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Institute of Medicine (US) Committee on Employment-Based Health Benefits; Field MJ, Shapiro HT, editors. Employment and Health Benefits: A Connection at Risk. Washington (DC): National Academies Press (US); 1993.

Cover of Employment and Health Benefits

Employment and Health Benefits: A Connection at Risk.

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2Origins and Evolution of Employment-Based Health Benefits

History is a record of ''effects" the vast majority of which nobody intended to produce.

Joseph Schumpeter, 1938

The current U.S. system of voluntary employment-based health benefits is not the consequence of an overarching and deliberate plan or policy. Rather, it reflects a gradual accumulation of factors: innovations in health care finance and organization, conflicting political and social principles, coincidences of timing, market dynamics, programs stimulated by the findings of health services research, and spillover effects of tax and other policies aimed at different targets.

The major innovation, as described below, was the creation of alliances and mechanisms that made the employee group a workable vehicle for insuring a large proportion of workers and their families. That the employee group existed for purposes other than the provision of insurance (that is, to produce a product or service) was an important although not sufficient condition for dealing with biased risk selection and some of the other problems described in Chapter 1 and discussed further in Chapter 5.

This chapter provides a rather detailed overview of some important bases for present public and private arrangements for insuring health care. From this overview, five broad points emerge:


Insuring medical care expenses is difficult for several reasons, and making private insurance workable for large numbers of workers and their families has taken considerable creativity, leadership, and some luck.


A constituency for broad access to health coverage has existed for nearly a century, pressuring both public and private sectors to find new and better ways of extending that access.


The path taken by the United States has diverged from that of other developed nations, particularly since the end of World War II.


The debate about private versus public strategies for medical expense protection is longstanding and has, with the exception of programs for special populations, repeatedly been resolved in the United States in favor of private approaches.


The central role of employment-based health benefits and the very substantial discretion accorded employers rest, in considerable measure, on federal laws and regulations (in particular, the Employee Retirement Income Security Act of 1974) that did not explicitly plan or envision that structure.

Many of the values, pressures, and conflicts that have shaped the evolution of employment-based health benefits persist and should be factored into evaluations of this system and proposals for restructuring it. Moreover, it is important to recognize the forces that have led people in this country and elsewhere to expect both more medical care and more protection against its rising cost. These forces, which affect both public and private provision of health coverage, include

  • an ever-accelerating pace of scientific and technological discovery that has offered new relief from pain and suffering and heightened expectations about the value of new medical technologies, products, and practices;
  • a century's worth of professional and institutional development in health care that has made possible the delivery of biomedicine's new achievements;
  • an increase in medical care costs that has been fueled both by economic growth and by advances in clinical capabilities and organizational resources; and
  • a system of private and public health coverage that has for most of the last 50 years increased financial access to these advances but placed few controls on medical price inflation or overuse of medical services.

On almost every front, the thrust in the United States is still expansionist—the uninsured want basic protection, the insured want restrictions on coverage eased, and researchers, providers, and entrepreneurs devise new technologies and services that further stimulate demand for care. Hence, health care consumes a greater share of national resources each year.

The expansionary thrust has, however, stalled in some areas. In particular, the proportion of the U.S. population covered by private health benefits has leveled off and even shown signs of decline in the employment-based sector. Furthermore, many now question whether current medical practices and technological advances produce improvements in health and well-being commensurate with their cost. These questions reinforce policymakers' wariness about new initiatives to improve equity and access given two decades of unsuccessful efforts to moderate the flow of resources to the health sector.

Although this chapter is lengthy, it is not intended to be comprehensive. 1 Rather, the object is to provide sufficient detail to make clear that current arrangements, problems, and controversies have deep roots. By way of brief overview, Table 2.1 highlights key dates in the evolution of employment-based health benefits in the United States and in the environment that shaped its development.

TABLE 2.1. Key Dates in the Development of Employment-Based Health Benefits and Its Environment.


Key Dates in the Development of Employment-Based Health Benefits and Its Environment.


In Europe and the United States, modern insurance for medical care expenses has its origins in diverse actions undertaken by unions, fraternal organizations, employee associations, employers, commercial insurers, governments, and other less easily categorized entities. The primary objective of most of these initiatives was not reimbursement for medical expenses but protection against the loss of income due to illness or injury.

Early Voluntary Initiatives

By the beginning of the nineteenth century in Europe, guilds, unions, mutual aid societies that crossed occupational lines, fraternal associations, and other private groups had already developed various forms of collective action to protect group members and members' families against such economic catastrophes as death of the breadwinner (Anderson, 1972; Glaser, 1991). Such efforts became more widespread as the Industrial Revolution took hold and the hazards of workplace injury and related wage loss became a major concern.

Although these efforts were often described as sickness insurance, sick benefits, or health insurance, they usually did not cover medical care expenses (Faulkner, 1940; Glaser, 1991). In the latter part of the nineteenth century, however, some European mutual aid societies and other groups did offer limited medical expense coverage, and several employed or contracted with physicians and created clinics or hospitals to serve their members. In general, the voluntary nature of the programs and the often meager financial resources of their participants limited their scope. In England, where mutual aid societies were particularly strong, voluntary sickness insurance covered less than one-seventh of the population in the period just before the country adopted its first social insurance measures in 1911 (Starr, 1982).

The early lack of emphasis on medical expense insurance is not surprising. Truly effective medical services were limited—and sometimes even suspect—well into the nineteenth century (Somers and Somers, 1961; Anderson, 1968; Poynter, 1971; Ebert, 1973; Knowles, 1973; Starr, 1982; Stevens, 1989). Hospitals were, to a considerable extent, sick houses for the poor and those infected with contagious diseases. Medical practices had little capacity to prevent or alter the course of disease. At best, the goal or reality of medical care was "to cure seldom, to help sometimes, and to comfort always."

By the turn of the century, advances in public health and, to a lesser extent, biomedical science had brought significant changes in what medical care could accomplish. For example, developments in bacteriology and anesthesiology were making safer and less painful surgery a reality. As modern medicine helped transform hospitals into places where the sick could be effectively treated, numbers of hospitals and capital investments in them multiplied. Their growing stature and value were suggested by the fact that some hospitals began to advertise, establish prices, and actually charge fees to those patients who could afford it.

Still, in 1900, physicians remained limited in what they could actually do for many patients. In a telling statement made that year, one physician argued to his colleagues that the practice of medicine is "'not only diagnosis and autopsy but the treatment and care of patients"' (Jacobi, 1900, quoted in Hill and Anderson, 1991, p. 52). Although hospital costs were on the verge of becoming an important concern for workers and their families, protection against income lost due to illness and injury remained a more significant objective than medical expense protection.2

As European ideas and institutional forms diffused to the United States, often through immigrants, various kinds of mutual aid or benevolent associations, fraternal organizations, workers clubs, unions, and other similar concepts and structures were adapted to this country's circumstances and culture (Munts, 1967; Anderson, 1968, 1972; Brandes, 1976; Weir et al., 1988). Quite early in this process, in 1853, La Société Française de Bienfaisance Mutuelle established the first prepaid hospital care arrangement, which was linked to the hospital it founded. A German association started a year later and began to offer hospital services in 1855. Patients with lifetime care contracts purchased during the 1930s from the latter plan were still being cared for in the 1960s by the restructured, surviving hospital (Trauner, 1977).

Notwithstanding some exceptions, most American benevolent societies and similar organizations, like their European counterparts, focused on income, not medical expense, protection. For example, the 179 national fraternal organizations in the United States paid out $97 million for benefits in 1917, but only 1 percent of this amount went for medical expenses (Starr, 1982).

Among unions, the Granite Cutters Union is cited as establishing in 1877 the first national sick benefit program. It was probably, like most early efforts, more an income protection than a medical expense plan. The International Ladies Garment Workers Union followed a different approach, creating the first union medical services program in 1913 and incorporating the first union health center four years later. (Later, in 1940, the garment workers began the first multiemployer welfare funds to avoid lost benefits due to job changes or company failures.) Important as such union initiatives were, the main focus of union activities and concerns tended to be on organizing members and on surviving employer resistance to a restructuring of the fundamental relationship between workers and management.

Early employer programs include frequently cited examples from the mining and lumbering industries and the railroads (Somers and Somers, 1961; Munts, 1967; Anderson, 1968; Brandes, 1976; Starr, 1982). These employers had a practical interest in the provision of medical services to injured or ill employees who often worked in isolated geographic areas. The scope of some of these efforts is suggested by the fact that, by the turn of the century, there were an estimated 6,000 railway surgeons (Starr, 1982). In some—perhaps most—situations, employers arranged for the services, but workers paid for them through an innovative wage "checkoff" system. Another innovation was the development of contracts between employers and closed physician panels or prepaid plans allowing free choice of physician.3

Although these early programs represented advances in some respects, they were also criticized for using unqualified, overworked "contract" physicians and providing dismal physical facilities in some areas (Somers and Somers, 1961; Munts, 1967). After the passage of workers' compensation legislation, "industrial medicine" became more prominent and focused because companies had stronger financial incentives to identify and reduce workplace hazards.

Employment-related medical programs occasionally covered not only work-related injuries but also general medical care for workers, their families, and even the larger community (Somers and Somers, 1961; Munts, 1967; Brandes, 1976). In the early part of this century, company medical services could be one component of "welfare capitalism," a range of housing, education, social assistance, and other programs intended to socialize workers, bind them to their employer, and discourage unions. Instead of or in addition to providing company hospitals and doctors, some employers assisted employee mutual benefit associations with financial and clerical aid. Most general accounts of these associations do not make clear whether they protected against medical care expenses, and to what extent, or simply against loss of income due to injury or illness. In any case, although a few companies, such as Eastman Kodak, made large contributions to these employee programs, a 1916 Public Health Service survey found only one company of 425 that fully funded such a program, and most assistance was quite limited (Munts, 1967; Brandes, 1976).

For the most part, physician organizations opposed company-provided medical care as a threat to their autonomy and income. During the early part of this century, this opposition discouraged many companies from expanding their involvement in medical care. For example, after the company doctor at Sears, Roebuck resigned because the county medical society refused him membership, his successor persuaded the company to stop providing services to workers' families at reduced prices and to provide only periodic examinations and other limited care to employees (Starr, 1982).

Workers had different concerns (Brandes, 1976). Company doctors were often seen as serving the company before the patient, for example, in reporting illnesses discovered during physical examinations and in making judgments about whether injuries were work-related and thus required some compensation to the employee. Also, many workers preferred to choose their own physician. As a consequence of these and other concerns, unions often pressed for cash benefits instead of company medical services (Starr, 1982).

Finally, in addition to the programs devised by voluntary associations, employers, unions, and other employee groups, disability and sickness insurance products created by commercial insurers constituted another institutional base for modern health insurance (Faulkner, 1940, 1960; Somers and Somers, 1961; MacIntyre, 1962; Anderson, 1972). Such products began to appear in England around 1850 to provide insurance against accidental injury, in particular, injury arising from railway and steamship travel.4 This insurance initially provided cash payments (indemnities) in the event of death or total disability and gradually expanded to cover various kinds of accidents and illnesses. These early products employed the standard actuarial principles and techniques that had been developing in the fields of life, fire, and marine insurance.

Efforts to extend commercial accident-and-sickness insurance, as it was often called, to expenses for medical care were intermittent and limited during the latter part of the nineteenth century and first third of the twentieth century (Faulkner, 1940, 1960; Somers and Somers, 1961; Starr, 1982). Life insurers made some efforts to add medical expense benefits to their newly developing group life insurance programs aimed at employers, but these attempts were sporadic. In general, insurers considered medical expense benefits to be actually dubious and a "frill" (Faulkner, 1940; Somers and Somers, 1961).5 Overall, as a vehicle for and influence on health insurance, commercial insurers played a relatively limited role in most European countries. They became major actors in the United States largely after World War II, once community-based organizations, hospitals, physician groups, and government policies provided evidence that private medical expense coverage was feasible.

Early Public Action

It was on the foundation of the early but limited initiatives of union, mutual aid, and other groups that most European governments created their policies of compulsory, subsidized medical expense protection beginning in the late nineteenth century (Anderson, 1972; Starr, 1982; Glaser, 1991). This foundation remains visible in some countries, for example, in the sickness funds of Germany. In yet other countries, it has largely been replaced by alternative structures, for example, the National Health Service in Britain.

Generally, the building of publicly supported arrangements for medical expense protection was embedded in the broader development of social insurance and other policies to protect workers, their families, and others against various harms, in particular, the loss of earning ability due to old age, disability, or workplace injuries (Flora and Heidenheimer, 1981; Weir et al., 1988).6 As described in Chapter 1, social insurance for medical expenses shares common features with other social insurance programs. It is universal or nearly universal; coverage is virtually automatic or compulsory for most of the population; common basic benefits are available without regard to income; payments for basic coverage are not explicitly priced to reflect the individual's level of risk; and tax or other revenue-generating policies subsidize coverage, particularly for the poor.

The creation of a comprehensive array of social insurance programs was, however, uneven in its pace across nations and piecemeal in its formulation within nations (Anderson, 1968, 1972; Glaser, 1991). Bismarck is cited as the originator of statutory health insurance, which was one of the social insurance programs he initiated in Germany in the 1880s. A major objective was to defuse worker unrest. Like many later programs, this system was a product of compromises that, in this case, left the national government with far less administrative power than Bismarck had proposed. The existing sickness funds retained administrative responsibilities that persist to this day. As with many other social insurance programs, Germany's became universal in fits and starts. White-collar workers were not covered initially, and farmers were not included until after World War II. In 1907, only 21 percent of the German population was covered by sickness insurance (Starr, 1982). By the end of World War II, however, most European countries had social health insurance or other government health programs in place for major segments of their population.


As noted in the preceding chapter, the United States is almost alone among developed countries in lacking some governmentally mandated form of comprehensive health coverage for all or nearly all its population. Its divergent path became apparent primarily after World War II, when most other countries moved to adopt, restructure, or complete their schemes for protecting most of their population against expenses for medical care.

The seeds for a more typical evolution were not totally absent in the United States. For example, the government established the U.S. Marine Hospital Service in 1798 and deducted 20 cents a month from each seamen's wages to pay for it. Unlike somewhat similar initiatives in Sweden and elsewhere, it did not become the cornerstone for a government medical care delivery or insurance program for the citizenry at large (Anderson, 1972; Mullan, 1989). The marine system eventually did evolve into an important research and public health organization, the U.S. Public Health Service.

Early in this century, the instability and inadequacy of voluntary health benefit programs and the need for broad government action became a subject of public debate and agitation in this country, as it had elsewhere (Anderson, 1968, 1972; Harris, 1969; Starr, 1982). As noted above, many early employer-sponsored programs were not well regarded, and the financial instability of union and mutual aid programs and the conservatism of commercial insurers also contributed to negative opinions of voluntary private insurance.

Many were aware of the public schemes evolving in Europe and the arguments behind these developments.

The Progressive Party under President Theodore Roosevelt included national health insurance in its platform for the 1912 election (Harris, 1969), and some key officials of the U.S. Public Health Service supported compulsory insurance in the belief that it would encourage more backing for public health measures (Starr, 1982; Mullan, 1989). Legislation to study and plan for national unemployment, old age, and sickness insurance was introduced in Congress in 1916 and 1917 by its only Socialist member. Hearings were held, but the legislation never passed, in part because of the pressures and distractions presented by World War I and in part because of interest group opposition (Anderson, 1968; Starr, 1982).

Reflecting the federalism of the times, most initial efforts to secure government action focused on state rather than national initiatives. The following discussion first traces early attempts to secure state health insurance legislation and then examines subsequent efforts to achieve national health insurance. It turns last to initiatives in the private sector and the stimulus provided to employment-based health coverage by federal decisions affecting employee benefits and employer-employee relationships generally.

Unsuccessful Early State Initiatives

After workers' compensation or disability insurance for work-related injury, medical care insurance was one of the earliest targets for groups in the United States advocating social insurance against the hazards of modern industrial society (Anderson, 1968, 1972; Starr, 1982). Particularly prominent in behalf of both was the Committee on Social Insurance of the American Association for Labor Legislation (AALL), the organizing of which began in 1905 at the annual meeting of the American Economic Association.7 The AALL, whose prestigious administrative council included Jane Addams, Louis Brandeis, and Woodrow Wilson, drafted a model state medical care insurance bill in 1915, and some 16 such bills were introduced at the state level by 1920.

The standards for these proposals, which were set forth by AALL in 1914 (Anderson, 1968), are summarized in Table 2.2. The actual benefits provided by the model bill included sick pay (at two-thirds of wages for up to 26 weeks); medical coverage for physician, hospital, and nursing care; maternity benefits for working women and workers' wives; and a $50 benefit for burial expenses (Starr, 1982). Two-fifths of the cost would come from workers, two-fifths from employers, and one-fifth from state government; the total cost was estimated at 4 percent of wages. The objectives were to reduce the social costs of illness through effective medical care and incentives for disease and injury prevention.

TABLE 2.2. Standards Adapted by American Association for Labor Legislation in 1914 for Drafting Model State Medical Care Insurance Bill.


Standards Adapted by American Association for Labor Legislation in 1914 for Drafting Model State Medical Care Insurance Bill.

In 1916 the American Medical Association (AMA) established its own Committee on Social Insurance to cooperate with the AALL in studying the issue and drafting legislation (Anderson, 1968; Harris, 1969; Starr, 1982). The group was chaired by Theodore Roosevelt's personal doctor (Alexander Lambert) and staffed by a Socialist physician (I. M. Rubinow). In the same year the AMA elected as its president Dr. Rupert Blue, then surgeon general of the United States. Dr. Blue called for adequate health insurance in his presidential address (Mullan, 1989). Moreover, an AMA trustees' report argued that it was better that they '''initiate the necessary changes than have them forced on us"' (Harris, 1969, p. 5). The AMA Committee on Social Insurance concluded that voluntary health insurance under private control was unworkable and urged support for state legislation.

By 1920, however, the stance of organized medicine switched from cautious cooperation to forceful opposition that lasted decades.8 One explanation is that the academically oriented leadership of the AMA was countered by "grass roots" practitioners who were reacting to the immediate reality of legislative proposals and initiatives in states such as New York, California, Illinois, and Michigan (Anderson, 1968). Foreshadowing the tone of later vehement opponents of national health insurance, one physician wrote in 1917 of a New York proposal: "'Nowhere has the swinish greed of the debasing propaganda of state socialism been more brazenly exposed than in this merciless attempt to steal the livelihood of the most unselfish profession in the world"' (quoted in Anderson, 1968, p. 75).

In addition to medical opposition, explanations for the uniform failure of the early state-directed initiatives in the United States usually cite several other factors (Anderson, 1968; Starr, 1982; Weir et al., 1988). World War I diverted attention from social welfare programs and gave opposing groups time to organize. The impact of medical care costs on individuals and families had not been systematically documented, and the public was relatively uninterested and uneducated about the concept of health insurance. Hospital, nursing, and public health interests expressed some support for health insurance but were largely passive. Organized labor was not united. Some business groups argued that if any public action were taken it should be in behalf of public health measures, which would do more to increase productivity than would sickness benefits. Economic elites were not spurred by the specter of socialism to establish state welfare programs, and the U.S. civil service was too underdeveloped to provide the intellectual and organizational activism seen in many European countries. Altogether, opposition from commercial insurance companies (who were primarily protecting related lines of business, because medical expense insurance was almost nonexistent), the medical profession, big business, and drug companies overwhelmed the labor interests at the state level and the economists, lawyers, political scientists, and other "do-gooders" who made up the AALL (Anderson, 1968, p. 75).

Proposals for National Health Insurance in the Depression and Postwar Years

Much of the motivation for the next major push for public—and private—medical expense insurance in the United States came from another private committee, the Committee on the Costs of Medical Care (CCMC).9 This committee was established in 1927 with private funding from six major foundations: the Carnegie Corporation, the Josiah Macy, Jr., Foundation, the Milbank Memorial Fund, the Russell Sage Foundation, the Twentieth Century Fund, and the Julius Rosenwald Fund. It was chaired by Ray Lyman Wilbur, a former president of the AMA and then president of Stanford University. With the cooperation of many major organizations such as the AMA and Metropolitan Life and a $1,000,000 research budget, the 42-member committee (which included 17 physicians in private practice) and 75-person technical staff issued a series of 27 field studies and a final report between 1928 and 1932.

The field studies and household surveys conducted for the CCMC provided a clearer understanding of the incidence of illness and disability, the appropriate forms of medical treatment (as judged by a panel of physician experts), the distribution and organization of health care services, the nature of health care expenditures, and the efforts of various groups to help individuals gain access to health care and protect themselves against the financial costs of illness. A vast array of information was compiled, presented, and relied on for years after. The following points are particularly relevant here:

  • Insufficient medical care (as judged by medical panels) was widespread even among higher-income groups.
  • Per capita spending on health care in the United States averaged $25 to $30 per year (about 4 percent of national income), but 3.5 percent of families bore about one-third of the total spending burden.
  • Almost 30 percent of medical care spending went to physicians, about 24 percent to hospitals, 18 percent for medicines, 12 percent to dentists, and 3 to 5 percent each to nurses, cult practitioners, and public health services.
  • One-third of those receiving hospital care had that care paid for by a government or philanthropy.
  • Unions, lodges, and commercial insurance companies focused on disability insurance and provided little in the way of insurance for medical expenses.
  • Some innovative employment-based arrangements for medical expense protection were developing that offered health benefits for as little as $6 to $12 per year, depending on the scope of benefits.
  • About 150 multispecialty medical groups existed, many of which were developing innovative health care delivery and financing methods that could coordinate patient care across different settings and clinical problems.

As summarized in Table 2.3, the CCMC's analyses and majority report provided a vision of health care delivery and financing that has echoes in today's policy discussions. Although the majority endorsed the concept of private or public voluntary insurance, they argued—with dissents from several liberal members—against compulsory insurance as too costly for either taxpayers or employers.

TABLE 2.3. Summary of Positions on Health Care Coverage in the Majority and Minority Reports of the Committee on the Costs of Medical Care, 1932.


Summary of Positions on Health Care Coverage in the Majority and Minority Reports of the Committee on the Costs of Medical Care, 1932.

The committee minority report vehemently attacked the majority statement, in particular, its call for sweeping reorganization of medical practice. The minority vigorously supported fee-for-service and solo practice medicine and attacked care organized around medical centers as "'big business, that is, mass production"' and "'pernicious"' (quoted in Anderson, 1968, p. 98). They conceded, however, that private insurance might have merit if based on plans created by state or county medical societies. These plans would have to operate in accord with several "safeguards,'' as listed in Table 2.3. The first of the listed provisions related to problems identified in the CCMC study of insurance in Europe.

Both the majority and the minority agreed that competition among physicians and organized plans was destructive (Starr, 1982). Interestingly, both the majority and the minority report argued against administration of medical plans by private insurance companies (rather than prepaid group practices or similar entities). The majority report stated that such administration would "'forfeit . . . effective professional participation in the formulation of policies"' and also increase costs (quoted in Anderson, 1968, p. 95). On this point, both camps on the committee were influenced by a study of European health insurance that stated that "'a comparative study of many insurance systems seems to justify the conclusion that the evils of insurance decrease in proportion to the degree that responsibilities with accompanying powers and duties are entrusted to the medical profession"' (Simons and Sinai, quoted in Anderson, 1968, p. 98).

The response of organized medicine to the CCMC majority report is colorfully represented in a 1932 editorial by Morris Fishbein, editor of the Journal of the American Medical Association:

"The alignment is clear—on the one side the forces representing the great foundations, public health officialdom, social theory—even socialism and communism—inciting to revolution; on the other side, the organized medical profession of this country urging an orderly evolution guided by controlled experimentation." (quoted in Anderson, 1968, p. 101)

Some responses from the medical community were, however, less hostile. For example, in 1934 the American College of Surgeons endorsed voluntary, nonprofit prepayment plans for hospital and medical care (Davis, 1988). The AMA condemned "'this apparent attempt . . . to dominate and control the nature of medical practice"' (quoted in Davis, 1988, p. 497). In 1935 the California Medical Association came out in favor of a compulsory state program, a position it revoked after pressure from the AMA. Even the AMA reluctantly supported government payments for the indigent as a "'temporary expedient"' (quoted in Starr, 1982, p. 271), and it came to accept certain forms of voluntary insurance, as is described in the next section of this chapter. These positions reflected the hard times for many physicians during the Depression. One study indicated that physician incomes dropped 47 percent between 1929 and 1933 (Starr, 1982).

By the time the CCMC final report was published, the American Hospital Association had already picked up on the voluntary hospitalization insurance concept. It was seen as a way to counter "'more radical and potentially dangerous forms of national or state medicine"' (quoted in Anderson, 1968, p. 102).

Given the powerful opposition of the medical profession and the hospital industry to national or state government financing and delivery of medical care and the many crises facing government in the 1930s, it is understandable that national health insurance did not figure in the social policies pressed by the New Deal (Anderson, 1968; Starr, 1982). Nonetheless, the President's Committee on Economic Security (CES), established in 1934, did include medical care in its charge to make recommendations for a program "'against misfortunes which cannot be wholly eliminated from this man-made world of ours"' (quoted in Anderson, 1968, p. 106). The CES insurance section and medical advisory committee had at least four former CCMC members or staffers.10 However, the CES was mainly concerned with unemployment compensation, old age insurance, maternal and child health, certain disabled children, and the blind. Its 1935 report and recommendations scarcely mentioned health insurance except to say that a report was expected in a few months. At President Roosevelt's behest, that report (which recommended an optional state program) was never made public (Starr, 1982).

The Social Security Act passed in August 1935 with no provisions for health insurance, but it provided some support for state public health programs including maternal and infant care. A provision in the original Social Security bill calling merely for further study of the health insurance problem provoked so much controversy that it was deleted (Anderson, 1968). However, the financial implications of a comprehensive program of public health insurance provided another rationale for inaction in 1935. If health insurance had been included, one estimate is that it would have doubled the amount of the payroll deduction required to fund the new programs (Anderson, 1968, p. 196). The late 1930s saw further studies and committees and some vague endorsements of more adequate medical care from President Roosevelt. Public programs for special groups were created on an emergency basis for short periods. One was the federal Emergency Maternity and Infant Care Program. This program developed the first nationwide uniform program for paying for hospital care on the basis of the "actual per diem cost of operating the hospital" rather than on the basis of hospital charges (Law, 1974, p. 60). The policy prompted the preparation of a cost accounting manual by the American Hospital Association (AHA) (Anderson, 1975).

The 1940s saw new legislative proposals but no action (Anderson, 1968; Harris, 1969; Starr, 1982). Senators Robert Wagner, Sr., and James Murray and Representative John Dingell, Sr., introduced the first of a series of national health insurance bills in 1943. (A 1939 proposal had emphasized state programs.) None got very far. President Truman actively supported national health insurance, for example, in his state of the union address in 1948. "What the New Deal had ignored, the Fair Deal now embraced" (Fein, 1986, p. 45). Congress, however, never brought a compulsory national health insurance bill out of committee, and various less extensive proposals11 also got nowhere in the face of a strong public relations campaign by the AMA against "socialized medicine." In contrast, without much notice, the 1950 Social Security Amendments, in addition to expanding the old age and survivors insurance program, provided states with matching funds to pay physicians and hospitals for caring for welfare recipients.

In the early 1950s the Eisenhower administration, opposed to the "socialization of medicine" but concerned because voluntary insurance still left many unprotected, repeatedly proposed a government reinsurance program. It was labeled by the Secretary of the Department of Health, Education and Welfare as the "keystone" of the administration's health program (Anderson, 1968, p. 145), and its goal was to support the provision of private insurance to the poor and to high-risk groups. As described in 1954, reinsurance would have worked as follows:

"The premium charge for reinsurance of any health service contract of any approved association would be 2 per cent per year of the gross payments received by the association on all health contracts. A Health Service Reinsurance Corporation would be set up, with a hospital service reinsurance fund of $25 million. The federal government would pay two-thirds of any hospital bill in excess of $1,000 a year for any individual. The premiums would be scaled according to income." (The New York Times, quoted in Anderson, 1968, p. 223)

This relatively comprehensive concept failed, "'caught in cross fire by the conservative wings of both parties from one direction and by New Deal and Fair Deal Democrats from the other"' (Morris, quoted in Anderson, 1968, p. 144). Attention and debate then shifted to other proposals aimed more narrowly at the elderly, the poor, and other groups that had been left aside by the growth of private health insurance as described below. The eventual result was the establishment of the Medicare and Medicaid programs in 1965, which are discussed later in this chapter.

Innovation in the Private Sector

The Committee on the Costs of Medical Care had documented a number of interesting private sector initiatives to provide medical expense protection or prepaid medical services but revealed that their scope was limited. One study cited approximately 400 businesses that had established "more or less complete medical services for their employees" under widely differing financing, service, and other arrangements (Rorem, 1982, p. 64, reprinted from Rorem, 1932). Some employers or employee groups had entered into agreements with clinics, group practices, and hospitals to make monthly payments for medical care provided to employees or to assist employees in making such payments. One agreement, which began in 1929 and involved Baylor University Hospital and Dallas public school employees, is conventionally cited as the first Blue Cross plan, although that term did not come into use until 1934. Another plan involved the employees of the Los Angeles water and power departments and what became the Ross-Loos Clinic, often cited as the first prepaid group practice. Nationwide, by 1930, plans sponsored by employers, employees, or both covered only an estimated 1.2 million employees and 1 to 2 million dependents (Somers and Somers, 1961).

At the same time that some former members and staff of the Committee on the Costs of Medical Care were trying to secure for health insurance a place in the New Deal, others followed up on the CCMC's recommendations with respect to group practice and voluntary health insurance and sought to build on the models identified in the CCMC's reports.12 One CCMC staff member and employee of the Rosenwald Fund, C. Rufus Rorem, exercised particular leadership by formulating principles and operating practices for group hospitalization plans and working with leaders in many communities to make these principles a reality.13

The concept of the community-based, voluntary, nonprofit group hospitalization or prepayment plan—what became Blue Cross—began to spread with start-up funding from foundations, community chests, loans, and hospital contributions. The development of Blue Cross in the 1930s was strongly influenced by the early coordinating and technical assistance role played by the AHA to which C. Rufus Rorem served as a part-time consultant. Rorem had sought—to no avail—to interest the Rosenwald Fund, the Twentieth Century Fund, and the Community Chest in playing this role before he turned to the fledgling AHA in 1936. It is interesting to speculate whether support from one of the former organizations would have added more force to the community service concept, diminished the influence of hospital interests, and, in any fundamental sense, altered the path of Blue Cross and health insurance generally in subsequent decades.

By 1935, 15 Blue Cross plans existed in 11 states, with 6 more established in the following year (Anderson, 1975). The founder of the plan in St. Paul had developed a blue cross logo (replacing the image of a nurse in a blue and white uniform), and this logo gave rise to the name, which was adopted first by the St. Paul plan and then others. The growth of these plans prompted the search for a coordinating scheme that resulted in 1938 in an AHA-associated Council of Plans and in 1941 in the Hospital Service Plan Commission, a separate financial entity within the AHA corporate structure. (AHA and Blue Cross ended this formal affiliation in 1972.)

Influenced by a variety of personal convictions, practical considerations, and political sensitivities, the standards developed in the 1930s for Blue Cross plan operation and membership reflected a mix of influences.14 These principles, which had some points in common with those set forth in the CCMC minority report, are summarized in Table 2.4. The most significant departure from CCMC majority principles involved the exclusion of Blue Cross payment for physician services and the lack of emphasis on group practice. This was a practical accommodation to organized medicine, which in particular opposed payment to hospitals for physician services for pathology, radiology, and anesthesiology (Stevens, 1989).

TABLE 2.4. Standards for Blue Cross Plans Adopted in the 1930s.


Standards for Blue Cross Plans Adopted in the 1930s.

Although they disregarded or were in partial ignorance of many insurance principles, the founders of voluntary health insurance plans in the 1930s understood that the composition of the risk pool is critical to the cost and survival of a plan. If the people who buy health insurance are disproportionately those who expect high expenses for health care, then insurance will be, at best, a form of group budgeting for the ill without the critical feature of risk sharing with healthy individuals.

The choice of the employee group as the foundation for private health insurance was a key element in managing the risk pool and avoiding disproportionate participation by higher-risk individuals. The employee group was attractive because it existed for reasons other than the purchase of insurance. One provision that emerged in most group plans was a requirement that a substantial majority of employees participate in the program, another guard against adverse risk selection. Many of the early nonprofit health insurance plans were also committed to what has come to be called "community rating." That is, they charged the same amount per individual based on the projected expenditures for all those covered in the community.

Initially, employees often paid the full premium, with employers supplying organizational support and the payroll deduction mechanism, which greatly cut expenses for collecting premiums from individuals. Although hospitals played a major role in helping early Blue Cross plans get started, the other necessary condition was employer interest. For example, J.L. Hudson, the large Detroit-based department store, and Ford Motor Company were two employers important to the early development of the Blue Cross plan in Michigan (Weeks and Berman, 1985).

The growth of Blue Cross plans was impressive. By 1940, 6 million members were enrolled in 56 plans; this number grew to 19 million in 80 plans by 1945 and to 52 million in 79 plans by 1958 (Somers and Somers, 1961; Anderson, 1975).

Although early Blue Cross plans stayed away from coverage for physician services in order to decrease physician opposition to group hospitalization insurance, the demand for such coverage and the growing interest of commercial insurers helped prompt a somewhat parallel source of nonprofit benefits for physician services. What is considered the first Blue Shield plan, the California Physicians Service, was organized in 1939—with leadership from Ray Lyman Wilbur, who had chaired the CCMC (Starr, 1982).15 This plan helped pioneer a number of innovations, including the relative value system for pricing physician services (still surviving—albeit much altered—in the Resource-Based Relative Value System adopted by Medicare in 1989) and assessments of new technologies based on both scientific and community input.

Blue Shield enrollment stood at 2.5 million in 22 plans in 1945 and at 41 million in 65 plans in 1958 (Somers and Somers, 1961). Enrollment in Blue Cross and Blue Shield plans, collectively, peaked at 86.7 million in 1980 and now stands at about 70 million (HIAA, 1991b).

One other noteworthy stream of innovation in the 1930s and 1940s involved prepaid group practice and similar arrangements, which the CCMC had strongly endorsed (Somers and Somers, 1961; Anderson, 1968; Rorem, 1982; Starr, 1982). Some believed group practice was the only foundation on which voluntary insurance could successfully be based, and they worked vigorously to promote its growth.

The Ross-Loos plan, started in 1929, was cited above. In 1933, Dr. Sidney Garfield organized a similar prepaid arrangement for injuries suffered by workers constructing an aqueduct in the Southern California desert. Garfield then undertook in 1938 a like effort for Henry J. Kaiser's workers at the Grand Coulee Dam. In 1945 and 1946 as Kaiser's work force was declining with the war's end, Kaiser opened its plans to enrollment by workers in other organizations rather than close the plans. To promote acceptance, Kaiser adopted an innovative "dual-choice" policy that required employers offering the Kaiser plan to also offer a fee-for-service plan. Practical as this policy was and attractive in the choice it offered employees, it helped provide the basis for biased risk selection to operate within the employee group.

Sponsorship of early prepaid group practice plans was quite varied. Some early plans were initiated by employers (e.g., Kaiser); some by employee groups, unions, or consumers (e.g., Group Health Association of Washington, D.C., which was organized by employees of the Federal Home Loan Bank, and the Health Alliance Plan of Detroit, which was organized by the United Auto Workers); some by individual physicians (e.g., Ross-Loos); and some by government (e.g., the Health Insurance Plan of New York City, which was promoted by Mayor Fiorello LaGuardia with start-up help from the Rockefeller, New York, and Lasker foundations). Even the federal government was involved, through the short-lived rural prepayment plans started by the Farm Security Administration. As early as 1940, the movement for prepaid group practices had developed enough to warrant establishment of the trade association that eventually became the Group Health Association of America (not to be confused with the individual Group Health Association plan in the nation's capital).

Overall, however, these plans grew slowly because of fierce opposition from the medical profession. This opposition was codified in many state laws and in medical society rules that excluded prepaid group practice physicians from membership. Twenty-six states eventually prohibited consumer-controlled medical plans, and 17 states required that plans allow free choice of physician (Starr, 1982). In addition to this legislative front, medical societies in many places organized boycotts, got hospitals to deny admitting privileges to prepaid plan physicians, and otherwise sought to eliminate such plans. In 1938 the Justice Department indicted the AMA and the District of Columbia medical society for antitrust violations stemming from their efforts against the Group Health Association. The Supreme Court upheld the convictions in 1943, and similar activities continued to be identified and challenged by the Justice Department in succeeding decades.

Employment-Based Benefits, Federal Regulations, and Union Policies

During and after World War II, the growth of voluntary health insurance and the interest of commercial health insurance were powerfully accelerated by two forces: federal policy and union activism. Both helped tie health coverage even more closely to the workplace.

One of the most important spurs to growth of employment-based health benefits was—like many other innovations—an unintended outgrowth of actions taken for other reasons during World War II (Somers and Somers, 1961; Munts, 1967; Starr, 1982; Weir et al., 1988). In 1943 the War Labor Board, which had one year earlier introduced wage and price controls, ruled that contributions to insurance and pension funds did not count as wages. In a war economy with labor shortages, employer contributions for employee health benefits became a means of maneuvering around wage controls. By the end of the war, health coverage had tripled (Weir et al., 1988).

For a variety of reasons, unions began a push for employer provision and funding of health and other benefits that employers strongly resisted. In an action that was a blow to union control of health plans and a stimulus to employer-controlled programs, the Taft-Hartley Act of 1947 banned union control of welfare funds based on employer contributions. On the positive side, an attempt to explicitly exclude employee benefits from the requirement for collective bargaining failed, and the law retained the vague language of the 1935 National Labor Relations Act that required management to bargain on "wages and conditions of employment." The law also established regulations for joint employer-union control of plans involving multiple employers.

Health and welfare benefits were major factors in a wave of postwar strikes and other conflicts with employers over what bargaining on "conditions of employment" involved.16 Key National Labor Relations Board (NLRB) rulings in 1948 clarified the matter. The NLRB held, in a case involving Inland Steel Company and the United Steel Workers, that federal law required employers to bargain over pensions. Shortly after that, the board ruled likewise for health insurance benefits. The Supreme Court upheld the NLRB in 1949. Still, over half the strikes in 1949 and the first part of 1950 were related to health and welfare issues (Weir et al., 1988). During the 1949 steelworkers strike, a fact-finding board appointed by the President firmly supported the union position on bargaining, and the steel companies began to settle.

Health insurance and other fringe benefits were on their way to becoming a standard feature of employment. A number of unions continued to sponsor health centers and other programs, but most focused on the employer-sponsored programs. A further important boost to these programs came in 1954 when the Internal Revenue Code made it clear that employers' contributions for health benefit plans were generally tax deductible as a business expense and were to be excluded from employees' taxable income. Between 1950 and 1965, employer outlays for health care rose from 0.5 to 1.5 percent of total employee compensation.17

Growth and Change in Health Insurance Products

The importance of these developments—that is, the defeat of national health insurance, government decisions favorable to employer-based insurance, the success of the Blue Cross concept, and the switch of unions from opposition to support for employer-based insurance—led to further rapid growth of employment-based health benefits in the 1950s. (Unions did not, however, abandon their preference for national health insurance.) By 1958 an estimated three-quarters of the 123 million Americans with private health coverage were participants in employment-based programs, and about 36 million of this group participated in plans that were collectively bargained (Somers and Somers, 1961). In 1960, 79 Blue Cross and 65 Blue Shield plans had been established, 250 to 300 prepaid group practice and other independent plans existed, and over 700 commercial insurance companies were selling individual or group coverage or both (Somers and Somers, 1961).

The growth in commercial insurance was particularly notable after World War II. At the end of the 1940s, Blue Cross plans had larger enrollment than individual and group insurers combined; by the end of the next decade, commercial group enrollments exceeded Blue Cross group enrollments. 18 The serious entry of commercial insurers brought important changes: new products, different rating practices, and significant competition.

Firm and fast generalizations about differences between Blue Cross and other nonprofit plans and commercial insurance are risky given the variability that has characterized both. However, reflecting its roots in property, casualty, and life insurance practices and principles, commercial insurance brought to the provision of health insurance a perspective that is quite different from that of the Blue Cross and Blue Shield plans, with their ties to health care providers and their nonprofit, community orientation (Faulkner, 1960; Somers and Somers, 1961; MacIntyre, 1962; Anderson, 1975; HIAA, 1991b). This perspective was reflected in

  • a business and even ideological commitment to insurance premiums that reflected a specific individual's or group's level of risk (based on past or expected claims experience) in isolation from the broader community;
  • a greater emphasis on consumer cost sharing through deductibles and other traditional devices to eliminate small, expensive-to-process claims and to control consumers' tendencies to use more of a good for which they do not bear the full cost;
  • a reliance on indemnity products that paid cash to the individual and were not linked to contracts for payment and other arrangements that involved health care practitioners and institutions directly;
  • a proliferation of products that included, most notably, major medical benefits (combined coverage for hospital and physician services with high overall limits on coverage) and, less constructively, low-benefit, high-profit products such as so-called ''dread disease" policies;
  • greater marketing expertise and resources; and
  • for the larger national companies, a greater ability to provide uniform and efficient service for employers with workers at multiple sites in multiple states.

Many of these features were attractive to employers and workers, and they also influenced the practices of the nonprofit organizations. Arguably, the first of the above features, rating premiums according to risk or experience, had the most significant influence on the course of voluntary insurance over the next several decades.

Federal Government as Sponsor of Employee Health Benefits Program

Because it has been both cited and criticized as a model for national health policy for the last two decades and because it is the country's largest employment-based program, a note on the history of the Federal Employees Health Benefits Program (FEHBP) is in order (Somers and Somers, 1977b; Fleming, 1973, cited in Enthoven, 1989; Enthoven, 1978, 1988a, 1989; Moffit, 1992). FEHBP was established in 1959 so that the federal government could compete more effectively with private employers to recruit and retain a productive work force (CRS, 1989, especially Appendix B). Until that time, only a fraction of federal agencies sponsored health plans, although between 1947 and 1959 some 30 bills had proposed creation of a program.

The FEHBP program was unusual in that its congressional sponsors wanted to encourage competition and employee choice among health plans. It provided for three types of plans: (1) governmentwide plans, including both a service benefit plan (Blue Cross and Blue Shield) and an indemnity plan; (2) employee organization plans (several of which were already in place by 1959); and (3) comprehensive medical plans such as prepaid group practices. By 1961, there were already 55 approved options, and there are over 300 today. Initially, the government paid 40 percent of a plan premium (rather than the 33 percent proposed by the Bureau of the Budget and the Civil Service Commission), subject to certain minimums and maximums. The contribution formula was revised in 1971 so that the government contribution would equal 60 percent of the average of the premiums of the six big FEHBP high-option plans, not to exceed 75 percent of any specific plan premium.

FEHBP remains unusual in two particular respects. One is the large number of choices provided. All employees have at least 20 plans to choose among, and those in urban areas may have more than 30 options. The program is also unusual in that the fee-for-service plans are all privately insured rather than self-insured by the government. Thus they compete with HMOs on the same "at risk" basis. As discussed in Chapter 5, FEHBP has had significant problems with biased risk selection that are in considerable measure a function of its wide-open multiple-choice structure.


Between 1920 and 1965, many of the basic elements of today's strategies for managing health benefit costs were identified, even if they were not persuasively articulated or successfully applied.19 These elements include

  • management of the risk pool,
  • design of the benefit plan,
  • controls on payments to health care providers,
  • constraints on the supply of health care resources, and
  • review of the appropriateness of utilization.

Management of the Risk Pool

As noted above, the founders of health insurance plans in the 1920s and 1930s used the employment group, community rating, and other steps to make insurance affordable and sustainable by spreading risk broadly. Subsequently, competition in insurance markets brought experience rating and medical underwriting as means to reduce premiums for healthier groups and thereby attract their business. Neither strategy for premium cost containment directly targets the price, use, or intensity of health care services, although it is claimed that making individuals with poorer health status or health behavior pay more for coverage encourages more prudent and thereby less costly behavior.

Design of the Benefit Plan

Like management of the risk pool, the centrality of benefit design was also quickly appreciated as a vehicle to control health plan costs. One way to limit expenses is to require patients to bear some of the cost of care themselves through such mechanisms as deductibles, coinsurance, and dollar maximums on benefits for all services or specific categories of service. Cost sharing has two objectives—first, to transfer some liability for costs to the patient and, second, to discourage patient demand for care. Plan administrators also concluded that premiums could be held in check by excluding coverage for experimental and ineffective treatments, for treatments whose use was highly discretionary or difficult to monitor, for extended or custodial care for chronic conditions, and for relatively low cost services that could be scheduled and budgeted. For the most part, these provisions built from principles developed in more traditional forms of insurance, as discussed in Chapter 1.20 Relatively slower to develop was the hope that payment for and timely use of certain low-cost services (e.g., preventive and outpatient care) could avoid higher total payments for inpatient and acute care.

Controls on Payments to Providers

During the financially difficult years of the 1930s, contracting and risk sharing with providers were important economic elements of prepaid group practice arrangements and some health insurance plans. For example, most Blue Cross plans through their guarantee of service benefits rather than indemnity payments had provisions for some sharing of risk by their contracting hospitals (Donabedian, 1976). Strong contractual relationships that included some risk sharing or limits on payments to providers, however, were hard to establish and maintain (Werlin, 1973; Anderson, 1975; Hellinger, 1978; Weeks and Berman, 1985).

The expansionary postwar decades stimulated hospital restiveness with the contractual relationship that guaranteed service to Blue Cross enrollees at a negotiated price. Physicians, moreover, continued to fight prepaid group practice plans and other forms of contracting and risk sharing. Some physician associations took a less negative approach. To compete with prepaid group practices, they established foundations for medical care (FMCs), beginning with the San Joaquin County Foundation (in California) in 1954. By 1973, there were 61 FMCs in 27 states (Egdahl, 1973). Those FMCs that involved physician acceptance of limited financial risk are predecessors of today's independent practice associations (IPAs). The push for prepaid group practices, IPAs, and similar health plans—collectively christened HMOs in 1970—as a cost containment strategy began in earnest in the 1970s (Ellwood et al., 1971; Brown, 1983; see also Chapter 6 of this report).

Constraints on Supply

Another approach to cost containment was developed under the rubric of health planning. Health planning had received much of its initial nationwide impetus as a tool for guiding the expansion in community hospital resources under the Hill-Burton program established after World War II. Beginning in the late 1950s, however, the growing supply of hospital resources came to be viewed as a source of rising health care costs (Roemer and Shain, 1959), and health planning was supported by many—including some insurers and some employers—as a way to limit excessive capital investment (Somers and Somers, 1961). As of 1961, 14 health planning agencies had been established (Stevens, 1989). In 1964, New York adopted the first state certificate-of-need law, which required state approval for hospital construction projects. Using a tactic pioneered by Blue Cross of Northeast Ohio as early as 1950 (U.S. Department of Health, Education and Welfare, 1976), some insurers warned that unless hospitals cooperated with public or voluntary health planning "we will not pay full reimbursement or continue our contract with a hospital" (Walter McNerney, quoted in Somers, 1969, p. 138).

Utilization Review

Historically, third-party payers tended to concentrate their cost containment energies on the unit price of medical services and to pay less attention to the volume of those services provided by institutions and practitioners and sought by patients. However, some early physician organized health plans established a form of peer review.21 Although some hospitals used committees to monitor utilization in an effort to cope with the short supply of hospital beds during World War II, the first explicit use of retrospective utilization review to control fee-for-service payments for unnecessary and inappropriate hospital services seems to have been in the 1950s (Payne, 1987). In 1954, Fred Carter, a physician, wrote in The Modern Hospital, "'Why not appoint a standing hospital staff committee designated as the "hospital utilization committee" to do in the field of hospital and medical economics what the tissue committee does . . . in the field of surgery. Abuses in the use of hospital services and facilities coming to the attention of this hospital utilization committee could be disciplined to the point of near deletion"' (quoted in London, 1965, p. 77). Apparently, high optimism about the impact of utilization review was born with the idea itself.

The 1950s also appear to have seen the first attempt by health plans to encourage or require second opinions about the need for proposed surgery. The United Mine Workers Union tried to institute such a program but failed because of resistance from organized medicine (Rutgow and Sieverts, 1989). It was not until the 1970s that such provisions were successfully introduced by the Store Workers Health and Welfare Fund and other union programs (McCarthy and Widmer, 1974).

The San Joaquin County Foundation for Medical Care, founded in 1954, not only served as a model for many IPAs but also helped inspire several medical societies to organize peer review of health care utilization and quality. FMCs pioneered many utilization review tools, including model treatment profiles to assess physician performance, protocols for reviewing ambulatory care, and computerized screening of claims (Egdahl, 1973).

By the early 1960s, more than 60 Blue Cross plans reported programs to review claims for the appropriateness of hospital admissions, and more than 50 looked at the length of stay. Some required physicians to certify at admission that hospital care was necessary for cases such as diagnostic and dental admissions, and more than two dozen required physicians to certify the need for continued hospital care after a specified length of stay (Fitzpatrick, 1965; Young, 1965). In a prescient comment, Odin Anderson noted in 1968 that as payers showed increasing interest in medical practice patterns, "the central concern of the medical profession today and in the years ahead might well be 'bureaucracy"' (Anderson, 1968, p. 161).

Impact of Early Cost Management Efforts

The various tools used to control costs from the 1930s into the 1960s may have had some impact, but they often were neither rigorously applied nor rigorously evaluated. In general, concerns about controlling costs were still overshadowed by society's desire to expand access and improve health outcomes through the development and implementation of advances in medical care. Government was not a major actor, but neither had marketplace competition emerged as a rallying point for private sector cost containment strategies. Community-oriented programs and cooperative work with health care providers were more prominent themes in this period. Further discussion of private and public efforts to control health care costs, which greatly expanded in the 1970s and 1980s, is deferred until Chapter 6.


As the growth of employment-based health benefits was making such coverage an expected feature of personal life for many Americans, some limitations of voluntary private insurance were simultaneously being identified. The elderly were singled out as a special problem, having greater medical needs but less financial protection than younger individuals still in the work force (Somers and Somers, 1961; Feingold, 1966; Harris, 1969; Marmor, 1973). In 1960, about half of those aged 65 to 74 were thought to have some form of private health insurance—frequently more limited than that available to younger individuals—but only one-third of those over 75 had any protection. Somers and Somers (1961) estimated on the basis of data acknowledged as fragmentary that health insurance met perhaps "one sixth of total medical costs of the insured [but] one fourteenth of the total for all the aged" (p. 445).

The consequences of being uninsured had become more significant as the medical advances associated with World War II and the postwar commitment of significant resources to biomedical science and hospital construction expanded both the problems medicine could treat and the costs of treatment. Moreover, growth in personal income, private insurance, and open-ended third-party reimbursement practices and constrained growth in the supply of physicians combined to place inflationary pressure on medical care prices.

Between 1950 and 1960, employment in the health care sector rose by over 50 percent, compared with only 10 percent for employment in total (Fuchs, 1968). The amount of per diem hospital costs accounted for by salaries went from $5.11 in 1946 to $20.56 in 1960, an increase of 300 percent, compared with an increase of about 160 percent for other expenses (Colman, 1968). The number of outpatient prescriptions tripled from 1945 to 1966, but prescription expenditures went up tenfold (McEvilla, 1968). In addition, between 1950 and 1965, medical care prices rose twice as fast as consumer prices overall, and consumer expenditures for health care went from $8.5 billion to $28.1 billion (Gorham, 1968).

The late 1950s and early 1960s saw persistent efforts to expand state and federal government programs to cover medical expenses for the elderly, poor, and other groups. The first legislation to provide health insurance for Social Security beneficiaries was introduced in 1952, and a national program for certain aged and other poor individuals was passed in 1960. The adoption of a more comprehensive national program for the elderly and a state-federal plan for certain low-income groups took another five years.


The events leading up to the passage of Medicare, Title 18 of the Social Security Act, are well documented (Feingold, 1966; Harris, 1969; Somers and Somers, 1967, 1977a, 1977b; Anderson, 1968; Marmor, 1973; Starr, 1982). The legislation, which was passed in 1965 (to take effect in July 1966), reflected the bitter political battles and varied compromises that preceded final agreement. In 1972, Medicare was extended to disabled individuals and certain others (who now constitute about 10 percent of all beneficiaries). In 1982, employers who offered a health plan were required to cover workers aged 65 to 69.

For both practical and political reasons, the program reflected and built on structures and practices developed in the private insurance sector. In its design and implementation, Medicare continued the division between hospital and physician services coverage that had accompanied the growth of Blue Cross and Blue Shield. It maintained free choice by beneficiaries of physician and hospital. It essentially took the hospital insurance and cost reimbursement approach from Blue Cross (except that it included a deductible for hospital care) and adapted the medical insurance approach from commercial insurers. However, Medicare adapted from Blue Shield the participating physician concept and the method for paying physicians based on reasonable charges.22 Participating physicians had to agree to accept these payments as payments in full, but physicians could choose not to participate and bill patients for the balance. In addition, the original Medicare legislation had special provisions allowing Medicare beneficiaries to enroll in prepaid group practices (but not on a capitated basis). Congress did not follow the suggestion of a Kaiser official that the program be structured along the lines of the Federal Employees Health Benefits Program (Somers and Somers, 1972, reprinted in Somers and Somers, 1977b).

For program administration, Medicare used private organizations, known as intermediaries for Part A and carriers for Part B. On the hospital, or Part A, side, most of the intermediaries were Blue Cross plans. On the Part B side, carriers were initially split about 50-50 between commercial insurers and Blue Shield plans, although the Blue Shield share has since grown. Payment for Part A services relies on payroll taxes paid by employers and employees and deductibles and other expenses borne by beneficiaries using services. Part B, which is a voluntary but still near-universal program, is financed through beneficiary premiums (to cover 25 percent of program costs) and general revenues (to cover the other 75 percent).

Enrollments in Medicare Part A grew from 19.5 million in 1967 to 33.1 million in 1989; Part B enrollments grew from 17.9 to 32.1 million in the same period (HIAA, 1991b). Total spending for Part A and Part B has gone from $3.1 billion in 1967 to $94.3 billion in 1989. Real spending per beneficiary (in 1987 dollars) rose from $939 in 1970 to $2,671 in 1988 (CBO, 1991b). As is described in the next chapter, many elderly individuals receive additional coverage from former employers.


The Medicaid program, created at the same time as Medicare, did not build on the social insurance principles that guided the latter program. Rather, it continued the charity care approach of its predecessor, the 1960 KerrMills Act (Marmor, 1973; Starr, 1982; Stevens, 1989).

Title 19 of the Social Security Act created a complex program that was to be (1) financed by federal and state funds, (2) aimed primarily at poor individuals who were eligible for certain other welfare benefits, in particular, Aid to Families with Dependent Children, and (3) administered by the states under federal rules. These rules provided considerable latitude for states to determine who would be eligible, what services would be covered, and how much providers would be paid. The result has been substantial state-to-state variation (PPRC, 1990). For example, states have varied in the extent to which their Medicaid programs cover low-income workers and their families. For a welfare recipient, employment often means an end to Medicaid without the beginning of employment-based coverage, although federal requirements provide some exceptions. Overall, Medicaid generally has covered less than half of the poor (that is, those with incomes below the federally defined poverty level).

The 1965 law provided that federal financing for Medicaid, which comes from general revenues, would be dispensed to states on a matching basis related to state per capita income and claims submitted by states.23 Today, the federal contribution to program expenditures constitutes about 56 percent of the total, but the share varies from 50 to nearly 80 percent of the total for individual states (GAO, 1991c).

In 1972, Medicaid covered about 17.6 million people, versus 25 million individuals in 1989, but total program costs grew from $6.3 to $64.9 billion during the same period (HIAA, 1991b; EBRI, 1992a). Real payments per user (1990 dollars) rose from $1,200 in 1975 to $2,600 in 1990 and ranged from $6,700 per user for the 3.2 million aged participants to $800 per user for the 11.2 million children from low-income families (CBO, 1992c).

In 1990, Medicaid was the second-largest component of state spending and was increasing faster and less predictably than other costs. At 12 percent of total state spending, it was exceeded only by spending on elementary and secondary education at 23 percent (GAO, 1991c, 1992a). In 1989, 49 governors asked Congress for a two-year moratorium on federally mandated expansions of Medicaid eligibility and services.

National Health Insurance Revisited

In the 1970s, some kind of national health insurance program was widely believed to be imminent (Starr, 1982). A 1977 summary by Herman and Anne Somers listed four basic categories of proposals (Table 2.5).

TABLE 2.5. Major Categories of "National Health Insurance" Proposals in the Early 1970s.


Major Categories of "National Health Insurance" Proposals in the Early 1970s.

The greatest opportunity for action came in 1974, when the Nixon administration and congressional leaders (in particular, Senator Kennedy and Representative Mills) appeared willing to compromise on a broad national health insurance program. They proposed private insurance for workers and their families and public coverage for others. Labor and some other liberal groups still favored a fully public program, but organized medicine and traditional opponents of government action appeared to have accepted that the time for a comprehensive national health program had come.

Nevertheless, none of the major proposals introduced in the 1970s were successful. At the time of writing this report, just before the 1992 presidential election, health insurance had appeared as a noteworthy campaign issue for the first time since 1976. Although they vary in specifics, many current proposals still fit the basic categories identified in Table 2.5. Even one missing category, what now goes under the rubric managed competition, had been quite clearly described (and endorsed) by Somers and Somers as early as 1971. After calling for "pluralistic and regulated competition" and "consumer options . . . [among carriers approved by a national board] . . . on an informed and meaningful basis," they warned that the policy debate threatened to degenerate into "doctrinaire position-taking'' among those attached to "old ideologies" that pitted "public" against "private" strategies (pp. 193, 198, 200). In fact, the 1970s and 1980s did see a debate that was framed in terms of market versus regulatory strategies (as described further in Chapter 6), and the same rhetoric continues to be heard in the 1990s.


Federal and State Roles Before 1974

The federal structure of the U.S. political system has produced a particularly complex and uneven mix of state and national regulation of health insurance and related matters. Before 1974, states generally regulated private health insurance, whether it was individual or employment-based, insured or self-insured. State insurance regulation began in the mid-1800s and was upheld by a Supreme Court decision in 1868, which ruled that insurance contracts were not part of interstate commerce and therefore were subject to state not federal regulation. In 1944 the Court reversed its decision, holding that insurance transactions did involve interstate commerce and were subject to federal antitrust and other laws. This decision, in turn, was overruled in 1945, when Congress passed the McCarran-Ferguson Act. The act returned to the states many regulatory powers but left the option of national regulation of insurance if states did not act. In order to promote systematic state action and avoid federal regulation, the National Association of Insurance Commissioners was formed to assist in the development and passage of model state legislation.

Until the 1970s the national government largely confined its attention to employment-based health benefits to two policy issues: collective bargaining and taxation. Faced with rising Medicare and Medicaid costs in the 1970s, the federal government instituted an array of cost management initiatives, including federal wage-price controls, health resource planning, HMO promotion, and quality and utilization review of health care services (see Chapter 6 for a discussion of these programs). With the exception of the HMO Act of 1973, which mandated that most employers offer their employees a federally qualified HMO if one was available, these initiatives did not touch employment-based health benefits very directly. (Legislation adopted in 1988 calls for the HMO mandate provision to expire in 1995.)

The Employee Retirement Income Security Act of 1974

In 1974 the division of federal and state regulatory authority with respect to employee benefits changed fundamentally with the passage of the Employee Retirement Income Security Act (ERISA). Since then, the relevance of state regulation to employment-based health plans has declined dramatically—without any significant expansion in substantive federal regulation of plan operations and characteristics.

ERISA was aimed primarily at private employer pension plans, and most of its provisions and implementing regulations are directed at such pension plans with little explicit attention to health plans. As interpreted by the courts over the years since its passage, however, ERISA has preempted an increasing number of state regulations affecting employment-based health plans (Appendix B; Moses, 1992). Despite some pressure to do so, Congress has refused to enact legislation that would overrule these interpretations.

States can indirectly reach some employers through their regulation of insured health plans, including insured HMO plans, but the group of insured employers has grown smaller every year as more employers—including quite small employers—have seen the advantages of self-insuring to avoid such regulation. Multistate employers are free to establish uniform health benefit programs across state lines and no longer have to modify their programs to conform to the myriad different details of state laws.

For self-insured employers the major regulatory consequences of ERISA are that such plans are exempt from several requirements: state taxes on insurance premiums; state mandates that certain types of benefits be provided; state limits on certain kinds of utilization management and provider contracting arrangements; solvency and prefunding requirements; defined claims settlement procedures; state law claims for various kinds of damages; and mandatory participation in state risk pools or uncompensated care plans. The last protection is now one of the most controversial, as many states try to maintain or establish these kinds of programs. A recent federal court decision in a case brought by 14 union health and welfare plans held that ERISA precluded the state from requiring such plans to pay hospital bills that included subsidies for uncompensated and undercompensated care (United Wire Health and Welfare Fund v. Morristown Memorial Hospital, 15 EBC 1625 [1992]) (Firshein, 1992b).

In addition, ERISA has been interpreted as exempting those administering claims for employee benefit plans from punitive damages for bad faith denials of claims. Further, in a case decided in June 1992, a federal appeals court held that ERISA precluded a malpractice action against a company that provided utilization review services to an ERISA-covered plan (Corcoran v. United Health Care, Inc. and Blue Cross and Blue Shield of Alabama, 1992 U.S. App. LEXIS 14621 [5th Cir., June 26, 1992]). (See Chapter 4 for further discussion of the legal liability of employers.)

Although ERISA precludes state regulation of self-insured employer-sponsored health benefits, it does not replace diverse state policies with an equivalent set of consistent national standards. The requirements it imposes on employers are quite limited. They primarily involve information reporting and disclosure, prudent exercise of fiduciary responsibilities, limits on disproportionate benefits for highly compensated employees, and (since 1985) continued coverage for certain former workers and others. There is no provision for waivers from ERISA requirements, and only one state, Hawaii, has obtained a statutory waiver.

The point that ERISA preempts state regulation without substituting explicit federal regulation of some basic dimensions of health benefit plans can be illustrated with several specific examples, which are discussed further in Appendix B. Unlike many or all state laws, ERISA

  • sets no solvency, reserve, funding, financial management, or backup insurance requirements for health plans to protect employees in the event of employer bankruptcy;
  • specifies no standards for health coverage or minimum benefits;
  • establishes no requirements that certain categories of employees or family members be generally eligible for coverage (except for the continued coverage requirements described below); and
  • contains no prohibitions against unilateral reduction or termination of benefits by an employer during the plan year nor any limits on medical underwriting practices such as exclusions of coverage for preexisting conditions.

With respect to this last point, although ERISA did not set funding and vesting requirements for health benefit plans as it did for pension plans, other statutes and the general law of contracts may limit employers' freedom to reduce or terminate benefits in some cases. For example, employers may need to prove that their right to terminate retiree benefits was specifically stated and widely known to employees (EBRI, 1991d). This constraint is particularly significant for employers considering their options given recent nongovernmental rules established by the Financial Accounting Standards Board (FASB). These rules require that benefits promised to retirees be recognized as liabilities on a firm's financial statements. (See Chapter 3 for further discussion.)

ERISA did establish somewhat more extensive regulatory provisions for one type of employment-based health benefits involving multiple employers, but the results have not been satisfactory to many (CRS, 1988b; McLeod and Geisel, 1992; National Health Policy Forum, 1992; U.S. Senate Committee on Governmental Affairs, 1992a). Multiple employer plans were originally defined as plans to which more than one employer contributes but which are not collectively bargained. Then in 1982, Congress redefined this category as multiple employer welfare arrangements (MEWAs), and made such plans subject to special regulations intended to control abuses fostered by the lack of applicable federal or state regulation. Fully insured MEWAs are subject to direct state insurance regulation related to the adequacy of contribution and reserve levels. MEWAs that are not fully insured are subject to all state insurance regulations, to the extent that they are not inconsistent with ERISA. Abuses and outright fraud by some third parties marketing MEWAs have led to calls for further legislation to strengthen regulation of such plans at the state or federal level or both.

Further complicating the regulatory picture are multiemployer plans, which, as defined by statute, are plans to which more than one employer contributes pursuant to collective bargaining agreements. They generally have joint labor-management boards, are regulated under the 1947 Taft-Hartley Act, and are explicitly excluded from coverage under the ERISA amendments related to multiple employer welfare arrangements.

Federal laws enacted since ERISA have imposed a limited number of mandates on employers. The most important emerged from the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985. That act requires employers with 20 or more employees who offer health benefits to offer continued coverage to most former employees, their dependents, and certain others for 18 or 36 months or until coverage under another plan begins.24 Employers can charge no more than 102 percent of the average cost to the employer of providing coverage to all its employees.25 An earlier federal law, the Tax Equity and Fiscal Responsibility Act of 1982, requires employers with 20 or more workers to cover certain employees (those aged 65 to 69, the disabled, and those with end-stage renal disease) who would otherwise be eligible for Medicare coverage.

Overall, ERISA gave a powerful boost to employer discretion and involvement in the management of health benefits. It diminished the position and influence of states and insurers and eliminated some protections for insured individuals but provided little in the way of explicit national standards for employee health benefits. As states' concern about the uninsured and the financial problems of health care institutions providing uncompensated care has grown, ERISA has also limited states' efforts to develop state risk pools, set minimum standards for certain kinds of health benefit programs, and act generally in areas in which the federal government has not taken the initiative.


Although the link between occupation or workplace and assistance with the costs of illness dates back to the last century and before, it has generally been tenuous and limited by its voluntary character and by the limited financial resources of those involved. In most countries the result has been the gradual mandating by governments of compulsory, near-universal, publicly subsidized coverage. These mandates have sometimes built on work-related insurance organizations and employer and employee deductions to cover "premiums," but employers have been left with relatively little discretion regarding the details of health benefit programs and with limited involvement in health care cost management.

The exception to this pattern is the United States, where voluntary private action has managed—with some assistance from facilitating national legislation—to extend coverage to the majority of the nonelderly population. Although the concept of workers' compensation had become widely accepted and broadly accommodated in state laws by the second decade of the century and other social insurance concepts were adopted at the national level during the 1930s, insurance for medical care expenses did not follow these precedents. Opposition by important interests outside and inside government to an expanded government role has limited public health insurance programs to the elderly and a segment of the poor. Millions of individuals are not covered by either public or private programs.

The next four chapters of this report describe the current status of employment-based health benefits and discuss developments over the last two decades. Among the key features cited are the

  • extensive involvement by business (primarily large employers) in the design of health plans and efforts to influence the delivery, price, and overall cost of health care;
  • significant responsibilities and administrative complexity for employers, employees, health care providers, and public officials resulting from the expansion and diversity of employers' efforts to manage their health benefit programs;
  • troublesome segmentation of high-and low-cost or high-and low-risk individuals into different insurance pools and growing debate about what constitutes an equitable spreading of risk for medical care expenses;
  • continued escalation in medical care expenditures and uncertainty about the value of this spending despite many efforts to contain medical care prices, limit unnecessary or marginally beneficial use of health care services, and otherwise control costs; and
  • persistent controversy about the merits of public, private, or mixed strategies for achieving a more satisfactory allocation of resources for health care.



The sources cited here are not always consistent and unambiguous, especially about the period before 1960, but the committee has attempted to determine what is accurate insofar as possible within its resources.


Although data are scarce, one figure for the pre-World War I period suggests that wage losses due to worker illness and injury were 2 to 4 times greater than worker expenses for medical care. For families as a whole, lost income and medical costs were about equal because dependent wives and children might incur medical expenses but generally had little or no income to lose (Starr, 1982).


For example, the Pierce County (Washington) Industrial Medical and Surgical Service Bureau was created in 1917 as a for-profit stock company that could "make contracts with employees of labor and their employers" (Pierce County Medical, 1992, p. 3). In its first quarter, it signed contracts with 21 businesses. In 1946, it reorganized as a nonprofit organization, and in 1964, it became a Blue Shield plan. It describes itself as the first successful prepaid health plan.


In an interesting example of the diffusion of an innovation, Faulkner (1940) describes how architect James Batterson, the founder of the Traveler's Insurance Company, purchased an accident insurance ticket while in England in 1859 to cover him on a train trip from Leamington to Liverpool. Interested in this concept, Batterson visited both the insurance company (the Railway Passenger's Assurance Company of London) and a leading English actuary. Four years of further investigation, capitalization efforts, and legal work passed before Traveler's was chartered in 1864 in Hartford, Connecticut. Among the coverage exclusions in the earliest policies were injuries arising from disease, surgical operations, dueling, war, or intoxication.


Funeral expense protection, on the other hand, was so valued that millions of people paid weekly premiums for individual "industrial life" policies, which were a backbone of companies such as Metropolitan Life and Prudential (Somers and Somers, 1961).


A more thorough history would also cite as foundations for the policies of different nations the development of public health initiatives (e.g., sanitation and quarantines) and sick houses or hospitals.


The social activism of social scientists in this period is suggested by the program of the 1916 annual meeting of the AALL, which included joint sessions with the American Economic Association, the American Political Science Association, the American Sociological Association, and the American Statistical Association (Anderson, 1968).


The American Medical Association now supports legislation that would (1) strengthen Medicaid to ensure "that no poor person is left without access to needed health care," (2) require "employer provision of health insurance for all full-time employees and their families, with tax help to employers," and (3) create state risk pools to cover the medically uninsurable and those who cannot afford or otherwise obtain coverage (Todd et al., 1991, p. 2504). A number of other physician groups have developed their own reform proposals, most of which include some type of required coverage and some public funding.


This section draws on Anderson, 1968; Rorem, 1982; Starr, 1982; and Weeks and Berman, 1985.


According to Starr (1982), Warren Hamilton, chair of the CES medical care subcommittee, and Edgar Sydenstricker, its technical study director, were both members and liberal dissenters from the CCMC. According to Anderson (1968), I.S. Falk, associate study director of CCMC, was also involved in CES work on health insurance. Falk later helped interest Senator Robert Wagner and others in sponsoring a series of national health insurance proposals in the 1940s (Harris, 1969).


These included a proposal from Senator Jacob Javits, Representative Richard Nixon, and other Republicans for a "locally controlled, government-subsidized, private nonprofit insurance system, with premiums scaled to subscribers' incomes" (Starr, 1982, p. 285). It had no means test.


This section is drawn largely from Somers and Somers, 1961; Law, 1974; Anderson, 1975; Rorem, 1982 (which includes many essays published in the 1930s and 1940s); Starr, 1982; Weeks and Berman, 1985; Stevens, 1989; also see Journal of Health Policy, Politics and Law, Winter 1991 issue, for several historical assessments of Empire Blue Cross and Blue Shield (New York) that refer to broader developments.


When the Rosenwald Fund ended its medical economics work, it gave Rorem (a certified public accountant and Ph.D. economist) a "nest egg"—$100,000 for four years. A larger amount was given Michael Davis, a more senior Rosenwald employee, who then established the Committee for Research in Medical Economics, which promoted national health insurance. Davis also founded the first journal of medical economics research, Medical Care (Anderson, 1975).


Even into the 1980s, the Blue Cross and Blue Shield Association preferred to describe its organizations not as insurers but rather as prepayment or service benefit organizations, despite the substantial blurring of the distinctions between the two concepts.


Earlier medical society plans were organized by county medical societies in Oregon and Washington before 1920, partly in reaction to the opening to the public of the contract medical services organized by the lumber and railroad industries. Some of these plans, such as those in Washington's King and Pierce counties, later became Blue Shield plans (Somers and Somers, 1961).


The most extensive union program of direct services and coverage, that operated by the United Mine Workers Welfare and Retirement Fund, emerged from a bitter labor-management confrontation that prompted repeated federal intervention (including seizure of the mines in 1946) to establish and secure the fund (Somers and Somers, 1961; Munts, 1967).


These data were compiled by the Department of Commerce, which changed its methods for analyzing data in 1959. According to the department's current methodology, 6.3 percent of employee compensation was accounted for by employer health care spending in 1990 (EBRI, 1992a). As calculated by analysts in the Health Care Financing Administration of the Department of Health and Human Services (and cited in Chapter 3), the 1965 figure is 2.0 percent and the 1990 figure is 7.1 percent.


Commenting on the growing involvement of commercial insurers in this field, one observer stated in a 1956 text on casualty insurance, "'In large part, . . . this new business has been manna from heaven or Washington or Mars; it has yet to stand the test of adversity"' (Kulp, quoted in Somers and Somers, 1961, p. 261).


Much of this section appeared in IOM (1989).


The most notable exceptions to these traditions were what came to be called the "first dollar" service benefits for hospital care offered by Blue Cross plans and their participating hospitals. Nonetheless, statistics from a 1944 monograph on these plans indicate that they covered, on average, about 75 percent of the hospital bill (cited in Stevens, 1989). The other 25 percent presumably involved such things as specific uncovered services and very long hospital stays, which exceeded the limit of 60 or 120 days covered by many contracts.


For example, soon after its creation in 1917, what is now the Pierce County (Washington) Blue Shield plan established a Consultation Committee and required that physicians check with a committee member to determine whether an operation was appropriate before they would be paid. The plan also warned physicians about their overuse of prescription drugs and private duty nurses.


This general approach was first experimented with by the Blue Shield plan in Wisconsin in 1954 and spread rather slowly to other plans until labor unions began pushing the method in the 1960s and Medicare gave the method a further boost (Showstack et al., 1979). Simply described, Medicare would pay the physician whichever charge was lowest: the actual charge for a service to a Medicare beneficiary, that physician's usual charge for the service, or the prevailing fee for all physicians providing the service in the same geographic area. The major alternatives at the time (for fee-for-service practitioners) were payment according to a fixed schedule of fees or payment of a percentage of actual charges.


States may require local governments to cover up to 60 percent of program costs, but only 14 states did so in 1990, and the local burden was significant in only 3 states (PPRC, 1990).


COBRA does not require a former employee or other eligible individual to accept coverage under another plan, for example, a plan available from a new employer.


One recent study indicated that claims costs for those who elect COBRA coverage are 120 percent of the cost for the non-COBRA group (A. Foster Higgins, 1992).

Copyright 1993 by the National Academy of Sciences. All rights reserved.
Bookshelf ID: NBK235989


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