Great American Health Care Machine, Chapter 2

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The Early Taint of Socialism and Health Care Reform

The independent Committee on the Costs of Medical Care, as noted in our previous blog (see Recent  Posts), grew out of frustrations with the unstoppable rise of health care costs.   In 1929, hospital costs were 13% of a family’s total medical bills.  By 1934, that cost had grown to 40%.  (Ross, Einstein Quarterly, 2002). This escalation alarmed leaders in medicine, labor and government.

Social Insurance:  The Early Taint of Socialism

The notion of health insurance emerged when Chancellor Otto von Bismarck of Germany  introduced  ‘social’ insurance for German workers in 1883 to stabilize workers’ income and provide sickness insurance. Healthy workers were, after all, productive workers. The success of this initiative inspired other nations to look at the model as well.  By World War I, 10 other nations adopted some similar programs, including England in 1911, with the passage of the National Insurance Act. (Ross, op.cit.).

In America, Teddy Roosevelt’s new Progressive Party, which had broken with the Republican Party, joined with trade union leaders, progressives and other non-government leaders and formed the American Association for Labor Legislation (AALL) in 1906 to reform capitalism, rather than change it and advocated numerous workplace issues, including social insurance.  One of AALL’s goals was to eliminate sickness as a cause of poverty and “reduce the social costs of illness by providing effective medical care and creating monetary incentives for disease prevention.” (Ross, op.cit.).

“The AALL bill followed European precedent in limiting participation to the working class, though it gave medical coverage not just to workers but also to their dependents. Its program applied to all manual workers and to others earning less than $1,200 a year, except for domestic and casual employees.  Benefits were of four kinds:  (1) medical aid, including all physicians’, nurses’ and hospital services;       (2) sick pay (at two thirds of wages for up to twenty-six weeks; at one third of wages during hospitalization);  (3) maternity benefits for the wives of insured men as well as insured women; and (4) a death benefit of $50 to pay for funeral expenses. The costs, estimated at 4 percent of wages, were to be divided among employers and workers, each to pay two-fifths, and the state, which would contribute to the one-fifth remaining.  The employers’ share increased for the lowest-income workers. A worker earning $600 a year, the AALL estimated, would pay 80 cents out of a monthly premium of $2.” ( Starr, Paul, Social Transformation of American Medicine,  244).

AALL and other reformers saw poverty as causing sickness.  Studies in Chicago showed that sick workers lost up to 14 percent of their income.  Protecting sick workers would reduce poverty, which in turn would reduce illness.  They also saw it as the ….” ‘conservation of human resources,’ seen as analogous to the conservation of natural resources.”  (Starr, op.cit.), such as the new national park and forests legislation.  It did not propose redistributing incomes, rather it focused on stabilizing incomes.  The Progressive Movement, however, had the support of American socialists who at the time represented less than six percent of all American voters. (Starr, op.cit.).   Health care reform would come to be tarnished with that taint by more than one source, for more than one reason.

AALL’s link with some of the emerging European socialist concepts was one nail in the coffin. Another was business as well as organized labor’s opposition. “American Federation of Labor’s  (AFofL) ….health insurance as an unnecessary, paternalistic reform that would create a system of state supervision of people’s health.” (Starr, op.cit. 249).  (State supervision meaning socialist). The final nail would be opposition by the AMA. Despite this opposition, by 1917 legislation promoting this model had been introduced in 12 states.

The Progressive Movement died in 1912, however, with Roosevelt’s loss to Woodrow Wilson. Finally, World War I halted any further discourse on health insurance, especially a German model.   WWI, however, did not thwart growing medical costs.

AMA and the Committee of Five

Frustrated with the continuing rise in costs and  the American Medical Association’s (AMA) failure to tackle the issue of ‘social insurance,’ 15 delegates from the  1926 AMA meeting came together to sponsor the Conference on the Economic Factors Affecting the Organization of Medicine. The Conference’s goal was to “discuss and design a new and innovative system that would improve health care coverage.” (Ross, op. cit.).

After the conference, a committee was formed to outline the studies that would be needed and  report back to the next AMA meeting.  Known as the Committee of Five, the members were: Winford Smith, MD, Director of Johns Hopkins Hospital; Dr. Walton H. Hamilton, an economist with the Brookings Institute; Dr. C.E.A. Winslow, Professor of Public Health, Yale University; Dr. Michael M. Davis, former director of Boston Dispensary; and Dr. Lewellys Barker, faculty member, Johns Hopkins Medical School.  An economist with the Public Health Service, Harry M. Moore, was secretary, although he was not formally a Committee member.  (Ross, op.cit.).

In 1927, Dr. Ray Wilbur, President, Stanford University and Past President, AMA, became involved with them.  At the AMA convention, he facilitated a meeting of about 60 members who participated in framing the issues and paving the way for the creation of the Committee on the Costs of Medical Care in 1929.  Wilbur became the permanent chair.  Wilbur was selected because he was a Republican, past President of the AMA, soon to be Secretary of the Interior and could be a solid buffer to the anticipated charges of socialism. (Starr op.cit. 261).

The Committee was funded entirely by private foundations: Milbank Memorial Fund, Rockefeller Foundation and Carnegie Corporation, among others, for a total of $1 million between 1929 and 1932.

Emergence of the Committee on the Costs of Medical Care.

What is striking about the 1929 reform efforts is their emergence from the private sector, not political parties or the government.  “….reformers outside the government, rather than political leaders took the initiative in advocating for health insurance.”  (Starr, Paul, op.cit. pp. 242-243).  Despite the fact that the Committee on the Costs of Medical Care emerged from some key AMA  leaders, the AMA would  wrestle it to death when the final report was issued in 1932 largely because of the Committee’s recommendations on the organization and financing of the delivery system.

The Committee’s concerns were about the costs of care and the impact of illness on individuals and families.  It did not advocate universal coverage or government run health care. It kept a private market.  It wanted to stabilize income by finding a means to cover health care costs that were driving families into bankruptcy and poverty.

It was funded completely with private foundation funds.  Committee members were not only physicians, but economists, bank presidents, and other health professions. The Committee’s recommendations, however, were thwarted by charges of socialism from business, organized labor and by the profession that spawned the report.

Members of the Committee on the Costs of Medical Care

Committee members represented different sectors of the economy:

Private Medical Practice: 18 physicians; Public Health: 6 public health professionals, including economists;   Institutions and Special Interests:12 members ranging from the Dean of the School of Dentistry, Vice President and Statistician, Metropolitan Life Insurance, Executive Director, Visiting Nurses Association, Member of the Governing Bodies of National Association of Retail Druggists, American Pharmaceutical Association and National Conference on Pharmaceutical Research; Editor, the American Journal of Nursing; Economics and Sociology: 6 members including the Director of Medical Services for the Julius  Rosenberg Fund, Director of the Pollak Foundation for Economic Research; Professor of Law, Yale University; Director, National Bureau of Economic Research; Professor of Sociology, University of Chicago and an Agricultural Economist from Vermont; The Public: President, Chase National Bank of the City of New York, President, Equitable Trust Company, Management Engineer, Mrs. William Kinnicutt Draper, New York City, Secretary-Treasurer Metal Trades Department, American Federation of Labor, Secretary, State Charities Aid Association, New York,  Community Chest, representative, Pennsylvania, Chairman of Health, National Council of Women, President, Druggists  Supply Association, Member, Board of Commissioners of Cook County, Chicago, Director, Science Service, Secretary of the Interior and Vice President, American Federation of Labor. (Committee on the Costs of Medical Care, 1932).

Hardly a group of rabid socialist sympathizers—although ‘socialist’  is how the opponents to health reform have been framed to this day.

Such an independent group has not been seen since.  Some may say that the Citizens’ Health Care Working Group of the mid-2000’s was such a group, but it was a government commission selected and financed by the Federal Government.  Today, calls for health care reform come from the President and Congress and advocacy groups in the field.

As I have indicated the Committee stands out today as an extraordinary  historic effort.   Stayed tuned next week for excerpts from the Committee’s Report.

Kathleen O’Connor (c) September 2010

About Kathleen

Kathleen O’Connor: 30+ year health care consumer advocate, non-profit executive and author. For more information about Kathleen, please see "About" on the main content bar above.
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