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Healthcare Delivery in the USA

Fall 2009

With all the conversation about healthcare and the "promise" of major healthcare reform, perhaps it would be a good time to review how this country ended up with a healthcare delivery system that spends more per capita on health care than almost any other country and still manages to leave almost 50 million uninsured people on the outside looking in.

When I speak of the Healthcare Delivery System, I am really speaking about health insurance. Medical costs today are at a level where very few have sufficient assets to "self-insure" or pay their own medical bills. Without health insurance, there is no access to quality medical care.

First a caution: Don't expect too much to happen from all this discussion. There are a lot of participants interested in little or no change to the current system due to the profits they make. Over the past fifty years, there has been a consistent dialogue about the need to overhaul the healthcare delivery system, but not a lot has really changed.

I started in the health insurance industry in 1966, the year after the introduction of Medicare. The general consensus was that I was joining a dying industry. "It won't be long before Medicare covers everyone and private health insurance is gone." That was over forty years ago, and the health insurance industry is bigger, stronger and more profitable than ever. Has anything really changed? Not much!

The healthcare delivery system as we know it in this country developed over the years through no real plan or organized design. Medical care has historically been provided on a fee for service basis, with individuals paying their own medical bills or receiving treatment in exchange for bartered goods, chickens, vegetables, etc. It was part of the independent, capitalist business model this country was founded upon.

Health insurance as we now know it was virtually unknown until the Great Depression. During the 1930s, in an effort to keep hospitals out of bankruptcy, Blue Cross was born, then Blue Shield was formed to assist doctors in getting their fees paid with cash rather than eggs or bushels of fruit.

Health insurance experienced enormous growth during the 1940s. During and right after World War II, wages were frozen by the federal government. In order to attract and keep valued employees, employers got around the prohibition of wage increases by giving employees, and their families, health insurance at a reasonable rate.

This growth was fueled even further when Congress determined that these new "employee benefits" were not income taxable to the employee. Employers could pay for health insurance and deduct the premiums as a business expense; employees were not taxed on the coverage they received. The non-profit "Blues" -- local Blue Cross and Blue Shield plans -- soon had competition from life insurance companies entering the health insurance business.

This health insurance, provided by "Blues" and for-profit insurance companies which were obtained through employers, became the standard in the United States. Insurance provided through large employers did not require proof of good health since groups of employees always included far more healthy people than sick ones. Persons without access to such group insurance still had to show they were in good health to purchase individual health insurance.

All went along pretty well until the 1960s. During that time, general inflation started increasing prices, and medical inflation increased even faster. On top of that, medical technology brought about more advanced (and more expensive) medical procedures and pharmaceutical companies developed many new (and expensive) medications. As a result, health insurance rates started rising rapidly as well. In 1970, for example, a family living in a metropolitan city could purchase a broad plan for about $30 per month for the whole family; today it is closer to $1,000 per month for a family. In 1965 Medicare went into effect and that had its own major impact on the rapidly rising medical costs.

The last quarter of the twentieth century was spent trying to control these spiraling medical costs without much success. Many believed that Health Maintenance Organizations (HMOs) would achieve that goal. There was a brief period during that time that federal law required employers over a certain size to offer an HMO alternate to any other health plan they offered.

While the HMOs were quite successful in reducing the number of days a person spent in the hospital, reining in other charges was not so easy. Just when they became effective at controlling hospital costs by reducing the length of stays, hospital charges were no longer responsible for the major portion of medical costs.

Out-patient procedures with new and expensive diagnostic machines and new and expensive medications started taking up a greater proportion of medical costs. Also, the costs of physicians continued to spiral upward as non-HMO plans continued to pay a high percentage of the "usual and customary" charges of physicians.

The advent of Preferred Provider Organizations (PPO) helped control physician fees as they limited payments to contracting (preferred) providers at set rates, while allowing insured persons to have more choice in their providers. Yet medical costs and health insurance premiums have continued to rise at a rate far above the general inflation level.

There have been some incremental changes, due almost entirely to federal legislation regarding employer provided health insurance:

  • Now, a person can obtain health insurance through his/her employer regardless of health history, medical condition, or the size of the employer. (Health Insurance Portability and Accountability Act of 1996 -- HIPAA)
  • Now, once employment ends, the former worker and his/her dependents may legally remain on the employer's plan, paying the full premium, for an additional 18-, 29-, or 36-month period, depending on the situation. Many states also allow continuation of coverage for those employees not under the federal continuation law. (COBRA and state mini-COBRA laws)
  • Now, once all possible COBRA continuation coverage ceases, the person has a guaranteed right to purchase a broad individual health policy, again regardless of health condition, and they may keep that policy indefinitely. (HIPAA)
  • Now, many states offer a high risk or pooled health insurance plan for individuals whose health prevents them from purchasing it on the open market.
  • A few (very few) states guarantee the availability of health insurance to anyone regardless of their health as long as they can afford to purchase it.

Despite these adjustments, there are almost 50,000,000 people in this country who don't have health insurance. Yet medical costs (and health insurance premiums) continue to rise. Over 15% of this country's gross domestic product is currently being spent on health care, a record that will surely be broken in each of the coming years. Neither the government nor the competition of the marketplace has been able to provide any substantial control of these increasing costs.

The cracks in health insurance are getting wider every year. Most family bankruptcies are due to medical expenses. And health insurance doesn't always help. Over 60% of those filing for bankruptcy due to medical expenses have or had health insurance. It just didn't pay enough.

The two largest medical plans, Medicare for the aged and disabled and Medicaid for low income minors and aged and disabled are currently struggling to meet the need within their financial limitations.

The cost of this healthcare delivery system has grown to become a monster that even the federal government is nervous about trying to rein in. To add to Washington's dilemma, there are those entities that are pretty comfortable with the present system. They are primarily corporations making tremendous profits under the current "system," such as pharmaceutical manufacturers, health insurance companies, and certain groups of medical providers, hospitals and durable medical equipment suppliers and manufacturers.

Physicians have historically been a part of those opposing change; however, many have found their income dropping due to reduced reimbursement of fees and strict oversight by managed care groups and are adding their voice to the demand for major changes.

So Congress is in between an ever angrier population demanding major reform and very wealthy corporations who are willing to spend millions to sway opinions. I'm not optimistic about who they are listening to.

Many argue against a single payer plan, although most countries with such plans cover a greater percentage of their population for less cost. Medicare is one of the largest providers of health insurance and it is able to cover claims with administrative costs of less than 5% of claims with no offset for profit, compared to the 10 to 20% that insurance companies charge. Those who resist "government's involvement" in health care don't seem to realize that between federal employee health plans, Medicare, Medicaid, and military and veteran's health programs, the federal government pays for almost 70% of all medical costs now.

The health insurance industry and its allies drag out the scary term "socialized medicine" even though there has been absolutely no attempt or even discussion of all medical providers becoming government employees, which would be a requirement for medicine to become "socialized."

They ask: "Do you want a government bureaucrat standing between you and your doctor?" Well, how many people today, when getting medical care, don't have an insurance overseer standing between them and their provider, an overseer who is looking at company profits as much or more than at your well-being?

Which direction do you think they will go? Which direction do you want it to go? Can voters make a difference against the highly paid lobbyists and the money they throw at Congress? If it weren't so important to the health of this country's population and its future economy it would be fun to sit and watch.

Jacques Chambers, CLU, is a Benefits Counselor in private practice with over 35 years experience in health, life and disability insurance and Social Security disability benefits. He can be reached by phone at 323.665.2595, by e-mail at, or through his Web site at

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This article was provided by Being Alive. It is a part of the publication Being Alive Newsletter. Visit Being Alive's website to find out more about their activities, publications and services.
See Also
U.S. Health Care Reform

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