practice industrial medicine to be looking after the workers and then eventually expand that to their families as well. There were also consumer cooperative, a lot of farmers were over consumer cooperatives and contracting with physicians that way. Mutual aid societies and fraternal orders that tended to represent African Americans and then a number of ethnic groups, whether Jewish or Irish or Polish, Croatian, you name it, everybody had their Mutual Aid Association. And these were kind of like social clubs, but they also, again, with their membership fees would buy life insurance and then eventually also started doing things like contracting with physicians. In fact, in the South, you even had one African American Mutual Aid Society that got so large they built their own hospital for members to use. So you had all these different kinds of models, but the model that I often talk a lot about because it was what physicians really like to do. And it seems the way the market probably would have gone, would have been a dominant model in the market if it had not been shut down, were the prepaid physician groups. And these were multi-specialty groups. So imagine one stop shopping, imagine you go to one place and your general practitioner is there and your cardiologist and surgeon and there's pediatrician and all these different specialties are there. So they offered high quality integrated medicine and physicians like practicing this way because they could sit down at the end of the day if they had a difficult case and talk about it, figure it out, learn across specialties. So that's one reason they liked it. But the other thing is that it was genius the way they set it up because it kept costs in check. With the insurance company model that we have today, and I know we'll talk a little bit more about that, we have very large cost problems in that the United States is getting close to spending one fifth of its GDP on healthcare. So we are the number one spenders in the world and the second place spenders are all the way back at 12, 13%. So something is going wrong. Yes, we have high quality medicine, but something is going wrong in as far as overutilization, but we can talk about that in a second. With the prepaid physician groups, what was so clever about them is they tied physicians to the bottom line in a way that incentivize them to not want to either give too many services and procedures or to ration care. So the way this worked is people would pay a set monthly fee either for their family or the individual and then the physicians acted as insurers. There's no insurance company, no third party in between. And each physician's paid a set salary and then a portion of the profits, whether every quarter or bi-annually or however they set it up. So the physician's best interest is for this prepaid group to make a lot of money. The last thing they want to do is ration care and have their customers leave on happy and go tell people, hey, don't bother signing up for that prepaid group. You know, they're very stingy. They don't take good care of you. On the other hand, it wasn't in their best interest to just order every single service and procedure possible to run up a bill because that would have still been coming out of their back pocket. Moreover, they were incentivized to keep their patients healthy because that would also help them earn more money. So it was a very popular way. There were hundreds and hundreds of these prepaid groups all throughout the country. Progressive healthcare reformers were very interested in this model. In fact, when Truman attempts to pass comprehensive healthcare reform, one of the ideas is that some of his administration officials want to go back to this model because people recognize that it's efficient and also delivers high-quality care. This sounds like, what you're describing sounds like Kaiser Permanente. Is it a similar setup? No. The problem with Kaiser Permanente is it is not run by physicians. You have a third party. So Kaiser Permanente, as you well know, was a company. It was a business that did things like build roads. And then of course, during the war, they did a lot of ship building, built dams and such. So they were a business, not in the business of healthcare, but they ended up contracting with a physician group in order to provide healthcare for their employees. The difference is it's overseen by a business and so it's business people running it rather than physicians. And also the physicians are paid on salary. So they're not bought into the program. They're not tied to the bottom line like the prepaid physician groups. Moreover, even though Kaiser Permanente has different departments of different specialties in one place, they're not set up the way these prepaid physician groups were that were, they would have had fewer patients so that you don't have Kaiser Permanente physicians getting together or being able to talk about patients and consider a case like you would with these prepaid physician groups. I think having the third party in there is important because you really have a business supervising physicians instead of physicians in charge themselves. There is a model though. We did an episode a few years ago with a doctor named Ryan Newhoffle who runs in this direct primary care model, which has a prepaid fee. Is that more, that's becoming much more popular. Is that more like what these doctor groups were? Exactly. So the problem is with all systems, they either tend to run into problems of rationing care or over providing care. Kaiser Permanente, when you hear complaints about it, it tends to be about rationing care because the physicians are on a set salary. So you see how they're not tied to caring whether Kaiser Permanente turns the profit or their particular site turns the profit that year. So the direct primary care is much more like what I'm describing except for they are now as they're rolling out and this makes a lot of sense is they're developing their first starting with general practitioners. They're not multi-specialty but it is certainly an experiment that I'm very interested in and excited to see developing. So what did the AMA think of these prepaid doctor groups if they seem to do a lot of at least economically efficient things and provide good health care. How did the AMA react? Well the AMA until really the end of the 1930s was against physician groups especially multi-specialty. You know today most all physician groups are single specialty and they also were believe it or not against any kind of insurance. So they were against any kind it would also be called prepaid services. They were against any kind of insurance or prepaid services because they were so afraid of some third party whether a business or a mutual aid society or a union or any kind of third party getting involved in the health care field and taking power away from them. So that makes sense and is rational somewhat but I think they really shot themselves in the foot by viewing the prepaid physician groups the same way but there's a couple reasons that they did. They were afraid these prepaid physician groups would turn into corporations probably more along the lines of Kaiser Permanente because of course during this period you know you have at the end of the 19th century the rise of the corporation this is very this causes a lot of concern and anxiety amongst workers and certainly professionals. What the physicians don't want to happen is they don't want to get sucked into a big bureaucratic hierarchy and have to work for somebody else. Basically they don't want to be they don't want to be like the accountants or the engineers who get pulled into the corporation. So they're trying to keep away any type of corporate organization and then they're also fearful that if they organize the market it'll be easier for the government to step in and create a program and they they're looking at Europe and thinking about this. They're thinking about things that were similar to a lot of the different models I'm talking about going on and say England or Germany and how those are countries where early on with Germany the 1880s with England 1911 that you have the government entering into the healthcare market to fund services. But they eventually go with insurance and they feel compelled to for some interesting reasons. One of them being that that there's an antitrust suit. There seems to be a really interesting almost coincidence where there's an antitrust suit that the government is bringing against them and then they eventually come out and they say insurance. Exactly. So the antitrust suit is pretty important but what I think is even more important is that during the 1930s of course you have all this unprecedented experimentation as far as economic policy goes at the federal level. And as many of your listeners will know the 1935 Tulsa Security Act gets passed creating social security unemployment benefits what we often call welfare with funding the state welfare programs. And when that passes the people creating that legislation really want to put healthcare funding in there too. Roosevelt you know consummate politician that he is very savvy realizes that you know that could sink the entire bill if he has opposition from physicians. So he very politically astutely says no. But that really starts the kicks off what we will see is attempt after attempt at the federal level for the federal government to get more involved in healthcare to create some kind of programming or financing to provide healthcare for people. That's what really gets the AMA leaders very nervous. So what they decide to do is make a compromise. They still don't want to see anything like multi-specialty groups but they reluctantly agree to accept insurance but and this is the big but it's only going to be the kind of insurance they approve. Kaiser Permanente will always be there and be a little pesky but it's going to be pretty minor. They're able to drive out a lot of the other models just by revoking the licenses of physicians that don't follow what they say and they're able to what they're able to do is create their very own insurance model and the insurance model that they create and really kind of just pull out of thin air. You have a few national AMA leaders doing this. It's it's very inefficient and costly. I mean as you can imagine because the market doesn't kind of naturally come up with it on its own they just make it up. You know they just they get together and make it up and they decide that okay if we have to accept insurance you know and we're going to accept insurance and in order for political reasons to tell policymakers that we don't need them to get involved the private market's doing just fine we're now supporting insurance we're helping spread it but they decide the best way to protect themselves is to have only insurance companies funding insurance okay so no unions no prepaid physician groups no consumer cooperatives mutual aid societies all of that they're going to continue to do everything they can to stop and and and do a very effective job of shutting most of those down and and preventing their growth but the reason they decide that they only want to work with insurance companies is because insurers during this period are just headquartered usually in one place and if you think that they're financing physicians all over the country and the minds of AMA leaders well okay now there's a third party involved in medicine but at least they're way far away so they can't come and supervise us and tell us what to do where the prepaid group right it's everything is local or a union everything is local so this is the bet they're making they create this model only insurers can finance it no more no multi-specialty group a big key to this is fee-for-service payment that physicians are to be paid for every single service and procedure they offer so they cannot be paid a set fee a set capitation fee like a set annual fee for each patient they take or even a set office fee for each time a patient comes in if a patient visits the office and they provide a number of services say they take their blood they do certain tests labs diagnostics they can charge a separate fee for each and every one of those services so that's one of the keys to starting to really drive health care cost problems is you're incentivizing physicians and I think we can all see how this would happen I'm sure all of us would end up going along with something like this too you're in your mind rationalizing that you're giving your patients gold standard care right it's also a way to make up for example for all the charity medicine you might be giving away and initially also physicians are allowed to set their own fees now they can't do that anymore now they follow fee schedules but initially they're setting their own fees so you have problems with bill padding and then again even if you were the most you know careful ethical scrupulous physician you are supposed to set your fees with what's in the area you're not supposed to weigh undercut other physicians so if you're just going along with what everybody else is doing you see how your your fees are going to creep up kind of artificially not because of market conditions but because they're just deciding what they want to bill because they're not worried about it it's not like they're asking their patient for all this money they're asking a far away faceless impersonal unpersonal corporation for this money so this is creates a big problem what did patients think of all this as this change was happening well patients probably didn't really realize this was going on they were very patients were very very happy with the prepaid physician groups that I mentioned now some of some of what the AMA was doing to shut down the other models was covered in the press and so people were unhappy about that who are aware of what was happening otherwise a lot of patients would have been getting their insurance to their employers and they probably wouldn't be thinking too terribly much about how this was being organized I would say a lot of rank and file physicians were unhappy with the way the AMA was conducting itself because really you have a few elite leaders making these decisions where the rank and file physicians they would be happy to practice in prepaid groups or contract with a farmer's consumer cooperative or a mutual aid society but you have the AMA printing warnings in the Journal of the American Medical Association saying if you do this we will come after you and get your license revoked or also they would get their hospital admitting privileges revoked or they would get expelled from the medical society which meant they wouldn't be able to buy malpractice insurance so they were very they were able to and I even have seen places where some of the physicians who were running these alternative models said yeah there are plenty of physicians who like to work with me but they say they can't because they're afraid they're afraid to come and take a job with me because they're afraid of the repercussions on their career with what the AMA would do so I think the physicians recognize what's going on but they end up having if they want to keep their careers the only ones who are really able to fight it are the ones that are have enough press or somebody politically powerful enough to protect them otherwise there's there's nothing they can do so the physicians just have to go along with what the AMA insists on well that's what I was asking about because some of these tactics that they used to threaten license to threaten referrals hospital admitting privileges they that seems to violate antitrust law and at one time the justice department actually did try to say that they were violating antitrust law which maybe incentivize them to make a switch right and that was in the early 1940s that antitrust suit they weren't happy of course that they got ruled against because they felt like they were allowed they got caught in Washington DC basically going to hospitals and telling the hospitals to turn out any physicians who were involved with this model that was it was a cooperative group it was kind of similar to Kaiser Permanente that federal employees were working with so they were upset about that but there wasn't still a lot the government could do about some of the ways they were able to pull licenses I mean that was very specifically with a hospital case they were able to still exert a lot of this pressure the government wasn't able to go and say well you kick these people out of the medical society none of that was ever followed up on so that was kind of a slap on the wrist you know it was somewhat important but also by this point the AMA comes up and creates the insurance company model in 1938 so they're already starting to roll with this is the model that we are supporting that we're holding up to policymakers saying we do not need health care reform the private market's doing just fine we are we have this insurance you know they're just calling it insurance they're not saying it's you know the insurance company model or a specific model so what you have is really especially by the end of the 40s and into the 50s you see physicians and insurers very explicitly saying because neither of them are very happy about this the AMA wasn't happy about having to accept an insurance especially the leaders and insurance companies their leaders were not happy about getting involved with this because they looked at what the AMA demanded and said this is crazy this is going to drive up costs this this doesn't make any sense but they kind of reluctantly get pulled in as well because they want to help the AMA defeat what they would say socialized medicine or any kind of universal comprehensive program coming out of the government because there's this idea among businessmen you know coming out of World War two that if the healthcare sector falls so to speak to comprehensive federal management or nationalization and that's going to set a precedent that's going to sweep through many other economic sectors so the insurance companies are thinking we're going to step forward you know kind of take the the the bullet on this one and work with the AMA to expand this fundamentally flawed fundamentally inefficient really harebrained idea of an eye of a model this insurance company model and they're racing to cover as many people as they can especially in the 50s and every meeting every board of trustees meeting annual meeting every time physicians and insurers get together to talk about healthcare and the healthcare market they repeatedly say we have to expand it and we have to make the policies more generous in order to beat back federal reform so they're really organizing the market is a political answer more than being concerned about efficiency and market structure and such because even though Truman's plan is defeated by the early 1950s his plan for universal care what a lot of people overlook is all throughout the Eisenhower administration people are trying to reform healthcare because even the ones who are against Truman's bill say some of the conservative democrats and the republicans they still agree with the premise that this model is faulty and it's not going to be able to cover enough people so Eisenhower offers a reinsurance reform program and then you have numerous groups in congress sometimes they're bipartisan sometimes they're entirely republican offering different reform programs in order to expand insurance to more of the population and the whole time the insurers and physicians are going to them and saying we don't need this we're look at how quickly we're expanding coverage look at how much more generous we're making insurance we do not need you getting involved in the market what did the overall economics look like at the time because right now the you know the problem with our existing insurance thing is that costs just keep going up for a variety of reasons but a lot of that has to do with you know technological change and we've got access to more kinds of care but it happens to be expensive care or longer end of life care that seem like they might not have been as much of a problem so was it was economically this system at least holding up back then better than it is now well i would disagree with you about the technology argument i know it's something that a lot of people put forward and i think yes technology of course is going in and actually as you say to the number of procedures we have and diagnostics and such available and increased hospitalization because people actually want to go to hospitals now they're not just you know death traps for the poor but technology is not driving costs to the degree that a lot of people say it is um it's really this model that is and if you look at the statistics from this period it's it's it's pretty clear as well um so for example at the end of the 1940s really when this insurance company model is taking hold so you have like 30 percent of the population covered by now with it this is when you see the cost increase for healthcare you know they jump up in the cpi and the consumer price index higher than any other bucket of spending whether it's transportation housing closing entertainment whatever it may be and it pretty much stays there increasing in price more dramatically than any other type of cost all the way through of course the 40s 50s and of course the 60s now we often hear the story that oh cost really came became a problem after medicare and medicaid passed in 1965 they were already a huge problem before that in fact if you go back and even look at the media coverage during the time you can see it there um because the insurance costs like a the cost of a policy is going up 10 20 30 percent every year and there's also um somewhat of an epidemic of unnecessary surgery going on because we talked about the problem with the fee for service and and the insurance company is not allowed to supervise um or ask any questions of physicians um so of course you had overutilization and fee padding but unfortunately you did have some outright fraudulent physicians who would just you know perform surgeries in order to collect a quick fee and they started being discovered by the pathologist and the hospitals who you know would realize afterwards hey you know 70 percent of the hysterectomies we we did were not medically necessary or you know say with a appendectomy you know you expect to find okay maybe 10 percent or so the the tissue wasn't diseased we guessed wrong you certainly don't expect to find 60 70 percent or more of um healthy organs coming out and so you start seeing this this crisis of unnecessary surgery um I think across the decade I believe the number is um the number of services and procedures ordered to go along with a patient um for each hospital admission increases six fold now yes some of that's going to be technology new procedures and diagnostics but not time six that that is a lot more than than technology can account for and also for example you have blue cross which is a big hospital insurer during this period of course still is their studies show that for example approximately one-third of all hospital admissions aren't even necessary but it's an easy way to get the patient in somewhere where it's paid for and then order a lot of different tests and services and procedures um to either run up a bill but there are even examples of kind of ridiculous things where a couple wanted to go on their honeymoon but didn't have a place to put their children and so the doctor admitted them to the hospital because then he could just charge blue cross yeah so you have a lot of you know stories like this so you can see you can see why the insurers are concerned because they can't control any of this right they can't um and and costs are just you know the cost of every service and procedure is skyrocketing and then of course the amount so well before 1965 in the passage of medicare um costs are a huge problem in the insurance model in general we have the employer provided which you mentioned previously existed to some extent in the 30s but but i don't think that more than 50 percent of people had health insurance so i'd be surprised in the 30s but one thing we talk about in the in the policy world and you hear from republicans is the coupling of insurance and your job via a tax break that was instituted immediately after world war two and then put into the tax code so your compensation package which includes your insurance is not taxed uh is that does that have a big role in in growing the insurance model or did they push that for a specific reason perhaps hiding costs that's one thing that that kind of does is it hides costs how does that tax break work absolutely you're right about hiding costs you don't have consumer consumers who get um insurance to their employer is worried about these increases when um and i had laughed today when people think well i only pay a hundred dollars a month for my insurance yeah well you don't see the thirty thousand dollars of foregone income every year that you're not getting as your employer pays the rest so certainly so going back a lot of people talk about world war two because of the wage freeze and then employers could track scarce labor with benefits such as health insurance i think that's been a tiny bit overplayed and and i'm pulling from jacob packer and jennifer kline here um certainly that happened but really it was um it was one of these unintended consequences small things that going all the way back to 1913 and the setting up of um i forget the name then of whatever the irs was they made the decision to grant businesses a tax break if they provided french benefits for their employees so of course this is a good way when you have businesses trying to keep union organizing out this is a nice tool for them to be able to provide like pension packages life insurance health insurance um in order to you know make a certain argument um to their workers so um that is growing um starting to grow in the 30s at first insurers don't want to get involved with it but they do is as i just spoke about with the ama's political idea and um so of course that's just growing even without world war two in the wage freeze that would have continued to grow and grow um and what you see is insurance companies and the ama actually going and saying to these businesses we need your help on this political project of expanding insurance to keep the government out of the health care sector um so you see them talking to for example you know representatives and officials at the chamber of commerce the national association of manufacturers they're sending material out to their members saying yes this is great you know it helps your you know increases um you know decreases turnover with your employees helps you with unions but also politically it is very helpful for you um to expand insurance and then of course as you mentioned um it's very useful in that um as costs are increasing the consumers aren't feeling it as much what you do have however are unions and employers coming down later especially as we get by the mid 1950s they're really starting to come down on the ama and insurers and saying this is ridiculous you guys keep giving us higher i mean the cost increases year after year are just untenable so that's where they're really feeling um a lot of pressure and also believe it or not um we talk a lot about employee group insurance but because of this political project with insurers attempting um to cover as much as the population as they could they sold a lot more individual policies than you would believe i wish i had the statistic on me it's a lot more than it was say for example even before the aca was passed in 2010 i want to say it was at least 20 if not more of the policies they sold were to the individual market which as you know that's an increase um there are problems with adverse selection um all kinds of problems with selling it um to individuals and yet they were doing so in order to be able to go and report before congress when they went into the hearings that hey look at how much um we have expanded healthcare but of course this becomes more and more difficult um as the prices are increasing now what is the fundamentally untenable thing about the insurance the health insurance market because it seems that some type of insurance is not crazy but it also seems that the interplay between what people what voters and politicians demand of the healthcare system and how it's financed that that it must cover everything that the it must keep cost low it must keep people alive and cover everything and any possibility including your you know standard daily procedures that there was a there was a political demand for that coupled with a system that can't meet those kind of demands on if it's if it's not really insurance at that point that's just a third party payer system and that's sort of what they created by demanding more out of insurance than they could possibly deliver right but i think insurance could could deliver more than we realized so for example with these prepaid groups that i told you operated so efficiently they were actually offering maternity benefits all the way back in the 1930s which is pretty radical that they were able to do that and able to do it with um profitably because under the insurance company model when for example um there were some blue cross plans that tried to roll it out in the 1940s and bankrupted themselves because they were using this insurance company model um so i think the basic untenable the basic problem is people look at insurance and say okay well consumers don't care they don't shop around they don't worry about having over utilization okay that's true to a degree and of course with the employer market they don't have a lot of choice as far as insurance plan goes anyway they get what their employer gives them if they're lucky they can try you know choose between two or three options and you know we can imagine how that would distort say for example the automobile market if that's the way most people got their automobiles and you could pick between two or three so um there's there's that problem but my argument would be that you've really got to look to see the way the physicians and service providers so that would include hospitals are incentivized that is the key i think it and healthcare systems as you look around the world and in the united states these are the people with the requisite knowledge to know when a service or procedure should be offered you know yes they're going to sit there and work with the patient and every patient is different but if you if you don't get that incentive you know those incentives right you're going to run into either rationing or over utilization um so that that's what i would say is is the key to all of this so given that the the AMA fought as hard as it did against government involvement in you know government kind of takeover of the healthcare sector and they fought against truman's plans and and given how much kind of political weight they seem to have how did we get to medicare and medicaid so that's a really interesting story because the AMA and insurers are continuing their you know their attempt to expand insurance to keep the federal government out so the medicaid the medicare excuse me the medicare debates really began back in the late 50s 57 i think it is that um congressman forend um offers a bill and you even have eisenhower offer a medicare type bill as well as a counter to this democrat congressman's bill so you have these um ongoing talks about creating some type of insurance program for the elderly um in the 1960 presidential election both nixon and kennedy are talking about their plans to create this this insurance program for the elderly it's pretty much a bipartisan decision and the reason is um well let's go back to the insurers and the AMA they're even trying to cover the elderly and they are going to such lengths to try to cover the elderly that they're actually going to state legislatures petitioning for antitrust exemptions so that numerous insurance companies can get together pull their resources pull their administrative capacity and attempt to try to cover the elderly even though they have this really expensive model now the insurance they sell the elderly they really cannot offer them more than hospitalization even though with all their other policies of trying to make a more generous for this this political point of we can do it um but even you know with them pulling their resources and offering only pretty stripped down policies they do get up to covering believe it or not um i wish i could check the statistic too but more than 50 percent of the elderly um end up being covered before medicare but it's still it's still not enough because it's such uh basic coverage and um the insurance companies are actually losing money on these programs so they're having to take profits from their other underwriting lines whether it's life insurance or pension packages to underwrite the losses um that they're incurring on trying to cover the elderly so as as we're getting into medicare a lot of insurance companies particularly larger ones are not very enthusiastic about opposing medicare because they see as a way to dump very expensive people to cover i mean why do they want to continue covering them of course the AMA is you know going full bore to oppose medicare just as they did with the Truman campaign um but they really run into a lot of problems because at this point businesses are favorable toward medicare so they don't have to deal with retiree benefits certainly unions are and you know politicians you have even republican politicians showing up to talk to physicians or insurers and saying look if you can't cover enough you know most of the elderly population with pretty generous insurance we're going to create a program if the market can't handle it we have no problem intervening here so um what a lot of people don't realize about medicare i think a lot of people know it passed on a bipartisan vote um but even the republicans who didn't vote for medicare most of it was because they were supporting a medicare alternative plan so it's really the kennedy johnson administration plan that goes through but there's a political consensus about the need to create a program because there's this idea that the market it you know they expand health insurance from about say 1945 it's covering about 25 percent of the population by the time they get up to 1965 it's covering about 80 percent of the population so they ran pretty quickly to cover people but they really tripped up when they got to the very expensive elderly uh subscribers um so uh medicare passes but what's also very significant about that program is these reformers and the social security administration who are working with the congressman to design this bill all along they have wanted to get rid of this insurance company model that was one of the things they wanted to do under truman that not just introduce universal health care managed by the federal government but they wanted to revert back they wanted to favor nonprofit plans and also the the prepaid doctor groups but they realized by the time we get up to the 1960s that they can't do that the private sector has built up so much there's so much organizational capacity and growth in the private sector that the public sector is never going to be able to match that the social security administration realizes there's no way we can handle covering you know dealing with insurance and physicians and hospitals through the social security administration so another story of reluctantly you know some they're doing something reluctantly they end up designing the medicare program around the insurance company model so um pretty much you have insurers acting as the administrators yes they have to follow the rules of the program that the social security administration sets out but they administer the program they're the go-betweens with the hospitals and the physicians payments cost containment procedures which they had started building up by the mid 1950s and afterward because as costs are shooting up and they're getting a lot of bad press the AMA and physicians have to reluctantly agree to let the insurance companies start putting in regulations to try to contain costs there's a lot of conflict around this but it's it's really building up by the 1960s physicians often have to go before utilization review committees that are looking at what they're doing they might with some insurers have to get permission before they put a patient into the hospital their diagnoses are being scrutinized treatment blueprints are being created insurers are becoming experts in medicine themselves as they try to navigate different ways they can and try to contain costs so of course federal officials are thinking you know we can't do all of this from scratch we're going to rely on insurance companies to deal with all of this all of the working with the hospitals and physicians because they've already set up all of these procedures and processes and there's no way we can do that from scratch and roll this plan out anytime soon and plus it makes it more politically palatable because we're offering this welfare program which is very favorable to the middle class right because this isn't like a welfare program for the poor this takes a burden off of even wealthy individuals middle class individuals who don't want to spend money on mom and dad is they're aging instead the idea is okay you can save money for your child's education or piano lessons or whatever it may be so you can see why it's very politically popular and then federal officials can say and on top of that it's going to be the exact same system that you know they're the elderly are going to use the exact same system that you got everybody's already familiar with that sounds familiar in the sense of it sounds somewhat like the affordable care act in the the rhetoric around it not obviously Medicare Medicaid were huge public programs in a different way but the same idea that the only way we can reform healthcare is to keep the model that we have keep the insurance model so everything about if you like your if you like your health insurance you can keep it I think is what President Obama felt like he kind of had to say because that's the thing that people are familiar with and no one is thinking outside of that box including with his last huge reform with the affordable care act absolutely yeah because they they realize that would generate so much opposition so of course I'm you might remember the attempt to undermine and get rid of the insurance company model so of course the bottom line is the ACA is also built on the insurance company model but they did try to undermine it with the public option and you probably remember how a lot of Democrats and particularly progressive Democrats wanted to get that public option onto the exchanges with the idea that they could load it up with a lot of benefits undercut the prices that private insurers could offer and and then grow from there in order to just stabilize this insurance company model but of course the public option doesn't go into the final legislation because they wouldn't be able to pass it they wouldn't be able to get all the Democrats on board and so what we end up with it is a program that's built on this same fundamentally unsound inefficient model but not only has all these cost problems fragmented care but you also are in a situation where the power you know situation has reversed in the health care system where it's no longer physicians calling the shots now it's insurance companies calling the shots because cost containment programs have built up so much over the decades that you know I would argue really it's the insurance company deciding how medicine is practiced more so even than physicians in a lot of cases because physicians have to follow standardized treatment blueprints or they won't be compensated so it takes a lot of the art out of medicine because you know they're tied to you have to do it this way and you know your patient might be a little different or respond to something different but you have to do it the way the insurance company says so right now we have a situation where insurers aren't just financing health care they're really at the center of everything they're managing Medicare you know they're in with ACA and they're supervising physicians and hospitals and that seems pretty ironic because the AMA originally believed that insurance was the best way to avoid governmental control and third party control and then it became the exact opposite this is a story of a lot of irony I mean this so yeah the very thing that AMA leaders were trying to prevent from happening in the 1930s they ended up creating they pushed all their chips on this one model and then this is what ended up happening and of course the other irony being that the more federal policymakers both republican and democrat tried to get rid of this model the more they embedded it into the system so the story of roads not taken it now seems that having so gone deep into the insurance model that we can't go back to these prepaid systems or any of these things or if anyone has tried has failed that this road seems to lead more likely to single payer than it does to to going backwards and reforming the insurance model which has just proved to be almost impossible well I'd like to be a little more optimistic okay so um and and this is my optimism so um I'll tell you a little anecdote so um I wanted the first podcast after my book came out um I was asked to be on the Sam Cedar show which is you might know is very progressive um uh liberal progressive podcast and they wanted to talk to me about these prepaid per you know doctor groups from the 1930s and I thought this was very random how that you know they figured out that I was an expert in them but why did they want to talk about this so I gone and talk about it and they're interested in this idea because it gets rid of the corporate power it takes the corporate power out of the healthcare market and then the host tells me you know I don't like Sean Hannity but the where I found out about this model is from Sean Hannity's program so then I go over to Sean Hannity's program and I'm just so interested seeing both sides and of course you know on the other side uh conservatives are interested in the program because of consumer choice and and more physician autonomy and such so to me it's very interesting that there's this you know bipartisan interest and also um the uh the direct primary care model was mentioned um adds something that is trying to go back and recover this past um I think these these are growing pretty quickly they would grow a lot more quickly one thing they have to do is they have to do a lot of lobbying at the state level to get a lot of the regulations that were passed in order to try to rein in costs for the insurance company model they actually need to get those laws cleared away to allow them to operate so um in some states the AMA had things passing you know you can't have a corporate healthcare model and also um for example a lot of states passed laws saying doctors can't dispense their own drugs own their own labs and diagnostic centers which makes sense under the insurance company model because if you let doctors do that it gives them more things to uh run up the bill with right um but it's those those laws are an impediment to the growth of the prepaid model coming back but what we do see is we see some lobbying efforts at the state level um it looks like it's it's moving along pretty well at the federal level the only thing they really need is for the federal government um to allow people with health savings accounts and keep in mind that almost 50 of employers offer health savings accounts now the problem with health savings account is they don't fundamentally you know change the structure of the system but um so health savings accounts allow you to buy one type of insurance so these groups are trying to um convince the federal government to just change the rule so that you can purchase two types of insurance you could purchase um this insurance directly from this direct primary group and then also purchase a catastrophic insurance policy and these groups are seeing you know great things with you know efficiently delivering care prices coming down they're able to deliver medicine very very cheaply uh compared to the model we have now including prescription drugs and such but it is different right now state to state based on what has been done at the state government level and then of course holding out to see if people with hsa's can start to to choose these options as as they are founded and and created in their their town so it doesn't have to end in single pair no yeah we can we can we can start growing these out and and as i mentioned before we we have a previous episode discussing the direct primary care model so possibly if we grow this out we can we can reverse this flow but it we also have medicare for all everyone is saying medicare for all and that that force is going in that direction too yeah but the irony of that is you have progressive democrats like you know championing a corporate power based system now of course they'll tell you well we're going to get rid of the insurance companies if they think that far i don't i think a lot of them have any but they'll tell you it doesn't matter you still have the same model okay so now you're going to have the government acting in that same position we have seen that this model is broken why for the love of peat would you want to expand it and embrace it it is if you want to go universal health care there are ways to do it and medicare for all is not that way because it's going to create such a massively inefficient system um if you're going to go universal care it has to do we need to think about the structure of the market it is so important the way people are incentivized we can't just act like incentives don't matter thanks for listening free thoughts is produced by test terrible if you enjoyed today's show please rate and review us on itunes and if you'd like to learn more about libertarianism find us on the web at www.libertarianism.org