A self-evident proposition of economics is that consumers seek value in the marketplace to purchase goods and services. In all transactions, consumers must decide how much they’re willing to pay for a good or service they want to purchase. Therefore, consumers need as much information as possible to make an informed decision.
Unfortunately, while consumers expect price transparency, so they’ll have an important piece of information to make their purchases, when it comes to healthcare, the consumer/patient is typically uniform about the cost of their employer’s insurance premiums. They also tend not to know the cost of a doctor’s visit, surgery, or hospital stay. Why is that?
As far back as the late 19th century, companies hired on-site doctors who treated workers in hazardous industries such as mining, logging, and steelmaking. It made perfect sense for companies to quickly provide medical care for their workers to avoid long-term injuries. At the time, many companies considered this a “best practice” to show their employees that any on-the-job injury would be dealt with immediately and a return to work wouldn’t be delayed because of a debilitating injury.
The stock market crash of October 1929 and the economic contraction that became known as the Great Depression had widespread financial repercussions for virtually all institutions and organizations. Hospitals felt the money crunch as revenues declined when individuals postponed/delayed getting treated because of lower incomes as the unemployment rate markedly grew.
To increase its cash flow, Baylor University Hospital (Dallas 1929) contracted with schoolteachers to provide a maximum of 21 days in the hospital for $6 per year. That’s right. For $.50 per month, the 1,500 teachers would have their hospital bills paid at a time when patients were rarely hospitalized for that length of time.
This idea spread rapidly to other hospitals. Although the Baylor Plan was called “insurance,” it was more like a prepaid service plan. It eventually led to the creation of Blue Cross when hospitals that adopted the Baylor Plan established a network under one umbrella.
The Baylor Plan soon became a model for hospitals. However, treatments that could be done on an outpatient basis were now being done in hospitals at much greater expense.
Doctors’ incomes also took a toll during the 1930s, but they were leery of being paid by a third-party insurance company. However, with the popularity of Blue Cross, physicians eventually warmed up to the idea of pre-played plans for their services.
Blue Shield began operations in 1946 in California, offering employees with less than $3,000 annual income a plan for $1.70 per month. In the meantime, employer-based medical insurance got a huge shot in the arm when President Roosevelt imposed wage and price controls during World War II. Employers could no longer raise wages and salaries to attract workers but instead provided employees with a tax-free medical insurance benefit.
From about 9.1 million Americans with private health insurance in 1940, the figure rose to 82.9 million by 1975. During the price spirals of the 1970s and early ‘80s, the cost of medical care was the fastest-growing component of the consumer price index. It still tends to be. The average annual employer-provided family health insurance plan rose from $13,077 in 2010 to $21,242 in 2020, with employees’ share of premiums increasing from $3,997 to $5,558.
Historian John Steele Gordon succinctly states: “A generous health insurance policy covers everything from a sniffle to a heart transplant. Obviously, it should not. An insurance policy that covers routine care is not even an insurance policy; it is a very expensive pre-payment plan that jacks up premiums.” In short, the American people are over-insured.
Companies can explore several solutions to the high cost of employee medical care, beginning with reviewing the medibid.com Employer Tab where the benefits to employers and employees are outlined.
Employees can utilize centers like the Surgery Center of Oklahoma, where quality medical care is provided at a fraction of hospital charges. Finding a comparable facility in your town, region, or state would save substantial insurance premium dollars.
Employers can also help restore the doctor-patient relationship by having their employees become affiliated with a direct primary care physician. The savings for routine care would be substantial.
Medical entrepreneurship is leading the way in reducing costs and improving quality. America’s “silent revolution” in medical care is underway.
Wellington Regional Medical Center Ranked as High Performing Hospital(Opens in a new browser tab)
About the author
Murray Sabrin, Ph.D., is an emeritus professor of finance at Ramapo College of New Jersey. Dr. Sabrin is considered a “public intellectual” for writing about the economy in scholarly and popular publications. His new book, The Finance of Health Care: Wellness and Innovative Approaches to Employee Medical Insurance (Business Expert Press, Oct. 24, 2022), provides business decision makers with the information they need to match the optimal healthcare plan with the culture of their workforce. Sabrin’s autobiography, From Immigrant to Public Intellectual: An American Story, was published in November. Learn more at murraysabrin.com, and follow his commentary twice weekly at murraysabrin.substack.com.
By Murray Sabrin, PhD