Paying for Medical Care in the United States 9780231887823

Studies the methods used by the people of the United States in paying for medical care to identify and examine the sourc

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A: Medical Aid Provided by Workmen’s Compensation Laws, with Their Effective Dates
B: Supplementary Tables
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Paying for Medical Care in the United States

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Oscar IV. Serbein, Jr.


Columbia University Press


Library of Congress Catalog Card Number: 53-12029


Published in Great Britain, Canada, India, and Pakistan by Geoffrey Cumberlege, Oxford University Press London, Toronto, Bombay, and Karachi Manufactured in the United States of America


In February, 1951, Columbia University, under a grant from the Health Information Foundation, established the Medical Payments Project to study the methods used by the people of the United States in paying for medical care. The objectives of the research were to identify and discuss the sources of funds used by the public to defray medical expenses; to evaluate these methods; and to consider the possibilities for the further development of the current methods of paying for medical care. The scope of the research defined by the contract between Columbia University and Health Information Foundation did not include the gathering of new data. The responsibility of the research staff was to collect, analyze, and evaluate the available material on medical payments. Generally the data gathered by the research staff related to the year 1951, although in many instances more recent information was used. Throughout the book the discussion is limited to the phenomenon of illness and to the methods of paying for its treatment. Payments designed to replace lost income resulting from time lost as a result of illness are not considered. Insurance carried for this purpose may in some manner be used for paying for medical care, but the extent is not known. The author is indebted to Admiral W. H. P. Blandy, president, Kenneth Williamson, vice-president and secretary, Odin W . Anderson, director of research, and other members of the Health Information Foundation for their support and interest in the problems connected with the study. A report of this magnitude could not be prepared without the advice and help of many persons. The author's research assistants, Dale L. Hiestand and Leonard M. Wilson, prepared many of the tables and research memoranda that have provided the basis for certain of the chapters. The manuscript typing, filing, and cataloguing of materials was



the responsibility at various times of Mary Crew Westlake, Marilyn Shrank Grubbs, Helen Farmakis, Agnes Lister, and Vivian Messines. Professor Ralph H. Blanchard of the Graduate School of Business of Columbia University served as an adviser and editorial consultant. Dr. Louis I. Dublin, formerly second vice president and statistician of the Metropolitan Life Insurance Company, served as an adviser and consultant throughout the term of the research. Dr. Herbert Klarman of the Hospital Council of Greater New York served in an advisory capacity until November, 1951. The author is also indebted to Philip Young, formerly dean, and David L. Dodd, formerly associate dean, of the Graduate School of Business of Columbia University for their help in making the necessary adjustments in the author's classroom schedules. Professor Eli Ginzberg of the Graduate School of Business advised the author in the initial phases of the research. Many other persons have been helpful at various stages of the research and have made worthwhile suggestions. These people are listed in the Acknowledgments which follow this Preface. The author is particularly grateful to his wife, Alice M. Serbein, for help with reading of proofs, for a critical reading of the material on nursing, and for her interest and encouragement. OSCAR N . SERBEIN, JR.

Collins, Iowa September 4, 1953


Members of the Advisory Committees of Health Information Foundation: Henry S. Beers, Vice President, Aetna Life Insurance Co., Hartford, Conn. J. D. Colman, Vice President, Johns Hopkins University, Baltimore, Md. E. J. Faulkner, President, Woodmen Accident Co., Lincoln, Neb. F. L. Feierabend, M.D., Kansas City, Mo. Charles G. Hayden, M.D., Executive Director, Massachusetts Medical Service, Boston, Mass. Leslie P. Hemry, Vice President and General Counsel, American Mutual Liability Insurance Co., Boston, Mass. Richard M. Jones, Director, Blue Cross Commission, Chicago, 111. William S. McNary, Executive Vice President, Michigan Hospital Service, Detroit, Mich. M. C. Nichols, Vice President, Provident Life and Accident Insurance Co., Chattanooga, Tenn. L. Howard Schriver, M.D., Cincinnati, Ohio. I. M. Sheffield, Jr., Executive Vice President, Life Insurance Co. of Georgia, Atlanta, Ga. Frank E. Smith, Director, Blue Shield Medical Care Plans, Chicago, ΠΙ. J. Henry Smith, Vice President and Associate Actuary, The Equitable Life Insurance Society of the United States, New York, Ν. Y. James E. Stuart, Executive Director, Hospital Care Corporation, Cincinnati, Ohio. E. A. Van Steenwyk, Executive Director, The Associated Hospital Service of Philadelphia, Pa. The following people have discussed with the director various problems connected with the Columbia project and have made helpful suggestions:



James Andrews, Life Insurance Association of America, New York, N . Y.

George Baehr, M.D., Health Insurance Plan of Greater New York, New York, N. Y. E. Dwight Barnett, M.D., Director, Institute of Administrative Medicine, College of Physicians and Surgeons, Columbia University, New York, N. Y. James R. Barron, Kings County Medical Service Corporation, Seattle, Wash. J. J. Bates, Chief Group Underwriter, Prudential Life Insurance Co., Newark, N. J. Walter E. Boek, formerly Director of Research, Health Information Foundation, New York, N. Y. Agnes W . Brewster, Medical Economist, Division of Research and Statistics, Federal Security Agency, Washington, D. C. Brooks Chandler, Secretary, Group Department, Provident Life and Accident Insurance Co., Chattanooga, Tenn. Martin Cherkasky, M.D., Director, Montefiore Hospital, New York, N. Y. Deai^A. Clark, M.D., General Director, Massachusetts General Hospital, Boston, Mass. Selwyn D. Collins, Chief, Morbidity and Health Statistics Branch, Division of Public Health Methods, U. S. Public Health Service, Washington, D. C. Helen Connors, American Nurses Association, New York, N. Y. Curtis F. Culp, M.D., Director of Medical Care, National Foundation for Infantile Paralysis, Inc., New York, N. Y. Francis T. Curran, Supervisor, Commercial Insurance Co. of Newark, Newark, N. J. George H. Davis, Assistant Actuary, Life Insurance Association of America, New York, N. Y. Edward Daily, M.D., Health Insurance Plan of Greater New York, New York, N. Y. Stanley de Lisser, Johnson and Higgins, New York, N. Y. Frank G. Dickinson, Director, Bureau of Medical Economic Research, American Medical Association, Chicago, 111. Robert Dixon, Connecticut General Life Insurance Co., Garden City, N. Y.



Haven Emerson, M.D., Professor Emeritus, School of Public Health, College of Physicians and Surgeons, Columbia University, New York, Ν. Y.

Jarvis Farley, Secretary and Treasurer, Massachusetts Indemnity Insurance Co., Boston, Mass. Foster Farrell, Director, National Fraternal Congress of America, Chicago, 111. Frederick Flach, M.D., formerly of the Institute of Administrative Medicine, College of Physicians and Surgeons, Columbia University, New York, Ν. Y. Leonard Goldwater, M.D., School of Public Health, Columbia University, New York, Ν. Y. Arthur Harlow, Group Health, Inc., New York, Ν. Y. Charles G. Hayd, M.D., President, United Medical Service, New York, Ν. Y. B. J. Helphand, Associate Actuary, Pacific Mutual Life Insurance Company, Los Angeles, Calif. Abner Hurwitz, Chief, Cost of Living Branch, Division of Prices and Cost of Living, Bureau of Labor Statistics, Washington, D. C. Ford Hutchinson, California Physicians' Service, San Francisco, Calif. Benjamin B. Kendrick, Research Associate, Life Insurance Association of America, New York, Ν. Y. W . Duane Kirk, Industrial Hospital Association, Portland, Ore. Margaret C. Klem, Division of Occupational Health, U. S. Public Health Service, Washington, D. C. C. A. Kulp, Head, Department of Insurance, University of Pennsylvania, Philadelphia, Pa. Hugh Leavell, M.D., Harvard School of Public Health, Boston, Mass. Howard J. LeClair, Vice President, Mutual Benefit Health and Accident Association, Omaha, Neb. Gordon F. Lee, Hospital Service of Southern California, Los Angeles, Calif. H. Clifford Loos, M.D., Ross-Loos Medical Group, Los Angeles, Calif. Fred A. McNamara, Bureau of the Budget, Washington, D. C. Henry Makover, M.D., Central Manhattan Medical Group, New York, Ν. Y.

Kenneth G. Manning, Oregon Physicians' Service, Portland, Ore. Eugene L. Martin, Executive Director, Medical Mutual of Cleveland, Inc., Cleveland, Ohio.


Acknowledgments John Η. Miller, Vice President and Actuary, Monarch Life Insurance Co., Springfield, Mass. Selma J. Mushkin, Division of Public Health Methods, U. S. Public Health Service, Washington, D. C. L. A. Orsini, Bureau of Accident and Health Underwriters, New York, Ν. Y.

C. O. Pauley, Managing Director, Health and Accident Underwriters Conference, Chicago, 111. G. St. J. Perrott, Chief, Division of Public Health Methods, U. S. Public Health Service, Washington, D. C. F. Ruth Phillips, Division of Public Health Methods, U. S. Public Health Service, Washington, D. C. Albert Pike, Jr., Actuary, Life Insurance Association of America, New York, Ν. Y. James Powell, Vice President, Provident Life and Accident Insurance Co., Chattanooga, Tenn. Robert Rennie, Farm Bureau Insurance Companies, Columbus, Ohio. George Rosen, M.D., School of Public Health, Columbia University, New York, Ν. Y. Anthony Rourke, M.D., Director of the Hospital Council of Greater New York, New York, Ν. Y. Evan Keith Rowe, Bureau of Labor Statistics, U. S. Department of Labor, Washington, D. C. Lambert G. Schulze, Group Department, Provident Life and Accident Insurance Company, Chattanooga, Tenn. Charles A. Siegfried, Associate Actuary, Metropolitan Life Insurance Co., New York, Ν. Y. De Witt H. Stern, President, Accident and Health Association, New York, Ν. Y. George Tractenberg, Group Health Insurance, Inc., New York, Ν. Y. Esther R. Tume, Registrar, Ross-Loos Medical Group, Los Angeles, Calif. Julius L. Ullman, Executive Vice President, W . L. Perrin and Sons, Inc., New York, Ν. Y. Helen Wallace, M.D., Department of Health, New York, Ν. Y. William Wandel, Farm Bureau Insurance Companies, Columbus, Ohio. Leon Werch, Director of Research, Research Council for Economic Security, Chicago, 111.



Theodore D. Woolsey, Division of Public Health Methods, U. S. Public Health Service, Washington, D. C. Harry Zuzanne, Associated Hospital Service of New York, New York, N. Y. The following organizations helped the director by supplying materials for the study: American Dental Association American Medical Association American Nurses Association Blue Cross Commission Blue Shield Commission Brookings Institution Bureau of Accident and Health Underwriters Commission to Study the Costs of Hospital Care Cooperative Health Federation of America Department of Commerce Department of Labor Federal Security Agency Health and Accident Underwriters Conference Life Insurance Association of America National Bureau of Economic Research National Fraternal Congress of America President's Commission on the Health Needs of the Nation Research Council for Economic Security United States Public Health Service Grateful acknowledgment is made to the following publishers and organizations for granting permission to use copyrighted material: American Medical Association Brookings Institution Chilton Company Council of State Governments Harper and Brothers Macmillan Company National Industrial Conference Board





Research in Payment for Medical Care


Source Materials and Techniques Used for the Study



T h e Problem of Health


Prevalence of Illness

17 22

Medical Resources


T h e Cost of Illness Meeting the Costs of Illness






T h e Nature of Prepayment Plans Commercial Medical Care Insurance

75 80

Blue Cross


Blue Shield Comprehensive Plans


Medical Care Required by Law Other Prepayment Plans


Recent Developments in Extension of Coverage Legal Aspects of Prepayment Plans PART JV.



156 175 179 190


T h e Role of Business in Providing Medical Care


Business Medical Care Programs



Contents PART V:



Outline of Governmental Activities in Providing Medical Care The Federal Government in Medical C a r e Direct Provision The Federal Government in Medical Care— Grants-in-Aid Federal Government Provisions for Research, Education, and Construction of Facilities State Governments in Medical Care Local Governments in Medical Care Environmental and Other Health Services PART VI:






255 268 278 290 306

313 319


Prepayment Plans Non-prepayment Methods PART IX:



Prevention of Accidents Prevention of Disease PART VIII:



Special Groups Auxiliary Services and Dental Care PART VII:





Medical Care Medical Care Programs Enrollment in Prepayment Plans

363 369 376


A: B:

Medical Aid Provided by Workmen's Compensation Laws, with Their Effective Dates Supplementary Tables


395 407 499 527


1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

17. 18. 19.

Estimated Prevalence of Chronic Diseases in the United States, 1937 Rates of Illness According to Several Measures Number of Persons with Jobs but Not at Work because of Illness during Survey Weeks, 1950-1952 (In Thousands of Persons) Number and Distribution of Physicians Number of Physicians per 100,000 Population in Designated Geographic Areas of the United States Number of Dentists in Independent Practice in the United States (In Thousands) Number of Dentists, by Regions, 1948 Distribution of Active Professional Registered Nurses, by Fields of Nursing, 1949 Health Personnel Other than Physicians, Dentists, and Nurses Growth in Number of Hospitals Summary of Hospital Data According to Type of Service, 1950 Hospital Service Classified by Control, 1950 Number of Medical and Dental Schools and Number of Graduates Personal Consumption Expenditures in the United States for Medical Care (In Billions of Dollars) Percentage Distribution of Expenditures for Medical Care in the United States Consumers' Price Index and Price Indexes for Medical Care for Moderate-Income Families in Large Cities, 1949-1951 (19351939=100) Income Loss Due to Nonoccupational Illness in the United States (In Millions of Dollars) Income and Expenditures for Hospitalization and Medical Benefits of Voluntary Insurance, 1951 (In Millions of Dollars) Administrative and Other Expenses of Voluntary Hospital and Medical Insurance, 1951 (In Millions of Dollars)

24 27 29 33 34 35 36 36 39 40 41 43 44 48 49

53 56 58 59

xvi 20. 21. 22. 23. 24. 25. 26. 27. 28.

29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39.

40. 41. 42. 43. 44. 45. 46. 47. 48. 49.

Tables Private Expenditures for Medical Care, by Source of Funds (In Millions of Dollars) Data Relative to Percent of Loans Made by Certain Companies for Medical Care Total Workmen's Compensation Benefit Payments (In Millions of Dollars) Types of Industrial Medical Services, 1936-39 Percent of Establishments with Specified Health Personnel and Services Per Capita Cost of In-Plant Health Services, 1949 Per Capita Cost of Health, Medical, and Safety Programs, 1950 Medical Care Expenditures by the Federal Government (In Millions of Dollars) Estimated Expenditures from Public Assistance Funds for Medical Care of Recipients of Assistance, by Program, for the Fiscal Year Ended June 30, 1951 (In Millions of Dolían) Governmental Expenditures for Health and Medical Services, 1951 (In Millions of Dollars) Daily Hospital Benefits Available under 107 Commercial Insurance Contracts for Hospital Expense Hospital Coverage in the Primary Period Number of Days of Extended Benefit Limits on Hospital Extras Maximum Allowance for an Ambulance Provision for Care in the Hospital Outpatient Department or by a Physician or Surgeon in Case of Accident Daily Cash Payment for Nursing Care Coverage for Nursing Care Maternity Benefits Provided by 83 Contracts Summary of Distribution of Fees for Eight Procedures in Commercial Insurance Surgical Contracts, According to the Maximum Fee Payable in the Contract Fees per Call in 23 Commercial Insurance Contracts for Medical Expense in and out of the Hospital Maximum Benefits Given by 23 Commercial Insurance Contracts for Medical Expense in and out of the Hospital Daily Hospital Benefits for Employees, 1949 Maximum Duration of Hospital Benefits for Employees, 1949 Maximum Surgical Benefit Allowed for Employees, 1949 Beginning Age for Children's Coverage in 107 Contracts Age at Which Coverage of Child Changes in 107 Contracts Age Limits on Adults in 107 Commercial Insurance Contracts for Hospital Expense Exclusions, Waiting Periods, and Other Limitations in 107 Commercial Insurance Contracts for Hospital Expense, by Condition Beginning Age for Children's Coverage in 64 Contracts

60 62 63 64 65 65 66 68

70 71 83 85 86 87 88 88 89 89 90

92 96 97 98 99 101 105 105 106 108 109

50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81.



Age at Which Coverage for Children Changes in 64 Contracts Age Limits for Adults in 64 Surgical Contracts Exclusions, Waiting Periods, and Other Limitations in 64 Commercial Insurance Contracts for Surgical Expense, by Condition Exclusions, Waiting Periods, and Other Limitations in 23 Commercial Insurance Contracts for Medical Expense in and out of the Hospital, by Condition Selling Prices of Croup Medical Insurance (Based on Assumption That 35 Percent of Coverage Is on Female Employees) Selling Prices for Combined Coverage in a Group Contract for an Individual and His Family Daily Benefits of 86 Contracts Providing Cash Payment Full Benefit Days Provided by 195 Group Contracts Daily Benefit of Partial Benefit Period in 80 Contracts Partial Benefit Days Provided by 80 Contracts Hospital Extras Provided by 195 Group Contracts Partial Benefit Period Extras Provided by 77 Contracts Maternity Benefits Provided by 195 Contracts Nursery Benefits Provided by 195 Contracts Limitations Specified in 195 Contracts Waiting Periods Specified in 195 Group Contracts Full Benefit Days Provided by 101 Individual Contracts Daily Benefit Provided during Partial Period in 42 Contracts Partial Benefit Days Provided by 42 Contracts Hospital Extras Provided by 101 Individual Contracts Maximum Maternity Benefits Provided by 82 Contracts Waiting Periods Imposed by Individual Contracts General Information on 69 Blue Shield Plans, February, 1952 Income Limits for Service Benefits for Blue Shield Plans That Offer Partial Service Contracts, bv Tvpe of Contract, February, 1952 Analysis of Surgical Fee Schedules in 45 Plans Providing Service and Cash Payment, February, 1952 Analysis of Surgical Fee Schedules in 19 Cash Payment Plans, February, 1952 Comparative Analysis of Fee Schedules in Service-Cash Payment Plans and Cash Payment Plans, February, 1952 Number of Days or Visits for Which In-Hospital Physician Care Benefits Were Provided, February, 1952 Total Dollar Maximum for Physicians' Calls per Illness, February, 1952 Number of Days or Visits for Which In-Hospital Physician Care Benefits Are Provided on a Cash Payment Basis, February, 1952 Total Dollar Maximum for In-Hospital Physician Care Benefits on a Cash Payment Basis, February, 1952 Provision for Extra Benefits by Blue Shield Plans, February, 1952

109 110 111 113 116 116 121 122 123 124 124 125 125 126 126 127 128 129 130 130 131 132 137 140 143 144 144 146 147 148 149 151




Blue Shield Monthly Premium Rates for One-Person Contracts Issued on a Group Basis, by Type of Coverage, January 1, 1952 Blue Shield Premium Rates for Family (Group) Contracts, by Type of Coverage, January 1, 1952 Monthly Premium Rates for H.I.P. Subscribers, 1952 Analysis of Reported Premiums for the Subscriber in Relation to Premiums for the Family, December 31, 1949 Enrollment on an Individual Basis for Hospital, Medical, Surgical, and Nursing Coverages in Eight Fraternal Societies, December 31, 1950 Comparison of In-Plant and Out-of-Plant Medical Sen'ices (In Percentage) Percentage of Workers in Surveyed Plants to Whom Specified Health Services Are Available, by Industry or Service Groups Number and Membership of 149 Independent Industrial Plans, December 31, 1949 Distribution of Members in 149 Industrial Plans, by Type of Medical Care and Type of Plan, December 31, 1949 Percentage of Companies in Manufacturing Industries with Prepaid Health Plans, 1950 Expenditures of the Medical Program of the United Mine Worken of America Welfare and Retirement Fund Hospitalization Benefits in the Airframe Industry, 1950 Surgical Benefits in 19 Plans in the Airframe Industry, 1950 Hospitalization Cash Benefit Provided in 29 Commercially Insured Employee-Benefit Plans, 1947 Group Hospitalization Insurance: Distribution of Hospitalization Plans and of Employees Covered in 61 Employee-Benefit Plans in the Petroleum Industry, by Amount of Daily Benefit and Maximum Duration of Benefits for Employees and Dependents, 1950 Surgical Benefits in 54 Employee-Benefit Plans in the PetroleumRefining Industry Active-Dutv Medical Personnel in the Armed Forces, June 30, 1950 ' Average Daily Patient Load in Armed Forces Hospitals VA Patients in VA and Non-VA Hospitals, by Type of Medical Service and Disability, June 30, 1951 Average Monthly Turnover Rates, Veterans' Administration Patients, by Type Average and Median Length of Hospital Stay for Veterans' Administration Dispositions, by Type of Patient and Period of Service, 1950 Hospital Facilities of the Bureau of Indian Affairs in Continental United States Services Provided by the Venereal Disease Program

83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96.

97. 98. 99. 100. 101. 102. 103. 104.

153 154 162 169 178 202 204 206 207 209 214 216 218 219

220 223 236 237 241 242 242 245 258

Tables 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128.


Number of Chest X Rays Taken in the Tuberculosis Program 259 Medical Services of the Cancer Control Program (Related to Federal Grants-in-Aid) Provided by States and Territories, 1952 261 Research Grants of the National Institutes of Health: Number and Amount Approved for Payment, 1951 270 Projected Budget for Clinical Research Center, National Institutes of Health, 1954 (In Thousands of Dollars) 271 Number of Awards for Research Fellowships, Training Stipends, and Teaching Grants Which Were Approved for Payment, National Institutes of Health, 1951 274 Cumulative Totals of Projects, in Various Stages, of the HillBurton Program 276 Number of Projects and Number of Beds in Approved Hill-Burton Projects, by Type of Project—Cumulative Totals to December 31, 1951 276 Number of Different Types of Agencies Providing Personal Health Services in the 48 States, 1950 281 State Hospital Service, 1951 285 First Admissions to State Mental Hospitals in the United States 286 First Admissions to State Hospitals for Mental Disease in the United States, 1946 287 Approximate Total and Per Capita Annual Expenditures for Health Activities by All Official Agencies of Each State, Fiscal Year, 1949 288 Local Government Hospital Service in the United States, 1951 291 Local Health Jurisdictions with Clinical Centers, December 31, 1950 293 Local Health Jurisdictions Having Designated Types of Health Services Provided by Official Health Agencies, Other Official Agencies, and Voluntary Agencies, December 31, 1950 295 Number of Health Departments Providing Specified General Medical Services, 1950 297 Types of General Medical Services Provided by County Health Departments in Maryland, 1950 299 Volume of Service Provided under the Maryland Program 301 Disbursements of the Medical Service Board of Shawnee County Medical Society, 1951 302 Expenditures by Departments for the Indigent of Newark, New Jersey, 1950 303 Costs per Eligible Person for Medical Assistance in Cascade County, Montana, during July, 1952 305 Number and Types of State Agencies Performing General and Environmental Health Activities in the 48 States 307 Ownership of Hospitalization Insurance by the Aged Population, March, 1952 314 Methods of Paying Hospital Bills in 1951 by the Noninstitu-


129. 130. 131. 132. 133. 134. 135. 136.

137. 138. 139. 140. 141. 142. 143. 144. 145. 146. 147. 148. 149. 150. 151.

Tables tionalized Population Aged 65 and Over in March, 1952 (In Percent) Principal Accidental Causes of Death in the United States, 1949 Automobile Accidents and Injuries, 1952 Number of Deaths from Home Accidents in the United States, by Activity of the Person and Agency Involved, 1951 Estimates of Injuries and Deaths from Occupational Accidents in the United States, by Industry Group, 1951 Injury Rates in Manufacturing Plants, by Size of Plant, 1951 Estimated Number of Persons Having Medical Care Insurance, by Type of Insurance and Type of Carrier, 1939 and 1944-1951 Number of People Protected by Hospital, Surgical, and Medical Expense Coverage, 1951 Number of Persons Covered by All Types of Hospital, Surgical, and Medical Expense Insurance or Prepayment, 1940-1951 (In Millions of Persons) Percent of the Population Covered by Hospital, Surgical, and Medical Expense Insurance or Prepayment, 1940-1951 Annual Changes in Percent of Population Covered by Hospital, Surgical, and Medical Protection, 1940-1951 Trend Values for Percent of Population and Number of Persons Covered by Hospital Insurance, 1940-1960 Trend Values for Percent of Population and Number of Persons Covered by Surgical Insurance, 1940-1960 Lead-Lag Relationship for Percent of Population Insured for Hospital and Surgical Expense, 1940-1951 Lead-Lag Relationship for Percent of Population Insured for Surgical and Medical Expense, 1940-1951 Number of Persons in and out of the Labor Force, 1950 Census Paid Employment in All Industries, by Size of Firm, March 31, 1948 The Labor Force and Its Distribution in Small Employee Groups, 1950 Average Cost of Hospitalized Illness, by Type of Case and Source of Charge Waiting Periods in 107 Commercial Insurance Contracts for Hospital Expense, by Condition Waiting Periods in 64 Commercial Insurance Contracts for Surgical Expense, by Condition Waiting Periods in 23 Commercial Insurance Contracts for Medical Expense in and out of the Hospital, by Condition Age Qualifications for Adults in 24 Commercial Insurance Contracts for Medical Expense in the Hospital Waiting Periods and Exclusions in 24 Commercial Insurance Contracts for Medical Expense in the Hospital, by Condition

315 326 327 328 328 329 377 378

379 380 382 383 384 385 386 387 389 390 407 408 409 410 411 412

Tables Waiting Periods in 24 Commercial Insurance Contracte for Medical Expense in the Hospital, by Condition 153. Distribution of Blue Cross Plans, by State 154. Group Blue Cross Contracts Offered by 80 Plans, January, 1952 155. Emergency Outpatient Service Provided by 195 Contracts 156. Non-emergency Outpatient Services Provided by 195 Contracts 157. Anesthesia Supplies Provided by 195 Contracts 158. Anesthesia Personnel Provided by 195 Contracts 159. Basal Metabolism Tests Provided by 195 Contracts 160. Oxygen Provided by 195 Contracts 161. X Rays Provided by 195 Contracts 162. Electrocardiograms Provided by 195 Contracts 163. Physical Therapy Provided by 195 Contracts 164. Routine Drugs and Medicines Provided by 195 Contracts 165. Routine Laboratory Services Provided by 195 Contracts 166. Outpatient Service Provided by 101 Contracts 167. Anesthesia Supplies Provided by 101 Contracts 168. Anesthesia Personnel Provided by 101 Contracts 169. Oxygen Provided by 101 Contracts 170. Basal Metabolism Tests Provided by 101 Contracts 171. Electrocardiograms Provided by 101 Contracts 172. X Rays Provided by 101 Contracts 173. Physical Therapy Provided by 101 Contracts 174. Drugs and Medicines Listed in 101 Contracts 175. Routine Laboratory Services Provided by 101 Contracts 176. One-Person Monthly Rates for Group Blue Cross Contracts 177. Family Rates per Month for Group Blue Cross Contracts 178. Single-Person Premiums for Individual Contracts 179. Family Premiums for Individual Contracts 180. Non-group as Compared with Group Enrollment in Surgical Contracts of 69 Blue Shield Plans, February, 1952 181. Extra Benefits Provided by Blue Shield Plans, February, 1952 182. Restrictions on Surgical Benefits, by Type of Illness, in 69 Blue Shield Plans, February, 1952 183. Restrictions on In-Hospital Medical Care Benefits, by Type of Illness, in 53 Blue Shield Plans, February, 1952 184. Restrictions on General Medical Care, by Type of Illness, in 11 Blue Shield Plans, February, 1952 185. Waiting Periods for Surgical Care Specified by Blue Shield Plans, by Type of Illness, February, 1952 186. Waiting Periods for In-Hospital Medical Care Specified by Blue Shield Plans, by Type of Illness, February, 1952 187. Waiting Periods for General Medical Care Specified by Blue Shield Plans, by Type of Illness, February, 1952



413 414 415 416 416 416 417 417 417 418 418 418 419 419 420 420 421 421 421 422 422 422 423 423 424 424 425 425 426 427 431 432 433 434 435 436

xxii 188.


Distribution of Percentage Increases in Premium Rates for Similar Surgical Contracts upon Conversion from Group Coverage for 64 Blue Shield Plans, February, 1952 436 189. Distribution of Percentage Increases in Premium Rates for Nongroup and Group Enrollment for Similar Surgical Contracts of 46 Blue Shield Plans, February, 1952 437 190. Individual and Family Contracts Providing Protection Against Catastrophic Illness 438 191. Group Insurance Contracts Providing Protection Against Catastrophic Illness for Employees and Their Families 439 192. Obligations Incurred by the Division of Hospitals and Medical Care, United States Public Health Service 440 193. Number of Persons Treated and Amount of Treatment for Beneficiaries of the Division of Hospitals and Medical Care, United States Public Health Service, 1948 442 194. Average Daily Patient Load and Annual Total Outpatient Visits, United States Public Health Service Hospitals 444 195. Veterans' Administration Hospitals and Bed Capacity 445 196. Percentage Distribution of Operating Veterans' Administration Hospital Beds and of United States Population, by Region 446 197. Cost of the Veterans' Administration Medical Care Program (In Thousands of Dollars) 447 198. Veterans' Administration Hospitals, by Type and State, June 30, 1951 448 199. Bed Capacity of Veterans' Administration Hospitals, by Type and State, June 30, 1951 449 200. Medical Care Expenditures of the Department of Defense (In Thousands of Dollars) 450 201. Medical Expenditures of the Department of the Navy, by Activity (In Thousands of Dollars) 451 202. Obligations Incurred by Division of Venereal Disease Control, United States Public Health Service 452 203. Obligations Incurred by Division of Tuberculosis Control, United States Public Health Service 454 204. Obligations Incurred by the National Cancer Institute, United States Public Health Service 455 205. Obligations Incurred by the National Heart Institute, United States Public Health Service 456 206. Obligations Incurred by the National Institute of Mental Health, United States Public Health Service 457 207. Obligations Incurred by the National Institute of Dental Research, United States Public Health Service 458 208. Obligations Incurred for General Assistance to States, United States Public Health Service 459 209. Maternal and Child Health Services Administered or Supervised by State Health Agencies, by Type of Service 460

Tables 210. 211. 212. 213. 214. 215. 216. 217. 218. 219. 220. 221. 222.




226. 227. 228.


Services for Crippled Children Provided or Purchased by Official State Agencies 462 Obligations Incurred by the Children's Bureau 463 Obligations Incurred by the Office of Vocational Rehabilitation 464 Expenditures for Vocational Rehabilitation by State Agencies 466 Expenditures from Both Federal and State Funds for Medical and Other Case Services Purchased in Vocational Rehabilitation Programs 467 Number of Clients and Average Cost per Client for Specific Medical Services in the Federal-State Vocational Rehabilitation Program 468 Direct Obligations Incurred for Grants to Research Projects and for Direct Research by the National Institutes of Health 469 Obligations Incurred for Control of Communicable Diseases, United States Public Health Service 471 Obligations Incurred for Research Fellowships, Training Stipends, and Teaching Grants in the Grant Program of the National Institutes of Health 472 Number of Persons Receiving Accredited and Nonaccredited Training Sponsored by State Health Departments during Fiscal Year 1951, by Specialized Field in Which Training Was Given 474 Number of Persons in Designated Professions Receiving Accredited and Nonaccredited Training Sponsored by State Health Departments during Fiscal Year 1951 475 Allocations and Obligations of the Hill-Burton Program, United States Public Health Service 475 Selected Medical Services Provided in Various Programs of State Health Authorities, by Number of States Participating and Number of States Assigning Major Emphasis to Activity 476 Earned Income, Benefits, and Gross Cost for Voluntary Hospitalization and Medical Care Insurance, by Type of Insurance Carrier or Plan, 1950 (In Millions of Dollars) 482 Benefits Paid out as a Percentage of Income for Voluntary Hospitalization and Medical Care Insurance, by Type of Insurance Carrier or Plan 483 Payments to Hospitals, Operating Expenses, and Additions to Reserve Funds as Percent of Total Income and Total Earned Subscription Income of Blue Cross Plans in the United States and Puerto Rico and in Canada 483 Hospital Benefits as Percent of Total Earned Subscription Income, by Plan Size, for 84 Blue Cross Plans in the United States, 1950 485 Operating Expense as Percent of Total Earned Subscription Income, by Plan Size, for 84 Blue Cross Plans in the United States, 1950 486 Net Operating Income as a Percent of Total Earned Subscription

xxiv 229. 230. 231.

232. 233. 234. 235. 236. 237.

Tables Income, by Plan Size, for 84 Blue Cross Plans in the United States, 1950 Operating Expense per Certificate, by Size of Plan, for 90 Blue Cross Plans in the United States, Puerto Rico, and Canada, 1950 Operating Expense per Participant for 90 Blue Cross Plans in the United States, Puerto Rico, and Canada, by Size of Plan, 1950 Medical and Surgical Benefits, Operating Expense, Net Operating Income, and Additions to Reserve Funds as Percent of Total Income and Total Earned Subscription Income of Blue Shield Plans in the United States and Possessions and Canada Medical-Surgical Benefits as Percent of Total Earned Subscription Income, by Plan Size, for 66 Blue Shield Plans in the United States, 1951 Operating Expense as Percent of Total Earned Subscription Income, by Plan Size, for 67 Blue Shield Plans in the United States, 1951 Net Operating Income as a Percent of Total Earned Subscription Income, by Plan Size, for 66 Blue Shield Plans in the United States, 1951 Losses Incurred as a Percent of Premiums Earned on Non-group Hospital and Medical Expense Policies of 124 Insurance Companies, by Size, 1950 Comparison of Three Estimates of Benefits, Claim Expense, and Losses Incurred as a Percent of Premiums Earned in Individual Hospital and Medical Expense Insurance Income and Benefit Payment Relationships of 251 Independent Plans in the United States, 1949

487 488 489

490 491 492 493 494 495 496







Problems associated with paying for medical care have been the subject of much investigation and discussion, particularly in the last twenty-five years. A review of the literature revealed that a number of studies had been published and that several were in progress and in various stages of completion. Of the earlier studies the most complete was the monumental work of the Committee on the Cost of Medical Care. This committee, which consisted of fifty members, represented the various fields of professional activity interested in medical affairs. The chairman of the committee was Ray Lyman Wilbur. Financial support was provided by eight private research foundations. The results of the research of the committee were published from 1928 to 1931, inclusive, and consisted of twenty-eight pamphlets and books covering every aspect of medical care. The final report, Medical Care for the American People, was adopted on October 31, 1932, and served as a summary of the committee's very thorough work and conclusions. Between 1932 and 1950 two major projects in the health field were completed. The first of these, The National Health Survey, organized as a Works Progress Administration project under the direction of the United States Public Health Service, was carried out during the winter of 1935-1936. The survey was based for the most part on 703,092 households located in 83 cities. It was exploratory in character, and much of


Sources and Research Methods

the statistical work was not of the sort that could be used for inferential purposes. The second project was accomplished by the National Health Assembly in Washington, D.C., during the summer of 1948. At this meeting the opinions of a large number of health experts were sought on the problem of the nation's health. The final report of the assembly, America's Health, was broad and was not confined to methods for paying for medical care. In addition to these major research projects, many smaller studies have been conducted over the years. Louis S. Reed's monograph, Blue Cross and Medical Service Plans, published in 1947, was a thorough study of Blue Cross plans and independent medical plans. Franz Goldmann prepared several studies on the economics of medical care, the most extensive being Voluntary Medical Care Insurance in the United States, which was published in 1948. A number of governmental agencies, principally the Department of Commerce, the Department of Labor, and the Federal Security Agency, have collected and published data on medical care insurance and expenditures for medical care. Most of this material has appeared in the Survey of Current Business, the Monthly Labor Review, and the Social Security Bulletin. Frank G. Dickinson of the American Medical Association published several articles in which he analyzed the Department of Commerce figures on medical care expenditures. Most of the older studies were not exclusively concerned with the methods of paying for medical care. Much space was devoted to the incidence of illness, the cost of medical care, the need for medical treatment, and the distribution of medical resources. Since 1950 three studies have been published that have been concerned either entirely or to a large extent with methods of paying for medical care. Of the recent studies the first to be published was the report of the Committee on Labor and Public Welfare of the United States Senate. The research for this publication was directed by Doctor Dean A. Clark, director of the Massachusetts General Hospital. Bearing the title, Health Insurance Plans in the United States, the research findings were published in three parts. Part One, comprising seven chapters, plus appendices, provides a detailed summary of findings and a thorough discussion of such subjects as insurance costs, benefits, and number of persons insured. Part Two contains a collection of reports submitted to Doctor Clark's staff by the Blue Cross Commission, the Blue Shield Commission, private insurance companies, and other groups. Part Three deals, quite briefly, with the activities of the federal, state, and local governments in the field of health services.

Research in Payment for Medical Care Following the publication of the Clark report, two shorter studies were published. One of these was prepared by Agnes Brewster of the Federal Security Agency, and the other by Emily Huntington of the University of California at Berkeley who directed the research for the Heller Committee for Research in Social Economics. The Brewster report, Independent Plans Providing Medical Care and Hospitalization Insurance in 1949 in the United States, dealt with agencies other than Blue Cross, Blue Shield, and private insurers. The Huntington report, Cost of Medical Care, discussed the expenditures for health care by a group of moderate-income, wage-earning families in the San Francisco East Bay area. Three other reports published in 1951 and 1952 contain information related to methods of paying for medical care, but these were not intended to deal exclusively with the payment problem. The Annals of the American Academy of Political and Social Science for January, 1951, was entitled Medical Care for Americans and consisted of a collection of papers, some of which discussed medical care insurance and the contributions of government in the payment of medical treatment. The Society of Actuaries published in 1952 a paper entitled "Croup Major-Medical Expense Insurance," which presented the statistical background for the development of the Prudential Life Insurance Company's major medical expense contract. Health Resources of the United States was prepared by G. W . Bachman and associates and was published in 1952 by the Brookings Institution. In addition to the material on medical resources, this volume contained a chapter on the contribution of industry to medical payments. Early in 1953 the President's Commission on the Health Needs of the Nation, appointed by President Truman in December, 1951, published its report entitled Building America's Health. The report was presented in five volumes, including a summary volume and one containing tabular material. The topics covered were medical needs, resources, and finance. A number of projects relating to medical payments are currently in progress. The Commission on the Financing of Hospital Care, an organization deriving financial support from research foundations, has published progress reports and has, in some instances, announced approximate dates for additional publications. The Health Information Foundation has begun a number of research projects designed to assess consumer attitudes toward prepayment plans and to evaluate current efforts in paying for medical care.



Sources and Research Methods

With this laige amount of work in the area of medical care payments as a background, the Columbia research group undertook the task of analyzing existing knowledge concerning the methods by which the consumer pays for medical care. The primary purpose of the analysis was to bring together pertinent information on methods of paying for medical care, to evaluate these methods, and to consider their potential. The attempt to present a complete analysis and evaluation was not an easy task. The literature on methods of paying for medical care was widely scattered. Terminology was used inconsistently. Such words as "indemnity," "coinsurance," and "group" often did not have their traditional meanings as used in insurance. Plans providing both medical and hospital care were sometimes referred to as hospital plans and sometimes as medical plans. The word health was often not defined and in some cases was used synonymously with medical care. Existing statistical information was often not in the form most desirable for extended analysis. In developing the material, major attention has been given to prepayment plans for paying for medical care. In addition a considerable amount of space has been given to governmental medical care programs. A lengthy discussion of these programs seemed justified in view of the large amount of money spent by federal, state, and local governments for medical care. The remainder of the work deals with problems in evaluation of payment programs and future prospects.








The major responsibility of the research staff was the collection, analysis, and evaluation of the vast amount of material on methods of paying for medical care that had been assembled by various organizations and individuals but had never been systematically studied and brought together in one volume. The discharge of this responsibility required travel to various points in the United States, searching of library files, accumulating published materials, talking with people who were doing research in the field of medical payments, obtaining from individuals and organizations data that they had collected but had not distributed widely, and holding conferences. SOURCES OF INFORMATION The sources of information on medical care payments are widely scattered but may be roughly classified as government agencies; private research organizations; organizations representing special groups; operating units; and individuals. Government Agencies. Most of the numerical facts relating to medical payments that are available for analysis have been collected by government agencies. The National Income Division of the Office of Business Economics, United States Department of Commerce, publishes annual data on the aggregate amount of money spent by consumers for drug


Sources and Research Methods

preparations and sundries, ophthalmic products and orthopedic appliances, physicians, dentists, osteopathic physicians, chiropractors, chiropodists and podiatrists, private-duty trained nurses, practical nurses and midwives, miscellaneous curative and healing professions, privately controlled hospitals and sanitariums, group hospitalization and health insurance net payments, and mutual accident and sick benefit associations net payments. These figures are the only comprehensive estimates of the dollar amount of consumer expenditures for medical care that are available on an annual basis. Additional information on consumer expenditures for medical care is available in the report in 1950 of a special survey of consumer expenditures conducted by the Bureau of Labor Statistics of the United States Department of Labor. The data obtained by this survey are more detailed than those collected by the Department of Commerce and provide information on specific services not covered by other surveys. The Department of Labor also has material on industrial health plans collected by its Division of Industrial Relations. Research on sickness costs, medical care prepayment plans, and the financial impact of illness on certain groups is being conducted on a continuing basis by the Social Security Administration of the Federal Security Agency. The results of this research are published regularly and are widely distributed. The United States Public Health Service collects and publishes material on the incidence of illness and on industrial health and medical programs. In addition, this organization maintains an active interest in all phases of the problem of health and has an extensive collection of data and literature. The National Security Resources Board collects data on health problems with particular reference to mobilization. Some of these data relate to the payment problem and, so faT as they are not classified, are available for study by the public. Special legislative and executive committees, through their published reports, have provided information on health problems. Especially valuable contributions were made by the Committee on Labor and Public Welfare of the United States Senate in its report, Health Insurance Plans in the United States, and by the President's Commission on the Health Needs of the Nation. Private Research Organizations. The Brookings Institution and the Research Council for Economic Security are notable among the private research organizations for their interest in the financial aspects of medical care. The former organization is currently engaged in a study of indus-

Source Materials and Techniques trial contributions to the financing of sickness; the latter has issued a series of research papers on the economics of medical care, many of which deal with the medical facilities and prepayment plans of industrial concerns. The research reports of Brookings and the council are available for study. Organizations Representing Groups. Most of the individuals and operating units in the health field are members of associations whose purpose is to represent the views of their constituents, to promote better public relations, and in many cases to engage in fundamental research into problems of interest to the membership. The following associations have collected data on the financing of medical care in addition to information on health generally: American Medical Association, American Dental Association, American Pharmaceutical Association, American Nurses Association, American Hospital Association, Blue Cross Commission, Blue Shield Commission, Society of Actuaries, Health Insurance Council, American Life Convention, American Mutual Alliance, Association of Casualty and Surety Companies, Association of Life Insurance Medical Directors, Bureau of Accident and Health Underwriters, Health and Accident Underwriters Conference, Life Insurance Association of America, Life Insurers Conference, Cooperative Health Federation of America, National Fraternal Congress of America, and American Public Health Association. The journals of the following societies proved particularly valuable: the American Medical Association, the American Hospital Association, and the American Public Health Association. Several foundations publish pamphlets, books, and journals containing material of value. Among these are the Health Information Foundation, the Milbank Foundation, and the Commonwealth Fund. The other principal publications containing useful source material are Medical Economics and Public Health Economics. Operating Units. The original sources of data on benefits and experience of prepayment plans, costs of medical care, and utilization of facilities are the operating units in the field of health. These units are the life, casualty, and fire insurers, Blue Cross plans, Blue Shield plans, hospitals, and independent prepayment plans (such as community group plans, cooperatives, private groups of physicians, a few medical societies, and industrial plans). The project's research staff has sought information from the basic operating units. Many of these units have supplied figures on enrollment and type of benefits of the medical care insurance contracts sold by them to the public. Individuals. Much of the fundamental data on how medical care is



Sources and Research Methods

financed can be obtained only from the consumer, but the scope of the project did not contemplate consumer interviews. Data obtained from individuals has consisted mainly of opinions and facts gained from persons associated with operating units and with organizations representing groups. The research staff has profited from discussions with the various advisory committees of the Health Information Foundation and with representatives of insurers, of associations of insurers, of the Blue Cross and Blue Shield commissions, of the American Medical Association, and of the American Hospital Association, as well as with other persons closely associated with the field of medical care. METHODS OF ANALYSIS

The summary of existing data required the reading and study of the large volume of printed matter that had been assembled by the research staff. Much of the material gained in this fashion was summarized by the construction of tables. These tables served to condense masses of figures and provided a basis of discussion of quantitative aspects of medical care payments. In the study of insurance it was nccessary to read a large number of contracts and to transcribe pertinent data to specially constructed work sheets. The material on these sheets was then tabulated and used as a basis for the discussion in Chapters IX, X, and XI. Some information, such as the amount of money spent by the federal government for medical care, was obtained by correspondence, and these figures or other data were ordinarily used as submitted. Generally no effort was made to reconcile conflicting estimates. The time involved and the magnitude of the task prevented the tracing of all the data to their original sources. Occasionally telephone conversations were utilized in clearing up obscure points. Three methods were used in obtaining information from individuals. First, the director held individual conferences. Meetings with the consultants to the project were numerous and dealt with specific problems. Persons who had done research in the field of medical payments or who were otherwise specially qualified were visited. Discussions with them were usually restricted to specialized aspects of the study. Second, group discussion meetings were held. Each meeting brought together persons interested in some special way in the problem of paving for medical care. The groups included representatives of the medical profession, commer-

Source Materials and Techniques


cui insurers, nonprofit plans, government, employers, and the public health profession, as well as members of the academic profession. Third, trips were made to visit operating units in the field of medical care. The principal divisions of the country visited were the east, south, midwest, and far west. The questionnaire technique for gathering data was utilized to a very limited extent. Except in the case of fraternal societies, no specially prepared schedules were distributed. Generally the technique of the research was to gather information on an indirect rather than a direct basis. Consumer interviews would have been highly desirable, but funds and personnel did not permit a largescale sample study. AREAS PRESENTING


Scope, Cost, and Financing of Medical Care. A considerable amount of research work was done on the background of the payment problem. One difficulty encountered was the general lack of information on the incidence of illness and the problems related to it. Existing data were old and for the most part nonrepresentative of current conditions. Only piecemeal information could be obtained on the duration, severity, and other similar aspects of illness. The data on the number of physicians, dentists, nurses, pharmacists, and other medical personnel were scattered but were good enough for purposes of summary. One of the problems in this area was that of reconciling conflicting information. For example, two reputable organizations gave different figures for the number of physicians in the country. Because this problem was not fundamental to our study, the most reasonable figures were accepted as satisfactory. The research staff devoted several weeks of intensive effort to the compilation of suitable aggregative figures on the costs of illness and on the means of meeting those costs. Specific difficulties were encountered in studying the costs of illness. 1. Generally there was highly incomplete information on the money paid by industry and government to physicians, dentists, nurses, and hospitals, and for medical supplies. 2. Data on the source of salary payments to physicians and dentists were inadequate.


Sources and Research


3. A satisfactory breakdown of payments to hospitals by source of funds was not available. 4. The Department of Commerce figures on consumer expenditures for drugs, appliances, and other medical supplies were the only data available, but these were usable only with reservations. 5. The administrative costs of governmental and industrial medical care programs were difficult to determine. No satisfactory published source of information could be found. 6. Price lists on a national basis for medical services rendered to the consumer were unavailable. Such information as did exist was fragmentary and concerned only special areas. The principal difficulties encountered in obtaining material on meeting the costs of illness were: 1 Duplication of enrollment in prepayment plans and conflicting financial estimates. Almost no direct estimates on loans, savings, current income, and charitable contributions were available. 2. Business expenditures by sourcc could be estimated only roughly, since only meager cost data were available concerning industrial health programs and the contributions of employers to prepayment plans. 3. There was no sound means of estimating the amount of governmental funds devoted to medical care. Prepayment Plans. An important part of the research activities of the staff was directed toward medical care prepayment plans. Insurance contracts were analyzed and their important features summarized. Facts were assembled on the following subjects: types of contract; premium rates; number and characteristics of persons covered; extent of cooperation with hospitals; extent of cooperation with doctors; administrative cost; extent of exclusion of risks, age, and other limitations on coverage; and relation of claim payments to losses incurred by insureds. The research accomplished by the staff indicated that only incomplete data were available in the following areas: 1. Employer participation in the payment of group and franchise premiums. 2. Duplication of coverage. 3. Conversion of group contracts. 4. Dependent coverage. 5. Enrollment by income groups. 6. Enrollment by occupation.

Source Materiate and Techniques


7. Types and extent of benefits. 8. Medical care provisions of nonmedical care contracts. T h o r o u g h investigation indicated that data beyond that collected by the staff on employer participation, duplication of coverage, dependent coverage, and enrollment by income groups were unobtainable except by a special survey designed for the purpose. In other areas some extension of existing knowledge could be made through additional analysis of available materials. Governmental Programs. T h e large role played by governmental agencies—federal, state, and local—in paying for medical care became clear from the study of materials received from governmental sources. Generally the data o n medical care programs sponsored by the federal government were satisfactory, but data on state and local programs were quite limited. T h a t local governments do much in providing medical care, particularly for t h e indigent and medically indigent, is known, but no systematic data were available. O n the state level, studies had been made in selected areas such as hospital care for mental disease. N o reliable data on all the medical care activities of the states were obtainable. In order to get such data a multitude of agencies would have to b e contacted, an undertaking that would require a long time and a large research staff. Business and Medical Care. Data on the activities of business in paying for medical care were available to a limited extent. N o complete study of the medical facilities of business establishments in the United States had ever been undertaken. Further, the extent to which employers paid insurance premiums was not known. A collection of such material would require extensive use of sampling techniques. T h e data that were available were often limited to particular industries or areas.

CONCLUSION Any study of methods of paying for medical care that is restricted to existing sources of information must necessarily meet with the difficulty of gaps in available data. Part of the difficulty stems from the fact that there is n o central statistical agency that collects data from all parts of the U n i t e d States on all phases of paying for medical care. T h e student of the subject must get data from many diverse organizations, which often means duplication of effort and difficulties in verification when discrepancies occur. T h e following chapters contain a first approximation to the facts on all current methods of paying for medical care.






Health is one of the basic necessities of life. Effectiveness at work, at home, or in the discharge of community responsibilities is dependent on it. Health may be defined as the "state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity." 1 This definition suggests that health depends on a number of factors, including heredity, personal habits, education, general economic conditions, financial and emotional security, employment, preventive measures against illness, housing, income, and national security, as well as the services of the medical and related professions. There is no precise way of measuring the state of health of the population at any given point in time. Death and morbidity rates, as well as data on draft rejections, have often been used as indications of the physical well-being of the population. These data are sometimes difficult to interpret, but they do indicate trends in health status. Since 1900, mortality rates in the United States have declined considerably and life expectancy has increased. In 1900 the total death rate was 17.2 persons per 1,000 population; in 1950 it was 9.6 per 1,000. During the same period life expectancy increased from approximately 47 years to 68 years. Because these figures represent only the overall changes, they mask certain geographical and age variations. T h e President's Commission on the Health Needs of the Nation reported that in the last fifty years death rates for children and young people dropped 83 percent; the reduction for persons 25 to 44 years of 1

From the charter of the World Health Organization.


Health, Medical Care, and Payment

age was 69 percent; but for those persons over age 65 the reduction was only 20 percent. 2 Death rates for women have declined more than those for men. As of 1950, death rates were lowest in the middle western states and highest in the southern states. The difference in rates between these two sections was approximately four persons per thousand. The great reduction in death rates has been due to a large extent to the control of infectious diseases. Deaths from such diseases dropped from 676 per 100,000 in 1900 to 79 per 100,000 in 1949. Marked reductions occurred in deaths from tuberculosis ( 194 per 100,000 population in 1900 to 27 per 100,000 population in 1949), diphtheria (40 per 100,000 population in 1900 to less than one per 100,000 population in 1949), and influenza and pneumonia (202 per 100,000 population in 1900 to 34 per 100,000 population in 1949). Deaths from typhoid, whooping cough, measles, and diarrhea have also declined considerably in the last fifty years.3 Data on draft rejections during World War I, World W a r II, and the Korean conflict are somewhat controversial, but they seem to show that despite improvements in length of life, the general health of the population may not be as good as mortality rates indicate. It has been reported that between July, 1950, and June, 1951, 15 percent of the draftees for the Korean war had been rejected for medical reasons only.4 On balance, the preceding data show that health progress in the United States in recent years has been particularly marked and has affected the entire population. Part of this progress has been due to improved economic conditions and part to advances in medicine. Many diseases can now be prevented or cured, and new techniques have been developed in the care of chronic and degenerative diseases. Future progress seems certain, and the time may not be far distant when most people will achieve a long and useful life. HEALTH


Traditionally, the maintenance of health as related to medical care has been, for the most part, the responsibility of individual physicians and hospitals. A narrow interpretation of this responsibility implies that a physical impairment must be present before medical care can be re' President's Commission on the Health Needs of the Nation, Findings and Recommendations (Building America's Health, Vol. I), 1953, p. 9. 'Ibid., p. 8. 4 Ibid., p. 10.

The Problem of Health


ceived and that treatment depends on one or possibly a small group of medically trained individuals. Modem concepts of medical practice suggest a broader view of medical services. Many persons now believe that comprehensive health services are needed to assure optimum physical, mental, and social efficiency. These services are ( 1 ) constructive services for the promotion of health; ( 2 ) preventive services; ( 3 ) diagnosis, treatment, and care of disease; and (4) restorative services.6 Comprehensive health services thus include medical care and cannot be provided in their entirety by the medical and related professions. Some of these services are outside the scope of the field of medicine, and others require the cooperation of the medical profession and the community. The complicated character of comprehensive health services can best be understood by a consideration of the scope of the component parts of each general type of service. Constructive services for the promotion of health include the provision of adequate nutrition, proper housing and clothing, healthful working environment, safety, environmental sanitation, and facilities and time for recreation. Preventive services include immunization against communicable diseases, individual and family health guidance, and a systematic approach to early detection of disease. Diagnosis, treatment, and care include all personal health services used in the alleviation or cure of disease. Restorative or rehabilitative services are those services required to return a disabled person to that state of health where he can use his capabilities to the highest possible degree.· RESPONSIBILITY



The responsibility for providing health services rests with diversified groups of persons and institutions, medical and nonmedical, and cannot be easily delineated. The responsibility for the provision of medical care rests with the medical and allied professions practicing either as individuals or groups or as part of a governmental unit. Private Practice of Medicine. Most personal health services are provided by physicians, dentists, and nurses, who may be considered the major professionals in the health field. These services are generally pro5 From a preliminary statement submitted to the President's Commission to Study the Health Needs of the Nation.

• ibid.


Health, Medical Care, and Payment

vided on a private practice fee-for-service basis. The work of these professionals is often supplemented by the services of dietitians, laboratory technicians, medical record librarians, medical social service workers, occupational therapists, physical therapists, practical nurses, and X-ray technicians. The service may be performed in the office of a medical practitioner, in the home, in a general hospital, or in a hospital for the treatment of a particular type of disease. Other methods of organizing the practice of medicine are possible. A comparatively recent development within the traditional framework is medical group practice. Under this system three or more physicians may be formally associated for the purpose of providing general or special medical care. Ordinarily the aim is to provide complete medical carc for patients coming to the group, although groups have been organized that specialize in diagnosis or some single type of work or accept only patients who have been referred to them for special diagnosis or treatment. Physicians in the group are usually salaried or paid on a basis of some type of income sharing. Physicians and other mcdiçal personnel practicing privately have accomplished much in the diagnosis, treatment, and cure of disease. The recent dramatic improvements in mortality have been due to a considerable extent to improved maternal and child carc. new operative techniques, new drugs, better education of medical personnel, and a better understanding of many illnesses. Public Health. The public health approach to the study of medical care is made through the activities of the community in the prevention of illness. This approach stresses such factors as healthful environment, public education, sanitation, and prevention of disease through immunization and pure food laws. Public health activities may also include provision of facilities for the care of the sick poor, prevention of tuberculosis, early detection of cancer, and provision for patients afflicted by mental disease. The scope of public health activities was described in the following words by C.-E. A. Winslow: Public health is the science and art of preventing disease, prolonging life, and promoting physical and mental health and efficiency through organized community efforts for the sanitation of the environment, the control of community infections, the education of the individual in the principles of personal hygiene, the organization of medical and nursing service for the early diagnosis and treatment of disease, and the development of the social machinen· which will insure to every individual in the community a standard of living adequate for the maintenance of health.7 7

Winslow, Public Health in the World Today, pp. 23-24.

The Problem of Health


The responsibility for carrying out public health activities rests primarily with state and local governments, although they may be aided to a considerable extent by federal funds, advice, and supervision. Usually the contact with the ailing individuals is made through state and local health departments, although other state departments may share some or all of the responsibility. Medical personnel are employed by the department concerned and are paid on a salary basis. At the federal level, most medical care activities of a public health nature are the responsibility of the United States Public Health Service. Since 1912, when the organization was established, it has participated in a wide range of health activities. Originally its activities were largely confined to environmental sanitation, control of community infections, and education, but in recent years, through its grants-in-aid and research programs, it has done much in the direction of preventing and detecting diseases of old age such as heart disease, arteriosclerosis, cancer, and arthritis. Through these and other programs the service has provided a certain amount of medical care to individuals. The accomplishments of the United States Public Health Service, the medical profession, and the various state services have been most impressive. Improvement in mortality has been remarkable; typhoid fever has been virtually eliminated; and diphtheria, measles, scarlet fever, whooping cough, infantile diarrhea, and smallpox are no longer the scourges they were in the past.8 Very large gains have also been made in the prevention and control of tuberculosis and venereal disease. MEDICAL CARE

Although the preceding discussion has mainly been in terms of the broad concept of the maintenance of health, the remainder of the study will concentrate on the specific problems of paying for medical care. For purposes of this report medical care will be defined as all personal health services provided by physicians, dentists, nurses, and other health professionals in homes, offices, clinics, and hospitals. Medical care may be for the purpose of preventing disease; diagnosing, curing, or treating illness; or for rehabilitating. 'Louis I. Dublin, "A Centennial of Public Health," American Journal of Public Health, XXXVIII, No. 12 (December, 1948), 1635-1642. Dublin estimates that between 1848 and 1948 in Massachusetts the average length of life for males gained approximately 25 years. For females the figure is about 28 years. Similar gains have been recorded in other states.






T h e total cost of medical care varies with the type and amount of illness. Chronic illnesses are usually more costly than acute illnesses. The relative proportion of chronic illness or acute illness will affect the amount spent in the aggregate for medical care. If two populations, each having the same amount of sickness, were studied, the population in which all illnesses were acute would probably spend less in the aggregate for medical care than a population in which all illnesses were chronic. Assuming that prices charged for various types of medical care were known, a detailed knowledge of the incidence of all types of illness would enable the forming of an estimate of the total cost of illness at any particular time. Any critical discussion of the incidence of illness is complicated by the fact that illness may be defined in various ways. Variations in definition arise for a number of reasons. First, illness is not an entirely objective phenomenon. Many people go to work every day who have physical handicaps and chronic ailments. These illnesses are often overlooked or considered unimportant. In some instances the individual may not be aware that he is ill. Other individuals having similar ailments may consider themselves incapacitated for any kind of work. During periods of economic depression many people may find illness either a real or a fancied reason for their failure to find work. Second, recognized illnesses for which medical care may be obtained are not always disabling and do not necessarily result in loss of time or function. Many individuals receive medical care during off-duty hours for such illnesses as a common cold, defects in eyesight, or dental caries and continue their normal activity.

Prevalence of Illness


Third, it may be necessary to define illness variously for the purpose of particular surveys and studies. In surveys on the incidence of illness that have been made in the past no great effort toward uniformity of definition has been attempted. In appraising these works it is always essential to determine how illness was defined, and in some instances the interpretation of a given table may depend on a special definition of illness for that particular table. In statistical work definitions must be precise. For this reason the results of surveys are usually limited to serious illnesses, accidents, and other ailments resulting in loss of time and function and requiring medical care at home or in a hospital. 1 Most statisticians in the medical care field are aware of the limitations imposed on interpretation by restricted definitions of illness. They realize that data on incidence of illness may be affected seriously by the large number of ailments that cannot be handled with precision. 2 In this chapter it will not be possible to give a definition of illness that will apply to all of the data discussed. Each table will be interpreted in the light of the definition of illness used by the original collector of the data. Statistical difficulties apart from definition will be considered in detail in a later section. T h e chief difficulties are presented by the time of year in which the survey was made, economic and social conditions prevailing at the time and place of the survey, the time period covered, and the type of sampling used. TYPES



It would be impractical to list all of the diseases that afflict the population. The Sixth Decennial Revision of the International Lists of Diseases and Causes of Death, published by the National Office of Vital Statistics, reported well over 600 categories of diseases and morbid conditions. These diseases may be classified according to leading causes of death, severity, term of the illness, area of the body affected, age at which incidence is highest, and in many other ways. T h e classification adopted will depend on the use to which it is to be put. 1 Dublin, Facts of Life from Birth to Death, p. 80. Dublin reports that in some studies the definition of illness has been broad and included "those whom the household informant has considered as ill, whether they have been under medical attention or not and whether the illness did or did not interfere with employment or other normal activities." 1 For further discussion see Bachman and Meriam, The Issue of Compulsory Health Insurance, p. 25.




Number of Cases Disease 6,850,000 Rheumatism 3,700,000 Heart diseases 3,700,000 Arteriosclerosis and high blood pressure 3,450,000 Hay fever and asthma 2,100,000 Hernia 2,000,000 Hemorrhoids 1,750,000 Varicose veins 1,700,000 Chronic bronchitis 1,550,000 Nephritis and other kidney diseases 1,450,000 Nervous and mental diseases 1,200,000 Goiter and other thyroid diseases 1,150,000 Sinusitis 930,000 Cancer and other tumors 720,000 Diseases of female organs 680,000 Tuberculosis—all forms 660,000 Diabetes mellitus 640,000 Diseases of gall bladder and liver 440,000 Other diseases of the circulatory system 380,000 Chronic tonsillitis and other throat infections 330,000 Ulcers of stomach and duodenum 270,000 Diseases of bladder and urethra 270,000 Chronic diseases of the skin 240,000 Anemia 170,000 Chronic appendicitis 150,000 Chronic diseases of the eve» 100,000 Chronic diseases of the ear b 90,000 Chronic pleurisy Diseases of the prostate and male genito-urinary organs 80,000 Source: Public Health Service, "The Magnitude of the Chronic Disease Problem in the United States," National Health Survey, 1935-36 ( 1 9 3 8 ) . • Excludes blindness in the absence of a reported chronic disease of the eye. b Excludes deafness in the absence of a reported chronic disease of the ear.

T h e illnesses presenting the greatest problem from the viewpoint of cost are the long-term illnesses and these are often of a chronic character. 3 T h e principal chronic diseases and their estimated prevalence are given in T a b l e 1. This table indicates that rheumatism outranks all other diseases * A chronic disease was defined by the National Health Survey as one whose symptoms had been "present for three months or longer, whether or not disabling."

Prevalence of Illness


and that many relatively unimportant diseases from the viewpoint of mortality such as hay fever and asthma, hernia, hemorrhoids, and varicose veins are high on the list. 4 On the other hand, Table 1 includes six of the leading causes of death in 1949.® Other impairments of a chronic nature deserve mention. It is estimated that in 1937 approximately 2 percent of the population were crippled, 230,000 were blind, and 100,000 were deaf mutes.· Acute illnesses present less complicated payment problems but are nevertheless important to this study because of their high incidence. Examples of these illnesses, according to Downes and Jackson, are "minor respiratory diseases and pneumonia, digestive diseases, diseases of the skin, acute communicable diseases, female genital diseases, pregnancy and complications of pregnancy, diseases of the ear and of the teeth and gums, acute attacks of asthma and hay fever, diseases of the organs of vision, accidental injuries, and other miscellaneous causes." 7

INCIDENCE OF ILLNESS It is unfortunately true that no completely adequate data on the incidence of illness in the United States has ever been collected. Much of the information that does exist is no longer current and consequently of limited value except for historical and illustrative purposes. Perhaps the most comprehensive study of illness and medical care has been that of the Committee on the Costs of Medical Care. This study was undertaken between the years 1928 and 1932 inclusive. Of particular interest to this study is the report by Falk, Klem, and Sinai entitled " T h e Incidence of Illness and the Receipt and Costs of Medical Care Among Repiesentative Family Groups." This report was limited to the experience of 11,500 white families living in 130 com4 For a more detailed discussion see Dublin, Lotka, and Spiegelman, Length of Life, pp. 185-186. 'The leading causes of death in 1949 (the most recent year for which complete data were available) were: heart diseases, malignant neoplasms, vascular lesions affecting central nervous system, accidents, diseases of early infancy, influenza and pneumonia, tuberculosis, general arteriosclerosis, nephritis, and diabetes. See Public Health Service, National Office of Vital Statistics, Vital Statistics of the United States, 1949, Part 1, (1951), pp. 32-33, and Public Health Service, "Leading Causes of Death, 1949-50," Public Health Reports (January, 1952) p. 94. •Dublin et al., op. cit., p. 186. 7 Jean Downes and Elizabeth H. Jackson, "Medical Care among Males and Females at Specific Ages—Eastern Health District of Baltimore, 1938-1943," The Milbank Memorial Fund Quarterly, XXIX (January, 1951), 10.


Health, Medical Care, and Payment

munities scattered over 17 states and the District of Columbia. (The principal analysis was limited to 8,758 white families.) These states were for the most part located east of the Mississippi River. The southwest, middle west, and the northwest (with the exception of Washington) were not represented. 8 Illness was defined as "any disorder which wholly or partially disables an individual for one or more days or as any experience for which medical service of any kind is received. Any condition, symptom, or disorder for which drugs costing fifty cents or more are purchased is considered an illness." 9 T h e Committee on the Costs of Medical Care found that the average incidence of illness depended on a number of factors, including size of community, income, season of the year, age, sex, size of family, definition of illness, and technique used in gathering the data. A study of all of the data without regard to particular classifications revealed that on the average there were 3.8 illnesses per family per year and 0.84 illnesses per individual per year. T h e committee found that if size of community and income are taken into account, departures from the average occur from "14 percent less than the average to 45 percent more." 10 Variations from the average are extremely important in the study of methods of payment, since they demonstrate how differently various members of the population are affected by the costs of illness. Current and adequate information on the pattern of variation are needed badly. 11 Another large-scale survey of illness was undertaken during the winter of 1935-1936. This study, known as the National Health Survey, was based for the most part on 703,092 households located in eighty-three cities. Twenty-three primarily rural counties were included for purposes of studying the rural health problem. T h e data were collected under the direction of the Public Health Service, and the study was a Works Progress Administration project. The project was designed primarily as a pilot study and lacked the refinements necessary for statistical inference. 12 Table 2 summarizes the principal findings of the survey. T h e results are not comparable with those obtained by the Committee * For details see Falk, Klem, and Sinai, The Inddence of Illness and the Receipt and Costs of Medical Care Among Representative Family Groups, pp. 16-41. 'Ibid., p. 8. "Ibid., p. 49. 11 Excellent orientation material may be found in Falk et al., op. cit., pp. 45-85. A number of summaries of the committee's work have appeared. Sec, for example, Bachman and Meriam, The Issue of Compulsory Health insurance, pp. 130-152, and Hollingsworth, Klem, and Baney, Medical Care and Costs in Relation to Family Income. " For a discussion of the limitations, as well as the summary of Bachman and Meriam, op. cit., pp. 153 173.



Prevalence of Illness



Type of Information


Percentage of persons disabled on day of visit" Percentage of persons disabled for the whole 12 months preceding visit" Percentage of persons reported as having a chronic disease or impairment c Percentage of workers'1 (15-64 years of age) reported to be "unemployable" by reason of disability* Illnesses disabling for a week or longer during the 12 months immediately preceding the visit' Frequency per 1,000 persons All illnesses Acute Chronic Diseases Impairments Excluding persons disabled for the whole period Number of days of disability per person observed« All illnesses Acute Chronic Diseases Impairments Excluding persons disabled for the whole period Number of days of disability per case* All illnesses Acute Chronic Excluding persons disabled for the whole period 'Public Health Service, Public Health Reports, 466-67.

4.4 1.2 17.7 1.1

171.0 123.0 48.0 45.0 2.9 159.0 9.9 2.6 7.3 6.3 1.0 5.6 58.0 21.0 154.0 36.0

55 (March 15, 1940), pp. 445,

"Based on 2,502,391 persons in 83 cities and distributed by age as follows: Age Under 5 5-14 15-24 25-34

Number 175,652 427,161 446,369 425,301

Age 35-44 45-54 55-64 65-74

Number 395,525 303,008 182,754 102,167

Age 75-84 85 and over

Number 34,857 5,385



'Based on 12,512 punch cards selected at random (every 200th card) from among those for 2,502,391 persons in 83 cities. (See Table note b ) . "Chronic" refers to illnesses the disease symptoms of which had been observed for at least 3 months before the day of visit. "Impairment" includes impaired or lost members, deafness, and blindness. (A person may have had more than one chronic disease and/or impairment.)


Health, Medical Care, and Payment

Notes to Table 2


'Calculated according to the formula


where D = number of persons W + D in the general population who, because of chronic disease or impairment, were prevented from seeking work, and W = number of workers. * Based on 982,440 persons of known annual family income in 83 cities (see Table note d), distributed by age (years) and annual family income as follows: Relief Nonrelief: Under $1,000 1,500 2,000 3,000 5,000

$1,000 to $1,500 to 2,000 to 3,000 to 5,000 and over

15-24 41,974

25-34 34,958

35-44 35,130

45-54 27,680

55-64 15,051

50,985 45,894 35,316 25,673 10,558 3,960

64,879 64,226 46,993 33,918 13,626 5,827

56,798 53,798 41,778 30,562 11,772 5,306

42,075 36,965 29,982 22,722 10,029 4,952

24,974 18,615 14,477 11,522 5,501 2,964

' Includes some cases which had been disabled for less than 1 week, viz., fatal cases, confinements, and certain hospitalized cases. Based on 2,350,951 persons of known age and known annual family income in 83 cities. Applies to cases and persons within the following limits: DWELLINC



Geographic Region Northeast and North Central Northeast and North Central South

Size of City 500,000 and over Under 500,000 All



Relief Nonrelief: Under $1,000 1,500 2,000 5,000

$1,000 to $1,500 to 2,000 to 3,000 and over

Color All White only White and Negro only White only


Under 15 147,984

15-24 79,226

25-64 181,030

65 and over 21,211

126,250 129,087 86,842 55,301 7,793

99,976 92,128 67,947 48,562 8,401

290,732 283,296 218,821 160,314 30,020

45,227 25,843 17,923 13,565 3,603

> Based on cases with known duration of disability. (Those with unknown duration of disability amount to only 0.4 percent of all cases.) on t h e Costs of Medical Care but do supply some additional information o n the incidence of illness. Care should be exercised in interpreting t h e entries in Table 2. In particular the fact that 17.7 percent of the persons surveyed had a chronic disease should be judged in the light of certain omissions, as well as the limitations of survey procedure. Age, seriousness of t h e illness, medical care received, etc., were not considered in arriving at this figure. Further, deafness, blindness, and lost members were included as diseases.

Prevalence of Illness









WORK 1950-2



January February March April May June July August September October November December Average

771 804 925 792 629 572 610 606 701 671 720 809 718


914 958 1,028 781 659 749 732 720 622 690 756 780 782

1952 888 946 1,040 782 750 682 672 634 700 722 716 772 775

Source: Bureau of the Census, Current Population Reports, Labor Force, Series P-50, No. 31, p. 24, No. 40, p. 24; Series P-57, No. 115, p. 10, No. 126, p. 10.

The number of persons absent from work because of illness at any given time is an indication of the incidence of illness among the labor force. Table 3 shows the number of job-holding persons who were not at work because of illness for the years 1950-1952 inclusive. On the average, 718,000 persons were absent from work in 1950 because of sickness. In 1951 the average increased to 782,000. In 1952 it was 775,000. The data of Table 3 show that absences due to illness are generally higher in the winter months than in the summer. The maximum number of absences occurred in March for each of the three years 1951, 1952, and 1953. The minimum number of absences occurred in June in 1950, in September in 1951, and in August in 1952. Additional evidence on prevalence of illness consists of data obtained from the physical examinations of soldiers during World War II, from census reports on care during confinements, from records of insurance plans of various sorts, and from articles in various journals, especially the Public Health Reports of the Public Health Service.13 This material is diverse in nature and is usually limited to the study of a particular area or a particular disease. Problems of interpretation arise and the material should not be used uncritically. "Summaries of the Michigan survey of illness and of Blue Cross experience may be found in Bachman, Health Resources in the United States, pp. 51-54.


Health, Medical Care, and Payment

A recent study by Downes and Jackson 1 4 deserves special mention. T h i s study was based on persons living in the eastern health district of Baltimore between 1938 and 1943 inclusive. It was found that the annual rate of illness was " 1 , 5 0 0 per 100 person-years

(1.5 per person per y e a r ) ,

1,234 among males and 1,758 among females." 1 5 Considerable attention was given to t h e volume of services given in t h e cases of chronic and acute illness, and the general impression was confirmed t h a t the incidence of acute illness is highest at younger ages and lowest at older ages, and t h a t the incidence of chronic illness is lowest at younger ages and highest at older ages. It is important in this connection to realize that chronic illness at t h e younger ages is usually of much shorter duration than a t the older ages. D u b l i n summarized t h e principal facts to be gained from a study of illness as follows: 1 8 1. Various surveys show that from IV2 to 5 percent of the population are unable to carry on their usual duties because of illness on any given day in t h e U n i t e d States. Variation in t h e percentages is due to different definitions of illness; seasonal influences; survey technique; the inclusion of t h e blind, crippled, and mental defectives; and economic conditions. 2. T h e

incidence of illness has a seasonal pattern. T h e


a m o u n t of illness is reported during January and February. T h e m i n i m u m is reached in late summer. 3. E a c h person, on t h e average, has one recognized illness each year. Interpretation of this figure depends on the definition of illness used in collecting the data. 4. T h e incidence of illness is higher for females than for males. T h e greatest difference exists between t h e ages 20 and 24 and declines with advancing age. 5. T h e incidence of illness varies with age. It is very high among infants; reaches a m i n i m u m between ages 15 and 19 for females and between 2 0 and 24 for males; and then increases gradually with advancing age. 6. Approximately 50 percent of all illnesses are disabling. T h i s


was obtained on t h e assumption that a disabling illness involved the loss of one or more days from t h e routine of usual activity. N i n e tenths of disabling illnesses require confinement indoors, and of these approximately one eighth require hospitalization. " Downes and Jackson, op. cit., pp. 5-30. "Ibid., p. 7. " The summary is based on Dublin, Facts of Life from Birth to Death.

Prevalence of Illness


7. Disabling illness occurs more frequently among the unemployed than among the employed. 8. The duration of disabling illness increases with age and, on the average, is less for women between ages 15 and 64 years. 9. Chronic conditions account for approximately 70 percent of disabling illnesses lasting one week or longer. 10. Approximately 80 percent of all illnesses involving recognized disease are treated by physicians.




Preventing and combating illness through the medium of medical care, as broadly conceived, require the cooperation of a large number of individuals and groups organized on an effective basis. In addition, large amounts of equipment, extensive plants of various types, research laboratories, and expensive educational systems are required. T h e development and maintenance of these medical resources necessitate large expenditures which are reflected in the prices paid by the consumer for medical care. T h e amount, structure, and distribution of medical resources are related to the amount and kinds of service received by the consumer and to the method used by the consumer in paying for medical services. Types and amount of medical resources and their distribution can best be understood by considering the broad classifications of personnel and facilities. PERSONNEL It is estimated that in 1950 nearly 1,250,000 persons were engaged in supplying health services. They may be classified under the following headings: physicians, dentists, professional nurses, auxiliary nursing personnel, dental hygienists, medical laboratory technicians, X-ray technicians, physical therapists, occupational therapists, medical social workers, psychiatric social workers, psychologists, dietitians and nutritionists, pharmacists, optometrists, chiropodists, osteopathic physicians, chiropractors, veterin-

Medical Resources TABLE NUMBER








Per 100,000 Population

1909 1912 1914 1916 1918 1921 1923 1925 1927 1929 1931 1934 1936 1938 1940 1942 1948 1949

134,402 137,199 142,332 145,241 147,812 145,404 145,966 147,010 149,521 152,503 156,406 161,359 165,163 169,628 175,382 180,496 199,755 202,516

149 144 144 142 143 134 130 127 126 125 126 128 129 131 133 135 137 137


Percent of Total Physicians



c c







c c








22,166 24,826 26,756

15 16 17


33,618 36,880


20 21


45,000 50,000


23 25

Sourcc: Tables and notes adapted from Mountin, Pcnnell, and Berger, Health Service Areas, p. 2. * Physician totals for 1909 to 1942 are those published by the American Medical Association on the basis of directory counts. The 1948 total is a preliminary estimate published in the Journal of the American Medical Association, August 21, 1948. The 1949 total is a preliminary estimate made available by officials of the Directory Department of the American Medical Association. "Specialist totals for 1923, 1949, 1934, and 1938 are those published in a report of the Commission on Graduate Medical Education. The total for 1931 appeared in a report by R. G. Leland in "Income from Medical Practice," Journal of the American Medical Association, May 16, 1931. The 1940 total was obtained by tabulating data for individual physicians listed in the 1940 American Medical Directory. The totals for 1948 and 1949 are preliminary estimates made available by officials of the Directory Department of the American Medical Association. ' Data not available. arians, sanitary engineers, sanitarians, medical record librarians, and public health educators. 1 Number

and Distribution

of Physicians.

T a b l e 4 shows t h e total num-

ber of physicians and specialists in t h e U n i t e d States b e t w e e n 1909 and 1949. In 1949 there were 202,516 physicians or 137 per 100,000 population. 1

Bachman, Health Resources in the United States, p. 57.


Hedth, Medical Care, and Payment TABLE NUMBER



5 100,000






Northeast and Middle Pacific Atlantic

North Central

160 159 158 147

134 128 130 128


South Centra

116 108 109 125

117 102 95 99

1923 1931 1940 1948

130 126 133 137


Adapted from Mountìn, Pennell, and Berger, Health Service Areas, p. 3.

135 141 168 174

131 120 119 129

South Atlantic

Of these, 50,000 were classified as specialists. Although the number of physicians in 1949 represented a substantial increase over the number in 1909, the number per 100,000 had decreased. The data presented in Table 4 on the number of physicians include all persons having an M.D. degree. In 1949, for example, there were 9,700 physicians retired or not in practice; there were 7,000 in the armed forces; 7,250 were interns; and 17,500 were residents or fellows.2 Thus, the number of physicians in private practice in 1949 was 161,066. The data on the number of specialists include only those physicians who have met the formal requirements set up for their specialty and do not include other physicians in the United States who may specialize in some degree. Although aggregate figures yield some information on the supply of physicians, a more meaningful analysis for many purposes requires a knowledge of their distribution. Mountin, Pennell, and Berger collected pertinent data for the years 1923, 1931, 1940, and 1948. The results of their study are given in Table 5. This table shows that for the years considered in the table there were wide disparities in the number of physicians available in the different regions. Since 1940 the New England and middle Atlantic states have had the largest number of physicians per 100,000 population with the Pacifie states ranking second. The south central states rank lowest, but a slight improvement in their position was registered between 1940 and 1948. The distribution of physicians is influenced for the most part by the 'William Weinfield, "Income of Physicians 1929-49," Survey of Current Business, July, 1951, p. 11.


Medical Resources TABLE 6


Number 68 68 68 68 68 68 68




1936 1937 1938 1939 1940 1941 1942

68 68 68 68 68 67 61

1943 1944 1945 1946 1947 1948

Number 56 52 54 67 71 72

Adapted from Survey of Current Business (January, 1950), p. 9.

hospital and other medical facilities that are available in the various geographic areas.3 These facilities are ordinarily most plentiful in the populous regions of the country. These facts are receiving considerable attention from official and voluntary agencies who are responsible for hospital development. Number and Distribution of Dentists. Table 6 provides a statement of the number of dentists in independent practice in the United States from 1929 to 1948 inclusive. This table shows that the total number of dentists remained constant between 1929 and 1940 and then declined to a minimum in 1944. There has been a steady increase since that time, and in 1948 approximately 72,000 dentists were in independent practice in the United States. In addition to these independent practitioners there were, as of 1948, 6,000 dentists in salaried civilian practice and 1,600 in active practice in the armed forces, making an estimated total of 80,000. More recent figures for dentists employed by the federal government were published by the American Dental Association in October, 1949. Their study showed that 793 dentists were in the United States Army and United States Air Force in 1949; 941 were in the United States Navy; 277 in the United States Public Health Service; and 756 were employed by the Veterans Administration. The geographical distribution of dentists in the United States is given in Table 7. The middle east ranks first in number of dentists, followed by the central states. In terms of the number of dentists per 100,000 population the middle east also ranks first and is followed by New England, * Mountin, Pennell, and Berger, Health Service Areas, p. 2. This pamphlet gives a great deal of information on the number and distribution of physicians.

Health, Medical Care, and Payment





Dentists per 100,000 Civilian Population

All Dentists in Civilian Practice

Region New England Middle East Southeast Southwest Central Northwest Far West

65 70 28 33 59 53 60

6,016 24,217 8,375 3,585 23,277 4,072 8,838

Source: Adapted from Survey of Current


(January, 1950), p. 13.


Field of


Total in active practice Hospital and other institutions School of nursing Hospital and school of nursing" Public health Public health and school of nursing 1 Private duty Industrial Office Other and unclassified

Number 300,533 141,882 7,839 4,044 28,930 111 65,032 13,113 26,444 12,977

Percent 100.0 47.2 2.6 1.3 9.6 .1 21.6 4.4 8.8 4.4

Source: Dublin, Facts of Life from Birth to Death, p. 92. * T i m e divided between teaching and hospital or public health duties.

with t h e central area ranking third. T h e southwest region lias the lowest total n u m b e r of dentists, b u t t h e southwest region has the smallest number per 100,000 population. Number and Distribution of Nurses. T h e n u m b e r of registered nurses in active practice in 1949 was 300,553 (see Table 8 ) . Approximately 47 percent of these nurses were in hospitals and other institutions, and approximately 22 percent were private-duty nurses. For the most part the rest were employed in schools of nursing, public health work, industrial organizations, a n d offices.




The American Nurses Association has published data on the number of graduate and student nurses in the United States for selected years from 1910 through 1940. According to these data there were 82,327 nurses in the United States irf 1910. This number had increased to 149,128 in 1920 and by 1930 had reached 294,189. In 1940 there were 371,066 graduate and student nurses in the United States. Practical nurses should be considered in any survey of medical personnel, since they also care for patients in homes as well as in hospitals and other institutions. In 1940 there were 190,000 practical nurses and attendants. In 1950 the American Nurses Association reported 181,642. Recent Data on Physicians, Dentists, and Nurses. In August, 1952, the Brookings Institution published the results of its inventory of persons engaged in providing health service in the United States. The following is a summary of certain of its principal findings concerning physicians, dentists, and nurses. The number of physicians in the United States, as of July 1, 1950, was estimated as approximately 204,400. As of 1949 approximately 179,000 were in active nonfederal practice. Thirty-six percent of these physicians were general practitioners; about 11 percent were general practitioners with part-time specialties; approximately 27 percent were full-time specialists; slightly over 12 percent were in hospital service; and almost 2 percent were in nonprivate practice. The number of active nonfederal physicians per 100,000 population varied widely among the states. The District of Columbia had 267 physicians per 100,000 population, while Mississippi had 64. Generally the southern states had the fewest physicians per 100,000 population, and the northeastern, middle western, and far western states had the most. Approximately one third of the physicians in active practice in 1949 were full-time specialists. The specialties represented were internal medicine, surgery, ophthalmology, otorhinolaryngology, obstetrics, gynecology, psychiatry, neurology, pediatrics, radiology, roentgenology, urology, orthopedics, pathology, bacteriology, dermatology, syphilology, public health, anesthesiology, tuberculosis, hospital administration, and physical medicine. As of 1950 there were 86,876 dentists in the United States. Approximately 95 percent, or 82,575, of these dentists were in active practice. In the same year there were, on the average, 53 active nonfederal dentists in the United States per 100,000 population. The District of Columbia had 90 active nonfederal dentists per 100,000 population and South


Health, Medical Care, and Payment

Carolina 19. The geographical distribution of dentists was similar to that of physicians. The number of dental specialists in 1950 was not available. The specialties recognized by the American Dental Association in that year were oral pathology, oral surgery, orthodontics, pedodontics, periodontics, prosthodontics, and public health dentistry. The number of nurses in active practice, federal and nonfederal, in 1950 was approximately 318,880. In 1949 there were, on the average, 188 nurses per 100,000 civilian population. The greatest number of nurses per 100,000 population was in Vermont (320), and the smallest number was in Arkansas (43). The geographical distribution of nurses is similar to that of dentists and physicians. Of the active nurses in 1949 who specialized, 33,125 were in obstetrics, 31,014 in operating room, and 22,028 in medicine-surgery. Other specialties were psychiatry (19,707), pediatrics (17,622), communicable diseases (15,989), anesthesia (7,729), orthopedics (7,492), and other branches (31,404). Other Personnel Engaged in the Provision of Medical Care and the Sale of Medical Commodities. Many persons other than physicians, dentists, and nurses provide medical care of a more or less limited type to many thousands of people. Table 9 shows the number of persons engaged in health professions other than the major three. Both in 1940 and 1950 auxiliary nursing personnel was the largest group, with pharmacists forming the next largest unit. Other groups having more than 10,000 persons in both 1940 and 1950 were medical laboratory technicians, X-ray technicians, dietitians and nutritionists, optometrists, chiropractors, and veterinarians. The largest gains between 1940 and 1950 were registered by psychiatric social workers (350 percent), sanitary engineers (129 percent), psychologists (166 percent), and auxiliary nursing personnel (98 percent). Less dramatic but nevertheless substantial increases were found in the professions of physical therapy (84 percent), osteopathy (76 percent), optometry (71 percent), and X-ray technology (71 percent). FACILITIES

In order that health personnel may provide efficient and effective health services, facilities such as offices, hospitals, clinics, and health centers must be available. No data have been collected on the number of



Occupation Auxiliary nursing personnel Dental hygienists Medical laboratory technicians X-ray technicians Physical therapists Occupational therapists Medical social workers Psychiatric social workers Psychologists Dietitians and nutritionists Pharmacists Optometrists Chiropodists Osteopathic physicians Chiropractors Veterinarians Sanitary engineers Sanitarians Medical record librarians Public health educators

1940 186,656 5,000 20,000 15,000 3,100 2,200 2,480 500 2,739 11,250 79,347 10,237 6,106 6,007 10,629 10,717 1,960 — » — » — »

1950 368,735 7,000 30,000 25,600 5,700 3,400 3,000 2,250 7,273 16,000 100,102 17,470 6,962 10,595 15,000 15,305 4,496 4,940 5,300 500

Percent Increase 1940-50 98 40 50 71 84 55 21 350 166 42 26 71 14 76 41 43 129

Source: Bachman, Health Resources in the United States, p. 58. * Data not available.

physicians' offices and the services provided therein, nor is there any information available concerning the number of clinics and health centers. The material developed here will deal exclusively with hospitals. Hospitals. Since 1900 the hospital has played an increasingly large role in the care of the sick and today is indispensable in the practice of medicine. Physicians today cannot maintain within the limits of their offices all of the equipment necessary for the treatment of their patients; hence, they must rely heavily on hospital accommodations. Information on the growth of hospitals is given in Table 10. In 1950 there were 6,430 hospitals, of which 4,518 were privately owned and operated.4 Federal hospitals numbered 355, and state hospitals 552. The number of federal hospitals has varied since 1931 to a greater degree than has that of state and private ones. In 1931 there were 291 ' Data on hospitals are from the American Medical Association.


Health, Medical Care, and Payment TABLE 10 GROWTH IN NUMBER OF HOSPITALS

Year 1909 1914 1918 1923 1928 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950

Number of Federal Hospitals 71 93 no 220 294 291 301 295 313 316 323 329 330 329 336 428 474 827 798 705 464 401 372 361 355

Number of State Hospitals 232 294 303 601 595 576 568 557 544 526 524 522 523 523 521 530 530 531 539 549 557 563 567 573 552

All Other Hospitals 4,056 4,650 4,910 6,009 5,963 5,746 5,693 5,585 5,477 5,404 5,342 5,277 5,313 5,374 5,434 5,400 5,341 5,297 5,274 5,257 5,259 5,312 5,396 5,638 5,523

Total 4,359 5,047 5,323 6,830 6,852 6,613 6,562 6,437 6,334 6,246 6,189 6,128 6,166 6,226 6,291 6,358 6,345 6,655 6,611 6,511 6,280 6,276 6,335 6,572 6,430

Source: Adapted from Journal of the American Medical Association, CXLVI (1951), 110.

federal hospitals. By 1941 this number had reached 428. There were substantial increases in federal hospitals during World W a r II, with a peak of 827 in 1943. After the war this type of hospital decreased in number. The American Medical Association has classified hospitals according to type of service and has provided information on beds, bassinets, admissions, average census, and births. Type of hospital service is classified as general; nervous and mental; tuberculosis; maternity; industrial; eye, ear, nose, and throat; children's; orthopedic; isolation; convalescent and rest; institutions; and all other. Approximately 73 percent of all hospitals in 1950 were general hospitals. The greatest number of beds was found in hospitals





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Health, Medical Care, and Payment TABLE






























77 76


















































2,830 b


Sources: Journal of the American Medical Association, CL (September 13, 1952), 110-111; Journal of the American Dental Association, XLIV (February, 1952), 206-207, XLIV (March 1952), 322; American Dental Association, Dentai Students Register (1943 and 1948); Statistical Abstract of the United States (1951), p. 85. * Includes two classes. * Data not available.

there were 865 approved governmental and nongovernmental hospitals with 7,866 internships that had been filled. These internships represented 72 percent of the 10,977 internships that were open in the various hospitals. T h e number of interns exceeded the number of medical school graduates in 1951, largely because some interns continued service for a second year and also because there were graduates of foreign medical schools who were accepted for internship by American hospitals. Residencies in approved hospitals provide additional training for physicians. In 1951 there were 1,123 approved hospitals that offered 20,645 residencies. Only about 77 percent or 15,851 of these residencies were filled.6 " E. H. Lcveross and W . R. von Ehren, "Approved Internships and Residencies in the United States," Journal of the American Medical Association, September 27, 1951, p. 281.

Medical Resources


Information on the schools for other medical personnel and their graduates is less complete than that on physicians and dentists. The following data provide a summary of the most recent information on the number of schools that train other medical workers.· In 1950 there were 10 recognized schools of optometry; 6 recognized colleges of chiropody; 6 recognized colleges of osteopathy; 8 recognized chiropractic colleges; 17 colleges offering a course for veterinarians; 18 schools offering courses for medical record librarians; 7 recognized schools of public health for the training of public health educators; 63 recognized departments of psychology; 21 schools of social work offering courses for medical and psychiatric social workers; 25 recognized schools for training in occupational therapy; 28 recognized schools for training physical therapists; 283 schools for X-ray technicians; 467 schools approved for medical technology; and 318 schools of practical nursing. •Bachman, op. cit., pp. 79-95.




The cost of illness may be divided into three categories. The first includes direct expenditures for personal medical care by consumers, business, and government; the second, expenditures to create a body of resources and knowledge to meet the general problem of illness, such as research costs, education of medical personnel, and construction of medical facilities; and the third includes other costs, including loss of income due to absence from work, lack of complete effectiveness while at work, general disruption of family life, and money spent for the services of nonmedical personnel such as extra help for the home. These costs include only those expenditures necessary to combat illness. Modem thinking in the field of medicine tends to place less stress on illness as such and more on the idea of the maintenance of health. If the latter approach, which involves a broader concept of health, is emphasized, additional costs must be considered, such as provisions for housing, adequate diet, education of the individual for his own self-preservation, maintenance of a high level of sanitation, and maintenance of an atmosphere conducive to mental health. The cost studies that have been made up to this time have not provided information on a national scale for all of the categories listed above. Much of the available data was restricted to particular areas or segments of the economy. The material in this chapter will serve to summarize the general cost studies that have been made to date and will review certain limited cost and price investigations.

The Cost of Illness NATIONAL





Committee on the Cost of Medical Care. The Committee on the Cost of Medical Care investigated the costs of medical services in 1929 and reported that the people of the United States spent approximately $3,656 million for all forms of medical service. This figure represented almost $30 per capita per year and in 1929 was about 4 percent of the income of the country. In arriving at their figure for the total cost of medical care, the committee determined the expenditures by the public for the following: physicians in private practice; dentists in private practice; secondary and sectarian practitioners; private-duty graduate nurses; private-duty practical nurses; operating expenses of hospitals; new construction of hospitals; public health; private laboratories; orthopedic and other supplies; eyeglasses; drugs; and organized medical services such as university, industrial, and army and navy medical services exclusive of hospital care. The money paid to physicians and dentists included payments by governmental and philanthropic agencies to private practitioners for services to indigent persons. In terms of the proportion of the dollar spent for medical care in 1929, these expenditures represent 29.8 percent for physicians, 23.4 percent for hospitals, 18.2 percent for medicines, 12.2 percent for dentists, 5.5 percent for nurses, 4.2 percent for all others, 3.4 percent for cultists, and 3.3 percent for public health. 1 The committee concluded that, although in the aggregate the cost of medical care seemed reasonable, the distribution of costs was such that some families found expenditures for medical care to be burdensome. One of t i e principal facts reported by the committee was that the cost of medical care fell unevenly upon different families in the same income and population groups. Since the committee did not continue its study, no current figures are available for direct comparison. Other data of a similar sort have been collected by other agencies and are discussed in this chapter. Department of Commerce Estimates. The United States Department of Commerce regularly publishes data in the July issue of the Survey of Current Business on personal consumption expenditures for medical care. These data have been analyzed regularly by the Bureau of Medical Economic Research of the American Medical Association.2 1

Committee on the Costs of Medical Care, Medical Care for the American People, p. 15. Ά list of papers by Frank G. Dickinson, based on the analyses of the bureau, are given in the bibliography.


Health, Medical Care, and Payment TABLE




Total Medical Care

Physicians' Services

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951

3.0 2.9 2.6 2.2 2.0 2.2 2.3 2.5 2.7 2.7 2.9 3.1 3.4 3.9 4.4 4.9 5.1 6.2 6.9 7.5 7.8 8.4 9.0

1.0 0.9 0.8 0.7 0.6 0.7 0.7 0.8 0.9 0.8 0.9 0.9 1.0 1.1 1.1 1.3 1.3 1.7 1.9 2.1 2.3 2.4 2.5


0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.6 0.6 0.8 0.8 0.9 1.2 1.4 1.6 1.7 2.0 2.1

Drugs and Dentists' Sundries Services

0.6 0.6 0.5 0.4 0.4 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.7 0.9 1.0 1.1 1.2 1.3 1.4 1.4 1.4 1.5 1.6

0.5 0.5 0.4 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.5 0.5 0.6 0.6 0.6 0.8 0.8 0.9 0.9 1.0 1.0

All other Medical Care

0.6 0.6 0.5 0.4 0.3 0.4 0.4 0.5 0.5 0.5 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.5 1.5 1.6 1.8

Source: For 1919 1948, Department of Commerce, National Income, 1929-1950 (July 1951), pp. 194 195; for 1949-1951, Department of Commerce, Survey of Current Business, July, 1952, p. 24.

Table 14 shows the amount of money spent by consumers for medical care for the years 1929 to 1951 inclusive as reported by the department. These data show that expenditures for medical care since 1934 increased steadily and in 1951 reached a record high of nearly $9 billion. During this same period total personal consumption expenditures increased and in 1951 were approximately $208 billion, or approximately 4.3 percent of total consumer expenditures in 1951. From 1929 to 1951 medical care

The Cost of Illness




Total Medical Care

1930 1935-39 1940 1945 1948 1949 1950 1951

100.0% 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Physicians' Services 31.8% 31.1 29.7 26.1 28.6 28.9 28.3 28.1

Drugs and Dentists' Hospitals Sundries Services 13.9% 16.9 17.1 17.9 21.2 22.0 23.4 23.8

19.5% 20.7 20.8 111 18.8 17.9 17.3 17.5

15.9% 13.0 13.6 12.6 21.0 11.9 11.5 11.0

All other Medical Care 18.9% 18.3 18.8 20.7 19.4 19.3 19.5 19.6

Source: Adapted from American Medical Association, Bureau of Medical Economic Research, Bulletin 87 and Miscellaneous Publication M-69.

expenditures were consistently about 4 percent of total consumer expenditures. The percentages varied from 4.1 percent to 4.4 percent.8 Physicians received the largest part of expenditures for medical care, although percentagewise their share declined (see Table 15). Expenditures for drugs and sundries and dentists' services have never been as large as for physicians' care, but percentagewise, in the twenty years between 1930 and 1950, they declined 12 percent and 26 percent respectively. In contrast to these facts a larger share of the medical care dollar was paid for hospital and all other medical care. The increase in hospital expenditures was particularly dramatic and for 1950 represented a 68.3 percent increase over 1930. The data used by the Department of Commerce are varied in source and dependability. The estimate of expenditures on physicians is a composite of two estimates—the number of physicians providing services to private patients and the average gross income per physician. The total number of physicians (including those not in practice) is obtained from the American Medical Directory. The ratio of physicians in independent ' I t is of value to compare these figures with those computed by the U.S. Department of Labor on the basis of its 1950 survey of personal consumption expenditures. In this survey medical care expenditures in selected cities were found to range from 4.7 percent of total personal consumption expenditures in Madill, Oklahoma, Pittsburgh, Pennsylvania, and Boston, Massachusetts, to 6.4 percent in Lynchburg, Virginia. In comparing dollar aggregates between two points in time, changes in the size of the population and in medical care prices must be taken into account.


Health, Medical Care, and Payment

practice to the total number of physicians is applied to this aggregate; this ratio is based on a count from the American Medical Directory which the Department of Commerce obtained from the American Medical Association. The income figure is obtained by sample questionnaire surveys conducted by the National Income Division of the Department of Commerce, usually in cooperation with the American Medical Association. Usable replies have typically been received from about 42 percent of the mailings. The information obtained in these surveys is tested against other survey material, such as that obtained by the magazine Medical Economics, and also against the Bureau of Internal Revenue tabulations of gross and net income of unincorporated enterprises. For the years for which survey information is not available, data on income are interpolated and extrapolated. Several "indexes" are used for these purposes. For example, estimates of gross income of all physicians for the years between 1943 and 1947 were derived by proportional interpolation of the ratio of physicians' income to disposable civilian income. The estimate for hospital expenditures includes only expenditures for private hospitals (both proprietary and nonprofit). It excludes personal consumption expenditures for hospitalization in public hospitals. The estimates used result from a totaling of expenses of nonprofit hospitals and patient payments to proprietary hospitals. Thus, expenses and payments for outpatient services are included. The data for these series are obtained from the American Hospital Directory and are adjusted to a calendar-year basis and corrected for nonregistered hospitals. The estimate for drug preparations and sundries is based on the Census of Manufactures figures on the value of products for drug items, adjusted (to approximate the prices finally paid by personal consumers) for distribution of sales among classes of purchasers (wholesalers, consumers, and retailers), for inventories at each stage of the distribution process, for exports and imports, for transportation costs, for trade markups on the wholesale and retail level, and for sales taxes. For intercensus years, data from the Census of Manufactures are interpolated and extrapolated on the basis of drugstore sales from trade data. The method of estimating expenditures for dental services is the same as that used for physicians. Estimates of the number of dentists were based on information obtained from the American Dental Association, with adjustments to exclude those in the armed forces after 1940. Ratios of number of non-salaried and part-salaried dentists to the total number of active dentists were computed from questionnaire surveys conducted

The Cost of IUness


by the National Income Division. All of the nonsalaried and one half of the part-salaried dentists are considered to be in independent practice. To these numbers are applied estimates of the gross income of dentists in independent practice obtained by questionnaire surveys. The category "all other medical care" in Table 14 and Table 15 includes the cost of ophthalmic products and orthopedic appliances; services of osteopathic physicians, chiropractors, chiropodists and podiatrists, privateduty trained nurses, practical nurses and midwives, and miscellaneous curative and healing professions; net payments to group hospitalization and health associations; student fees for medical care; net payments for accident and health insurance; and net payments to mutual accident and sick benefit associations. In 1951 this category accounted for approximately 20 percent of all medical care expenditures. The data on which the estimates for "all other medical care" are based were obtained for the most part from professional associations and questionnaires. The estimate for ophthalmic products is based on data obtained from the Census of Manufactures. Limitations on the Department of Commerce Estimates. The Department of Commerce estimates are subject to several limitations. First, the estimates attempt to portray consumer expenditures only. A detailed analysis of the total cost of medical care by object would require data on business and governmental fee payments to physicians, dentists, nurses, and other medical personnel. It would also require data on business and governmental payments to hospitals, net payments for insurance, and data on business and governmental expenditures for drugs and on salary payments to physicians and dentists. Second, the consumer expenditure data are subject to error because of the use of sampling techniques in gathering much of the information. Generally, the samples are not random and nonresponse is high. Under these circumstances the sampling error cannot be computed. Third, any estimate of medical care expenditures, especially the type related to physicians' services, does not take account of the volume of medical services for which some reduction in fee is granted. Fourth, the Department of Commerce estimates make no allowance for the improved quality of medical care. Since 1929, rapid strides have been made in conquering illness, and the quality of medical service rendered in 1951 was vastly superior to that of twenty years earlier. This fact means that the increased cost of medical care must be viewed in the light of the fact that the American people are getting more for their


Hedth, Medical Care, and Payment

money in terms of longer life. Unfortunately, no satisfactory statistical method of determining quality changes has been devised. NONCONSUMER EXPENDITURES FOR MEDICAL CARE

Physicians. It was estimated that in 1949 physicians in the aggregate received approximately $244 million from government and welfare agencies, workmen's compensation cases, and examinations for life insurance companies and other business organizations. Nonconsumer salary payments to physicians in 1949 were estimated as approximately $270 million. Nonconsumer payments to physicians on a fee basis in 1949 were approximately 11 percent of consumer expenditures for medical care that year. In 1941 nonconsumer payments represented about 10 percent of all consumer medical expenditures. Figures for 1951 were not available. Dentists. Data on nonconsumer expenditures for dental care were available for 1948. It was estimated that nonconsumer fee payments to independent practitioners totaled approximately $50 million and that salary payments by government and business to dentists were approximately $22 million. Other Medical Services. Nonconsumer expenditure data for nurses and other medical services were not sufficiently complete to warrant an estimate. MEDICAL CARE PRICES

In studying changes in the cost of medical care, it is well to consider changes that have occurred in the prices of various items of medical service. The most comprehensive price data are those on prices for medical care for moderate-income families collected by the United States Department of Labor. Price indexes for 1949, 1950, and 1952 are tabulated in Table 16. These data show that, although the prices of medical care rose after 1949, they did not rise as rapidly as the consumers' price index. T h e highest indexes for 1949 (considering general categories) were hospital rates, dentists' fees, and physicians' fees. These categories continued to be the highest in 1951. Hospital rates were much higher in relation to the base year than other medical services. The very large increases that have occurred in hospital prices reflect the heavy impact of inflation on hospitals. T h e dependability of the Department of Labor price data cannot be easily assessed. Coverage is limited to thirty-four large cities, and within

The Cost of Illness



(1935-1939=100) YEAR

Price Index Consumers' Price Index (cost of living) Medical care and drugs I. Medical care, excluding drugs A. Physicians' fees (general practitioner, surgeon, specialist) 1. General practitioners' fees a. Office visit b. House visit c. Obstetric visit 2. Surgeons' and specialists' fees a. Appendectomy, adult b. Tonsillectomy, child B. Dentists' fees 1. Fillings 2. Extractions C. Optometrists' fees, eyeglasses D. Hospital rates 1. Men's pay ward 2. Semiprivate room 3. Private room . Group hospitalization" II. Prescriptions and drugs A. Prescriptions

1949 170.2 144.9 149.7

1950 171.9 147.9 153.1

1951 185.6 155.0 160.9

137.9 137.7 139.0 131.4 155.6 138.4 134.2 142.8 150.6 150.9 152.9 127.6 226.8 253.5 221.7 207.7

140.0 139.8 140.9 133.9 157.3 140.6 137.4 144.0 154.3 154.5 156.9 128.9 235.3 265.5 229.6 213.7

123.3 137.1

124.8 140.7

145.2 145.2 146.0 138.3 167.3 144.3 141.6 147.2 160.0 159.5 164.5 134.6 260.7 297.2 253.6 233.7 103.1 128.4 147.7

Source: American Medical Association, Bureau of Medical Economic Research, 1951 Expenditures for Medical Care. Miscellaneous Publication M-69 (August, 1952). 'December, 1950 = 100.

these cities not all medical services are priced. It cannot be said with confidence that prices in thirty-four cities reflect the prices in the nation. Within the limits of the sample there are also sources of error. It is very likely that prices of products, for example, are reported more accurately than prices of services. MEDICAL CARE COST




A study of aggregate expenditures for medical care does not provide information on the cost of specific types of illness or on the geographical


Health, Medical Care, and Payment

distribution of costs. There are no large-scale studies of a specific sort on the cost of illness. Small studies restricted to particular areas have been made, and two of these will be considered in detail. Study by Wiprud and Altman. A study by Wiprud and Altman on costs of hospitalized acute illness deserves considerable attention since it provides information of a type not previously collected. The universe on which this study was based consisted of 3,080 patients admitted to "13 general and allied special hospitals in the District of Columbia over a period of two weeks."4 The data gathered by the interviewen included "year of birth, occupation and industry of the patient and household head, number of persons in the family, family income, estimated loss of earnings from this illness, membership in a hospital or sickness insurance plan, source of funds to pay for this illness, other costs connected with the illness, and number of times members of the family were hospitalized in the past 12 months."5 On the basis of interviews with 1,796 patients, ten tables were constructed. These tables supply detailed information on such matters as length of stay by type of cause, on income and its relation to type of insurance, and on the distribution of patients by family income. Of particular interest is the tabulation on the average cost of hospitalized acute illness (see Table 146). It was found that cases involving surgical treatment cost, on the average, $304.10; obstetric cases averaged $303.60; and medical cases, $213.00. The over-all average cost of illness for hospitalized acute cases was $284.80. No indication of the scatter about the average was given, although the tabulations indicate that approximately 20 percent of the patients had costs of less than $50.00, and 0.9 percent had to meet bills of over $1,000.00. The principal components of cost were the charges made by hospitals and physicians. Report of the Heller Committee. The Heller Committee for Research in Social Economics of the University of California sponsored a survey for the period 1947-48 on the medical care expenditures of 455 families in the San Francisco Bay area. These families were in the middle-income group and by occupation were milk-wagon drivers, grocery clerks, and house painters. Data were collected on the characteristics and income of the families, medical expenditures, illnesses, prepaid medical care, and dentistry. The final report of the study was prepared by Emily H. Huntington.® The following facts and figures are extracted from her study: 'Theodore Wiprud and Isidore Altman, "Costs of Hospitalized Acute Illness," Journal of the American Medical Association, CXLIV (November, 1950), 835-839. 'Ibid. * Huntington, Cost of Medical Care.

The Cost of Illness


1. The 455 families that were studied spent $135,000, or approximately $300 per family, for all types of medical and dental care during 19471948. 2. The family expenditure for medical care represented about IVi percent of the total income of the group. Approximately IV2 percent was spent for dental services. 3. The range in the proportion of income spent was quite large (0 to 66 percent). Approximately one fourth of the families spent less than 2V2 percent of their incomes on medical care. Another one fourth spent 10 percent or more, and W2 percent of the families spent 25 percent or more. 4. Approximately one third of the total expenditure for medical care was spent for the services of physicians licensed to practice medicine; approximately 20 percent, for dental care; 20 percent, for drugs; 10 percent, for hospital care; and 8 percent, for insurance premiums. The remainder of the total was spent for eyeglasses, X rays, appliances, nursing, and miscellaneous items. 5. Approximately 60 percent of the families were members of a prepayment plan during 1947-1948, but only 20 percent had full-year memberships for everyone in the family. 6. Of the total expenditure for medical care, wives spent over 50 percent while husbands spent 12 percent, and children 21 percent. 7. It is impossible for a family to determine whether medical care expenditures for a given year will be large or small. The Heller report presents a valuable summary of medical care expenditures for a small area and a relatively restricted group of families. Since the families selected do not represent a random sample of the United States, or even of California, general application of the results is not warranted. DATA ON OTHER COSTS

Estimates on a national basis of the costs of medical education and research, income loss due to illness, and similar costs were generally not available. Some available but limited data are presented by way of illustration. Table 17 shows income loss due to nonoccupational illness and injury for the years 1948, 1949, and 1950. This table shows that in 1950 approximately $5 billion in income was lost as a result of nonoccupational illness. Adjustments were made for the net cost of income-loss (disability) insurance and for paid sick leave. Column 3 of Table 17 is useful for com-

Health, Medical Care, and Payment





Calendar Year 1948 1949 1950

Income Loss 4,111 4,358 4,984

Income Loss after 7-day Waiting Period 2,695 3,044 3,248

Source: Social Security Administration, "Voluntary Insurance Protection Against Sickness: Estimates for 1950," Social Security Bulletin, December, 1951, p. 23.

parison with insurance benefits, since waiting-period restrictions in most disability insurance contracts exclude these days. In 1951 it was estimated that $181 million was spent for medical research.7 This money was obtained from government, industry, philanthropy, hospitals, and medical schools. The largest share (42 percent) of the total was contributed by government. Industry accounted for 33 percent, philanthropy for 14 percent, and hospitals and medical schools for 11 percent. CONCLUDING


The total aggregate cost of illness to the people of the United States is unknown. The Department of Commerce medical care expenditure estimate of $9 billion in 1951 should be treated as a minimum figure. It is very likely that in 1951 total expenditures for medical care exceeded $10 billion and the cost of illness was greater than $15 billion. Percentagewise these estimates do not represent a large part of national income, but the variability of the incidence of illness means that in some areas and in some families the cost of illness could be, and probably has been, a financial catastrophe. 7 J. J. Schifferes, "Who pays for Medical Research?" Medical Economics, XXVIII (July, 1951), 64.




The methods by which the costs of medical care are met can best be outlined by considering the ways the various segments of the economy pay their medical bills. The spending units in the economy may be classified under three headings—consumers, business, and government. In this chapter the medical care expenditures of each of these major classifications will be discussed. CONSUMERS' EXPENDITURES

Consumers may pay for medical care through various prepayment plans, or they may pay direct by the use of current income, savings, or loans. Prepayment Expenditures. During recent years prepayment plans have played an increasingly important role in the consumer's payments for medical care.1 The expenditures for medical care on a prepayment basis for 1951 are given in Table 18. This table shows that the various agencies that provide medical care prepayment plans—commercial insurers, Blue Cross, Blue Shield, and independent organizations—received $1,660.3 million in premium income in 1951. This figure is based on the assumption that no part of the premium was returned to the insured and is an estimate of the total amount spent by consumers for medical care via prepayment plans. 1 Prepayment plans are arrangements whereby the consumer pays a fixed amount of money monthly, quarterly, semiannually, or annually to an organization which agrees to provide cash or medical service of specified types in the event of sickness or injury. An insurance contract is usually involved, though not necessarily. The various prepayment plans now in existence in the United States are described in detail in Part III.

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Generally, in the United States, the requirement of payment for medical care by some person (or organization) other than the person requiring care has not been imposed by law. The only exceptions to this statement are the medical care provisions of the workmen's compensation laws of the several states and the hospital provision of the California disability insurance law. Workmen's compensation is a legal remedy that makes the employer responsible for accidental injuries to employees (whether or not they were at fault) arising out of and in the course of employment. The benefits provided by workmen's compensation acts are of two kinds. An employee who has suffered an injury that entitles him to benefits receives (1) a periodic cash payment, usually weekly, designed to recompense him in part for wage loss and (2) medical, surgical, and hospital care. This chapter will be primarily concerned with the medical care provisions of the workmen's compensation laws and the methods used to inSure payment for these medical benefits. WORKMEN'S COMPENSATION INSURANCE T h e state laws governing workmen's compensation require that the employer demonstrate that he is financially able to meet the liability that may arise as a result of industrial injuries. The usual method of demonstrating financial responsibility is by workmen's compensation insurance. This type of insurance has been defined as the "insurance of the obligation to pay compensation benefits under a compensation act." 1 Seven states require 1

Hobbs, Workmen's Compensation Insurance, p. 323.

Medical Care Required by Law


insurance in a monopolistic state fund. The remaining states accept insurance with a private insurer or in a competitive state fund, self insurance, or some other type of security as suitable evidence of financial responsibility.» When the employer selects insurance as the means of carrying out his obligation under a workmen's compensation act, he buys a contract from an insurer that requires the insurer to respond in the event a claim is made against the employer. The medical care section of a typical workmen's compensation and employers' liability contract reads as follows: (1) To pay promptly to any person entitled thereto, under the Workmen's Compensation Law and in the manner therein provided, the entire amount of any sum due, and all installments thereof as they become due, (2) For the benefit of such person the proper cost of whatever medical, surgical, nurse or hospital services, medical or surgical apparatus or appliances and medicines, or, in the event of fatal injury, whatever funeral expenses are required by the provisions of such Workmen's Compensation Law. MEDICAL





The medical care benefits provided by workmen's compensation laws show considerable variation. The states of California, Connecticut, Idaho, Illinois, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New York, and North Dakota provide medical aid that is unlimited in period and amount Six of these states—California, Illinois, Maryland, Minnesota, Mississippi, and New York—indicate that artificial members, crutches, and other apparatus will be supplied to the injured employee. The state of Illinois limits the period of treatment for asbestosis or silicosis to a period of six months. Also, artificial teeth are not provided in cases of occupational disease. The states of Maryland and Minnesota include the repair of artificial members as a part of medical benefits. The Nebraska law does not specifically limit benefits as to period and amount but indicates that such benefits are subject to the approval of the compensation commissioner. The New York law provides that in addition to the benefits already indicated the employer or commissioner must authorize expenditures in excess of $25 for specialist consultations, surgical operations, or physiotherapeutic procedures. Authorization is also necessary for laboratory or X-ray tests in excess of $10. The Massachusetts law provides that, at the discretion of the department in charge of workmen's compensation, artificial eyes, limbs, or appliances may be provided. 'Ibid., p. 318. Only one state, New Hampshire, makes no specific mention of insurance. Further, not all states have competitive state funds.


Prepayment Plans

Eleven states—Florida, Iowa, Louisiana, New Jersey, New Mexico, Ohio, Oregon, Rhode Island, Utah, West Virginia, and Wyoming—provide benefits unlimited as to period but limited as to amount. Florida has a monetary limit of $1,000 but indicates that crutches, apparatus, and artificial members are to be provided and that the commission may order additional treatment. The Iowa law provides a maximum for medical and surgical treatment of $500 with a maximum of $1,000 for hospital services and supplies. The employer is obligated to furnish necessary crutches and artifical members. An additional $1,000 is allowable for surgical, medical, osteopathic, chiropractic, and hospital services and supplies at the discretion of the commissioner. The state of New Jersey has no limit as to the period of benefits but indicates a maximum of $50 for physicians' or surgeons' services and, in addition, $50 for hospital service and appliances, with such amounts being subject to increase by the bureau. Artificial eyes, teeth, and limbs are to be provided. New Mexico has a monetary limit on benefits of $700, but this maximum is subject to increase by the district court. Artificial members, including eyes or teeth, are to be provided, and the employer is liable for malpractice. The Ohio law places the dollar maximum on benefits at $200 but provides for the payment of additional amounts if approved by the Workmen's Compensation Commission. The state of Oregon specifies the following maxima: $100 for hospital accommodations, $100 for surgical and medical service, and $50 for transportation, medicine, etc. These amounts are subject to extension on the approval of the commission. The Rhode Island law specifies a maximum of $300, exclusive of hospital expense, in cases where hospital treatment is received for fourteen days or less and a maximum of $500, exclusive of hospital expense, in cases where hospital treatment is received for more than fourteen days. Hospital charges are not to exceed $10 per day, except diathermy and massage treatments, these being limited to $75. Dental service and artificial teeth are provided. West Virginia places a maximum of $800 on medical benefits. The commissioner may authorize an expenditure of an additional amount not to exceed $600 in permanent disability cases, if it is possible to reduce the degree of disability by additional treatment. The state of Wyoming provides a maximum of $150 for medical aid and $150 for hospital expenses to be paid in cases of total disability and permanent partial disability. The Louisiana law specifies a maximum of $500. The Utah law contains a maximum of $1,000. It also contains a provision that the maximum liability for artificial limb or eye shall be $450 each. Eleven states—Arkansas, Indiana, Michigan, Missouri, Nevada, New Hampshire, Oklahoma, South Carolina, Texas, Virginia, and Washing-

Medical Care Required by Law


ton—provide limits as to the length of time medical benefits are payable but not as to amount. The maximum duration of medical benefits provided by the Arkansas compensation law is six months. The Workmen's Compensation Commission may extend the period without limit. Crutches and apparatus are included. In cases of silicosis or asbestosis, medical aid is limited to 90 days from the date of disablement, subject to extension by the commission for an additional 90 days. The maximum duration of medical benefits in Indiana is 180 days, subject to extension by the board. Artificial members and apparatus are included. The Michigan law states that the maximum duration of benefits is six months after injury, with a possible addition of three six-month periods at the discretion of the commission. Artificial appliances and apparatus are included. The Missouri law has a 90-day limit on medical benefits, but the commission may extend the period. The state of Nevada places a six-month limit on benefits but the commission may extend the period to eighteen months. Crutches, apparatus, and artificial members are included in the benefits. The New Hampshire law specifies a 90-day limit on benefits subject to extension by the Commissioner of Labor. A provision is made for the replacement of false teeth, glasses, or artificial members. The employee has the right of selecting a duly qualified physician or other remedial care upon due notice to the employer. The state of Oklahoma has a 60-day limit on workmen's compensation benefits, subject to extension by the commission. Crutches and other apparatus are included. South Carolina has a ten-week limit on benefits, subject to extension by the commission. Original artificial members are to be provided. The Texas law provides a limitation of four weeks, subject to extension to 91 days for injury requiring medical attention and nursing, and to 180 days for injury requiring the usual hospital services in cases requiring hospital confinement. The Virginia law has a 60-day limit on benefits, although the commission may order treatment for an additional period not to exceed 180 days. The state of Washington provides that, in the case of temporary disability, medical benefits shall not be paid beyond the period of compensation payments and in the case of permanent disability not beyond the date of award. The period of treatment may be extended by order of the compensation board when necessary for complete recovery. Necessary mechanical appliances are provided. The Wisconsin law provides that medical benefits shall not be paid beyond the period for which indemnity is payable. Artificial members, crutches, and other apparatus are included. The remaining states—Alabama, Arizona, Colorado, Delaware, Georgia, Kansas, Kentucky, Maine, Montana, North Carolina, Pennsylvania, South


Prepayment Plans

Dakota, Tennessee, and Vermont—provide limitations as to the period of benefits and as to the amount. All of these states with the exception of Pennsylvania and Vermont make some provision for artificial appliances. (See Appendix A for details.) The maximum time and monetary limits are as follows: Alabama, 90 days, $500; Arizona, specific limits not stated, but it is implied that limits do exist except during temporary disability; Colorado, 6 months, $1,000 with a dental maximum of $500; Delaware, 30 days, with the monetary limit not to exceed the regular costs for services, medicine, and supplies; Georgia, 10 weeks, $500 with additional time and additional $250 at the discretion of the Workmen's Compensation Board; Kansas, 120 days, maximum total amount $1,500; Kentucky, $2,500 during disability; Maine, 30 days, $100 with time and amount subject to extension by the commission; Montana, 9 months, $1,000; North Carolina, 10 weeks subject to extension by Workmen's Compensation Commission, no monetary limit except for certain occupational diseases; Pennsylvania, 90 days, $225, hospital treatment for 60 days, but Workmen's Compensation Board may grant additional 30 days; South Dakota, 20 weeks, $700 for hospital services and $300 for medical and surgical services; Tennessee, 6 months, $800; Vermont, 90 consecutive days, $1,000. Although many states have limitations in their workmen's compensation laws, they are often not effective since extensive, if not full, treatment is often given for practical or humanitarian reasons. In many cases insurers save money providing medical care and cutting periods of disability. DISABILITY


Four states have passed disability insurance laws for the purpose of compensating workers who are disabled because of nonoccupational accident or injury. These states are Rhode Island (1942), California (1946), New Jersey (1948), and New York (1949). California was the only one of these states to include a provision for limited medical care. The law of that state specifies that hospital benefits of $8 per day may be paid for a maximum of 12 days in a benefit year.8 To date there is no indication that other states having disability laws will include provision for medical care or that new disability laws will be passed. •On May 11, 1953, the lower house of the California legislature passed a bill providing for an increase in hospital benefits to $10 per day.




There are organizations selling medical care insurance contracts that do not fit into the classification of insurers thus far considered. These groups consist mainly of nonprofit hospital associations that have not sought or received the approval of the American Hospital Association and are thus not Blue Cross plans; medical insurance associations that may have received the approval of local medical societies but are not Blue Shield plans; and fraternal societies. The volume of business written by these organizations is small when compared with that done by commercial insurers, Blue Cross, Blue Shield, and group-practice prepayment plans. The number of nonprofit, non-Blue Cross plans and other medical insurance organizations that are in operation in the United States is not known accurately. It is estimated that approximately twenty-one fraternal societies sell some form of medical care insurance.1 Accurate enrollment figures are not available, since most reports on the subject do not give a detailed breakdown on numbers enrolled. The special work done by the Medical Payments Project on fraternal societies indicates that at least 94,978 persons carry some form of fraternal medical care insurance. The benefits provided by these organizations are much the same as those for similar plans that have already been discussed. A detailed account of the provisions of contracts of all plans would be redundant and will not be attempted here. A few illustrative examples will indicate the types of benefits provided. 1 Based on information supplied to the Medical Payments Project by 234 fraternal societies in the United States.


Prepayment Plans HOSPITAL


The hospital plans that may be placed in the "other" classification that was described generally offer the same type of benefits as Blue Cross plans. Members may be enrolled on a group or an individual basis. Group benefits are typically between $5 or $10 per day for room, board, and general nursing service for a specified number of days per calendar year. So far as hospitals can provide them, the following services are included: use of operating room, anesthesia, X-ray service, laboratory service, drugs, dressings and casts, basal metabolism examination, physiotherapy, electrocardiograms, oxygen, and serums. Additional days of care per calendar year are usually provided at half rates. Outpatient service, maternity care, and other benefits are provided up to certain stated amounts. There are the usual waiting periods, restrictions, and exclusions. Monthly premium rates vary according to the number of persons involved and the room allowance selected. A MEDICAL PLAN

The laws in the state of Ohio governing the establishing of nonprofit medical plans are so restrictive that no plans have been organized under those laws. In order to supply the people of Ohio with benefits similar to Blue Shield plans in other states, two insurance companies were organized. One of these companies, the Ohio Medical Indemnity, Incorporated, was established by physicians and is now affiliated with Blue Shield. The other company, the Medical Mutual of Cleveland, Incorporated, is not a member of Blue Shield but offers medical benefits similar to those offered by Blue Shield plans. The Medical Mutual serves five counties in northeastern Ohio and has cooperated, since 1948, with the Cleveland Academy of Medicine. This cooperation means that those physicians who have entered into agreements with the Cleveland Academy agree to accept the fees allowed by the academy's fee schedule and adopted by the Medical Mutual as full payment for services rendered to persons earning less than $5,000 per year. It should be emphasized that the insured may select any physician he likes, but if he selects a participating physician he is sure to have the entire fee paid by the insurer. Enrollment in the Medical Mutual is on a group basis, and the contracts provide cash payments. More than one thousand operations are covered by the fee schedule, and allowances may range as high as $300.2 In cases " Sec the Medical Care Plan of the Academy of Medicine of Cleveland Schedule of Allowances, Cleveland: The Medical Mutual of Cleveland, Inc.

Other Prepayment Plans


where the insured is merely a bed patient in the hospital and does not require surgical or obstetrical care, the physician's bill will be paid up to $10 for the first day, $5 per day for the next 20 days, and $2 per day for the next 99 days. Maternity benefits are provided if the mother has been enrolled continuously under a family contract for nine or more months immediately before admission to the hospital. Participating physicians have not agreed to limit their charges in childbirth cases. Medical Mutual will pay up to $60 for a normal delivery, up to $200 for a Caesarean section, and up to $250 for a Caesarean section and hysterectomy. The monthly premium rates vary from $1.25 for one individual subscribing for surgical services only to $4.20 for a family group for surgical and medical service. FRATERNAL


Previous studies in the area of medical care payments indicated that little if any information was in existence concerning the role played by fraternal societies in paying for medical care. In order to shed some light on this problem, the director of the Medical Payments Project sent out letters to 234 fraternal societies asking them to supply information on their activities in medical care insurance.3 Approximately 60 percent of these societies replied. Of the societies that replied approximately 78 percent indicated no medical care coverage. There were 21 societies that indicated some type of medical care coverage. Five of them provided direct services of a more or less limited variety; 13 sold hospital, medical, or surgical insurance contracts; and 3 did not specify the type of coverage that they offered. The direct medical services offered were generally limited. One society located in Illinois indicated that there were nine physicians among their membership who agreed to provide services consisting of home or office calls for other members of the society. The charge for the service was one dollar per year per member. A fraternal society in Nebraska indicated that it operated a hospital for free treatment of its members who were suffering from tuberculosis. The hospital was established in 1923 and over the years has afforded free treatment and care to more than 4,500 members afflicted with tuberculosis. A fraternal society located in Illinois also operates a tuberculosis hospital and in addition provides monetary aid for junior members who need ophthalmological services. A New York society operates • T h e r e are more than 234 fraternal societies in the United States. Many of them are extremely small and offer death benefits only. It was impossible to obtain a complete list of these organizations. It is felt that the societies that were contacted were the ones most likely to offer medical benefits.


Prepayment Plans TABLE 8 6


Type of Coverage

Hospital Medical Surgical Nursing

Members 77,592 40,449 57,043 10,756

Dependents 17,386 13,290 5

Total 94,978 53,739 58,316» 10,756

* One plan with 1,268 enrollees did not distinguish between members and dependents.

a medical panel consisting of specialists who make reasonable charges. Still another society provides surgical services through a surgeon member. The details of the direct medical services offered by fraternal societies are not available. T h e facts that are known should be considered as illustrative only. Eight societies submitted enrollment data relating to their medical care programs. These indicated that they wrote some form of medical care insurance on an individual basis. Table 86 shows the number of members enrolled for the various medical coverages. T h e data of Table 86 should be regarded as minimum figures, since they do not represent a complete canvass of the societies writing medical care insurance. These data serve to show that a substantial number of people are receiving funds for the payment of medical care through their membership in fraternal societies. CONCLUDING STATEMENT T h e medical care payment organizations considered in this chapter provide a means of paying for a part of the cost of medical care for small segments of the population. They render an important service in their spheres of influence, but their services would be enhanced if their benefits were more comprehensive. Their defects are similar to those discussed in connection with other limited medical care programs. Probably these defects cannot be eliminated unless a large amount of money is expended for program expansion.




The limitations and exclusions of medical care insurance contracts offered by commercial insurers, Blue Cross, Blue Shield, and other agencies have given rise to several developments designed to broaden the scope of benefits offered. Some of these developments have been discussed in the chapter on comprehensive plans. Other developments, along different lines, will now be considered. INSURANCE FOR MAJOR MEDICAL


Medical care insurance contracts offered by commercial insurers, Blue Cross, Blue Shield, and other agencies have provided inadequate protection in many instances against the financial consequences of catastrophic illnesses.1 For many years students of medical care insurance have felt 1 The use of the expression "catastrophic illness" has caused some confusion in the past because of the tendency to use it as a medical term relating to some type of illness. This tendency is unfortunate, since Aînesses are ordinarily classified as acute or chronic and either classification may include illnesses that are catastrophic in a financial sense. A catastrophic illness may be defined as any illness, acute or chronic, the financial impact of which seriously disrupts the family budget. Thus, a catastrophic illness is strictly an economic phenomenon. Whether or not an illness is catastrophic for a particular family or individual depends primarily on income but also on the amount of savings and other financial resources of the patient. It also depends on whether the ill person is responsible for the income of the household or whether he is dependent on someone else for a livelihood. Other factors that may determine whether or not the impact is catastrophic are the patient's attitudes as to hospital accommodations and type of hospital and the need for auxiliary services (e.g., private nursing). In view of


Prepayment Plans

that some type of insurance coverage should be developed to meet the need of those persons who incur large medical expenses through illnesses of a nonoccupational kind. As a solution for this problem insurance contracts for major medical expense were developed. These contrasts are now being offered by several life and casualty insurers.2 For the most part this type of coverage is being offered on a group basis to employers who already have the usual type of group medical care insurance. In effect such coverage becomes a supplement to existing programs.3 In general terms an insurance contract for major medical expense agrees to pay a stated percentage of covered medical expenses up to a predetermined maximum limit, excluding expenses reimbursed under existing plans 4 and excluding a fixed deductible amount. The percentage, maximum limit, and deductible amount vary, depending on the provisions of the contract. In a survey conducted by the Life Insurance Association of America it was found that maximum limits varied between $2,500 and $10,000.5 This limit may apply to any one illness, any one family member, or to the total payable in any one contract year. The deductible amounts may vary from $100 to $500, and the percentage β of the bill paid above the deductible and up to the maximum limit may vary from 70 percent to 80 percent. The premium charged for a major medical expense contract depends on whether the contract is offered on a group or individual basis, whether dependents are covered, on the percentage applied, the maximum limit, these facts it is impossible to state categorically that a bill amounting to χ dollars per unit of time is catastrophic in its effect. Probably for people in the income range of $3,500 to $5,000, a $2,000 medical bill in any one year would be catastrophic, but the other financial resources of the individual would have to be known before a definite decision could be made. For many families a surgical operation and attendant hospitalization constitute a major financial problem. For these families the usual medical care insurance contracts of commercial insurers, Blue Cross, Blue Shield, and other agencies may provide adequate protection against catastrophic illness or at least reduce the financial impact. Other families may be able to meet the expense of the usual type of surgery and hospitalization with very little difficulty and need protection only for the more costly types of medical care. It is also likely that families who are protected by the usual types of medical care insurance contracts may need protection for medical expenses that go beyond the provisions of those contracts. For additional discussion see Hohaus, Catastrophic Illness from the Standpoint of Existing Plans and Programs. ' T h e exact number is not known. Five large life insurers and two casualty insurers supplied material to the Columbia project. It is known that other insurers are experimenting with this coverage and may now be offering it to the public. * It should be pointed out that at least one large life insurer and one casualty insurer offer major medical expense coverage on an individual basis. ' Including workmen's compensation laws. ' M o r e recent information indicates that the maximum may be as low as $2,000. ' Sometimes referred to as the coinsurance percentage.

Developments in Extension of Coverage


the deductible amount, and for group contracts on the composition of the group. Data obtained from the Life Insurance Association of America reveal that premium rates vary from $15 to $85 a year for individuals, from $30 to $130 for couples, and from $40 to $175 for families. (Additional premium information is given in Tables 190 and 191.) As in the case of other medical care coverages, major medical expense contracts have various limitations and exclusions. As an example of the type of medical expenses covered and the type excluded, the provisions of a contract offered by one insurer follow. The medical expenses covered by this insurer are the following: 1. Physicians' and surgeons' fees. 2. Registered graduate nurses' charges—other than those of a nurse who ordinarily resides in the employee's home or who is a member of his immediate family. 3. Hospital bills. If private accommodations are used, any excess of daily board and room charges over a private room limit of $11 per day will be excluded from the definition of covered medical expenses. 4. The following services and supplies when their necessity is certified by the attending physician: a. Drugs and medicines requiring a doctor's prescription. b. Anesthesia. c. Diagnostic X-ray and laboratory service. d. X-ray, radium, and radioactive isotopes therapy. e. Oxygen and rental equipment for the administration of oxygen. f. Rental of iron lung and other mechanical equipment for the treatment of respiratory paralysis. The foregoing list is not intended to limit the miscellaneous services and supplies that may be administered in the hospital and are paid for later, when they appear on the hospital bills. The medical expenses excluded by the same insurer are the following: 1. Expenses reimbursed under other plans. 2. Expenses in connection with a sickness commencing or an injury occurring before the individual becomes insured, but only so long as the individual remains under treatment for that sickness or injury. This exclusion will cease at the end of any ninety-day period during which the individual does not receive for such sickness or injury any kind of medical, hospital, or nursing treatment or medicine requiring a doctor's prescription.




3. Expenses due to pregnancy; but charges for surgical operations, and related charges incurred thereafter, will not be excluded when the operation is for extrauterine pregnancy or for complications requiring intra-abdominal surgery after termination of pregnancy. 4. Dental expenses, except to the extent necessary to repair injuries caused by an accident occurring while insured. 5. Cosmetic surgery, except to the extent necessary to repair disfigurement due to an accident occurring while insured. 6. Treatment of alcoholism or narcotic habits. 7. Health examinations and normal eye examinations. 8. Expenses for any disease or injury which is occasioned by declared or undeclared war. 9. Expenses not certified as necessary and reasonable by the attending physician. 10. Services or supplies for which the employee is not required to make payment, including any charges for treatment received in a U.S. government hospital. When an individual has been paid the maximum limit, his major medical expense coverage ceases. He may be reinstated only on the presentation of evidence of insurability satisfactory to the insurer. Cancellation of employee coverage does not require cancellation of dependent coverage. If an individual's coverage is canceled for any reason other than the payment of the maximum limit and if he is totally disabled at the time of cancellation, benefit payments will continue for two yean during such disability but only if the medical expenses have arisen as a result of the disability. Because of the newness of the major medical expense coverage, adequate figures on enrollment, financial experience, and characteristics of the insureds are not available. For the most part this type of coverage is still in the experimental stage. EXTENSION OF COVERAGE FOR SPECIFIED


Health Plan of the California Physicians' Service for Catastrophic Illnesses.'' In 1951 the California Physicians' Service announced a new plan for catastrophic illnesses that would be made available only to groups T In addition to the California Physicians' Service, the Mississippi Hospital and Medical Service and the Dallas Blue Cross and Blue Shield plans offer contracts providing coverage for specified catastrophic illnesses. T h e California plan is discussed by way of illustration.

Developments in Extension of Coverage


that meet the minimum enrollment percentage requirements of the combined services of the California Physicians' Service and Blue Shield. This coverage was available only to those insureds who were covered by the standard California Physicians' Service group contract. The new plan provides payment for medical services, surgical services, X-ray services, and laboratory services for the insured and his family for a period of two years from the date services were first provided for certain listed illnesses, or until $5,000 in benefits have been paid. A member may choose his physician from any of the 10,350 physician members of the California Physicians' Service. If a nonmember physician renders the service in California he will be paid the same amount that is paid to member physicians. Member physicians agree to accept the California Physicians' Service fees in full payment if the annual gross family income is less than $3,600. The twenty-three illnesses covered by the new plan are: cancer, tuberculosis, diabetes, poliomyelitis, osteomyelitis, rheumatic fever, brain tumors, congenital heart disease, coronary artery disease, paralysis, epilepsy, pernicious anemia, hemophilia, Raynaud's disease, malaria, undulant fever, Hodgkin's disease, leukemia, goiter, detached retina, severe fractures, severe burns, and cirrhosis of the liver. Payment will not be made for the expenses connected with any of the illnesses listed if any of the illnesses existed prior to the effective date of the contract. Maximum payments apply to each member for each listed illness except that if a member suffers two or more of the listed illnesses concurrently only one maximum is allowed. The monthly rates for the coverage of catastrophic illness are: male, $.90; female, $1.15; two-person contract, $1.95; and contract for three or more persons, $2.20. Because of the newness and essentially experimental character of this new coverage, data on financial experience are not available. Polio Iíisurance.8 Although polio insurance is not so recent a development as insurance for major medical expense or other catastrophic conditions, it does represent an important development in the extension of coverage to a disease that often requires extensive medical treatment. In 1950 the Health and Accident Underwriters Conference conducted a survey of eleven polio contracts written by commercial insurers belonging to the conference. These contracts provided that the insurer would pay the medical and hospital expenses connected with a case of polio up to a stated maximum. In nine contracts the maximum was stated as $5,000, • A n example of a Blue Cross-Blue Shield plan that offers protection against polio is the Hospital Savings Association of North Carolina.


Prepayment Plans

one contract provided a $10,000 maximum, and one contract stated its maximum as $6,000. Five contracts provided no time limit on the benefits. Of the six contracts stating such limits, five contracts specified 3 years and one contract 5 years. Generally no waiting period for benefits was imposed, although two contracts specified 14 days and one contract 5 days. Five contracts carried no age limitations, one contract stated a limitation of 14 days to 80 years, one contract stated a limitation of 0 days to 100 years, and four contracts specified limits of from 0 days to 18 years. All but one contract was written on a cancellable basis. No specific limit was placed in any contract on the amount for hospital bills, but benefits for nursing care were limited in three contracts to $10 per day and in three contracts to $12 per day, and one contract set a limit of three nurses in 24 hours. T h e extra services provided by the polio contracts varied somewhat. All of the contracts provided for an iron lung; three contracts provided X-ray service while eight did not; one contract provided for blood transfusions but ten did not; drugs and medicines were provided by ten contracts and excluded in one contract; nine contracts provided crutches and braces, but two did not; physiotherapy treatment was included in five contracts but excluded in six contracts; all but one contract provided air or rail transportation to another locality if recommended by a physician. Limits were placed on ambulance fees by seven contracts. Polio contracts have met with considerable success. In sold 92,267 individual contracts and 316,668 family group premiums earned during 1950 amounted to $5,462,469, curred totaled $2,687,695. T h e average amount paid per contracts was $526.42.

1950 there were contracts. Total and claims inclaim for polio

Dread Disease Insurance. Insurance contracts for dread disease have been developed in recent years. These contracts provide cash payment up to a stated maximum for medical expenses incurred in connection with diseases that often require extensive medical treatment. T h e Health and Accident Underwriters Conference studied 25 dread disease contracts. They found that all of the contracts covered the following diseases: poliomyelitis, encephalitis, diphtheria, tetanus, scarlet fever, and spinal meningitis. Twenty-four and 23 contracts respectively covered smallpox and leukemia. Twelve contracts provided coverage for rabies and 9 for tularemia. O n e contract provided accidental dismemberment benefits, 4 contracts had benefits of $1,000 for cancer, and 2 contracts covered cerebral meningitis and typhoid. Generally benefits for the diseases covered

Developments in Extension of Coverage


were limited to $5,000, although 1 contract provided a maximum of $6,000 and 1 a maximum of $10,000. The other benefits offered by the dread disease contracts, such as X-ray service, blood transfusions, drugs and medicines, iron lung, transportation, crutches and braces, and physiotherapy, followed much the same pattern as for polio contracts. As in other medical care insurance contracts there were certain restrictions. Roughly 50 percent of the contracts had age limits, and approximately 90 percent of the contracts imposed waiting periods and time limits on the benefits. The period of time during which dread disease contracts have been written is so short that the available statistical information is not very extensive. In 1950 there were 8,061 individual contracts and 103,257 contracts issued on a family group basis. Earned premiums in 1950 amounted to $913,664 and incurred claims $305,789. The average amount paid per claim was $268.56. These figures indicate a favorable financial experience, but they should not be considered typical since a high percentage of the exposed premium was probably for the first contract year. PLANS FOR EXTENDING



The Group Health Insurance Semiprivate Plan. In May, 1951, Group Health Insurance, Incorporated, located in New York city, announced a new plan for insurance against medical and surgical costs.8 This plan, known as the G.H.I, semiprivate plan, is designed to pay the entire bill of a participating physician for medical and surgical services if the subscriber is hospitalized in a semiprivate room. The benefits apply for patients of all income levels and are available only to employed groups. The benefits offered under the new plan are of two kinds—service and cash payment. Under service benefits the entire bill of the physician is paid if the patient is hospitalized in a semiprivate room, and if the services of a participating physician are utilized. Cash payment benefits are offered for surgical operations performed outside the hospital, for physicians' services anywhere in the world outside the New York area, for physicians' services while hospitalized in a private room, and for treatment by a nonparticipating physician. The specific benefits offered by G.H.I, are: • G r o u p Health Insurance, Inc., was organized in 1939 as a nonprofit membership corporation under Section 9(c) of the New York insurance law. Approximately 9,000 physicians have entered into an agreement with G.H.I, whereby they accept the allowances of the G.H.I, fee schedule as full payment of services rendered. (See exceptions described in the text.) W h e n G.H.I, was started, the participating physicians in effect underwrote the plan in that they agreed to accept lower fees if such became necessary to maintain the financial solvency of the organization.


Prepayment Plans

1. Nonsurgical medical care in hospitalized cases for a total of 201 days in each period of hospitalization. 2. Surgical care in the hospital. 3. Surgical care performed in the physician's office or in the patient's home. 4. Maternity care if covered under a family contract. One bedside consultation with an accredited specialist in each hospitalized illness. 6. Visiting nurse service. Extensions on the basic benefits are possible through the purchase of riders. One rider agrees to pay $3 per visit to a physician's office and $4 per visit to the patient's home, excluding the first three visits in anyextended period of sickness; and another rider promises to pay substantial benefits toward the cost of diagnostic X-ray and laboratory examinations. A six-month waiting period is imposed for the removal of tonsils and adenoids and a nine-month waiting period for the care of any condition existing on the effective date of the contract. These waiting periods are waived for all subscribers in groups of fifty or more employees. Any obstetrical case or treatment for a condition arising out of or during pregnancy is not covered until nine months have elapsed. Certain illnesses are not covered by the plan. These illnesses are: functional nervous and mental disorders; pulmonary tuberculosis after diagnosis as such, except for surgical care rendered in such a case; cosmetic surgery; injuries or diseases the treatment of which is available without cost to the family member under state or federal laws (such as workmen's compensation and veterans' compensation laws, etc.); services ordinarily performed by a dentist; and services for which the patient incurs no physician's charge. The monthly premiums for the new plan are $0.90 for an individual, $2.10 for a husband and wife, and $3.15 for a family (husband, wife, and unmarried children under eighteen years of age). The G.H.I. semiprivate plan affords in the medical field a parallel to the Blue Cross plan in the hospital field, because it assures the subscriber that if he accepts semiprivate hospital accommodations his physician's bill will be paid, subject to certain limitations and exclusions. A PLAN FOR FARMERS

Because most medical care prepayment plans operate on a group insurance basis, their enrollment comes largely from employees of business and


in Extension of Coverage


industrial concerns. This fact means that persons living outside urban areas generally must, on their own initiative, buy individual insurance contracts from commercial insurers, Blue Cross, Blue Shield, or some other organization. Farmers in particular often do not have medical care insurance coverage. In recognition of this fact the Farm Bureau Insurance Companies of Columbus, Ohio, inaugurated in 1943 a program of group hospital and surgical insurance for rural groups. Each county farm bureau acts as the coordinating agent, and coverage is available to farm bureau members who are owners and operators of farms. Wives and children of eligible subscribers may also be insured. The largest number of subscribers are located in Ohio, although many rural groups in Vermont, Maryland, Connecticut, and Virginia are covered. As of June, 1952, approximately 65,000 persons living in five states had farm bureau medical care insurance contracts. The benefits offered to the insured are similar to those offered by commercial insurers and will not be described at length here. The monthly premium rates for the benefits are: individual member, $1.60; member and spouse, $3.20; member and child or children, $2.75; member, spouse, and child or children, $4.35. Generally the program has been successful in spite of the difficulties inherent in reaching prospective insureds through an organization. A PROPOSED DENTAL


Dental care is almost universally excluded from current medical care insurance programs, in spite of the fact that dental caries is the most prevalent disease in our society. Many dentists have felt that a dental insurance program similar to established medical programs should be offered to the public. In 1948 the First District Dental Society of New York sponsored the organization of Group Health Dental Insurance, Incorporated, a New York nonprofit corporation. As of 1952 the corporation had not yet sold any contracts to the public but was seeking to put into effect an insurance plan covering comprehensive dental services. It is hoped that this plan will serve as a guide to the establishment of similar plans in other communities throughout the nation. The plan as now conceived requires G.H.D.I. to enter into agreements with a large number of dentists who will be known as participating dentists. These dentists in turn will agree to accept the fees paid by the plan as full payment of their services for subscribers with income below $5,000


Prepayment Plans

per year. For families with incomes above that figure the plan will make cash payments according to a fee schedule, and the dentist may make an additional charge if he wishes. Enrollment will be available only to employed groups. To be eligible a group must consist of at least sixty persons, three fourths of whom must enroll themselves and their immediate dependents (wife or husband, and all unmarried children under eighteen years of age). A complete dental examination will be required of each subscriber. The correction of existing defects must be paid for by the subscriber, but G.H.D.I. will pay for any expenses beyond $150 per person for subscribers earning less than $5,000 per year. For high-income groups cash allowances will be paid. Once existing defects have been corrected G.H.D.I. will pay for preventive and other services required to maintain a state of dental health. Each subscriber has a free choice of any of the participating dentists. The type of care to be provided after joining the plan will include preventive care, operative work, extractions, prosthetics, oral surgery, periodontics, and orthodontics. A fee schedule has been drawn up, indicating the maximum amounts that will be paid for each type of service. The maxima vary from $2.50 for certain extractions to $100.00 for fractures requiring oral surgery. Proponents of the plan believe that it will do much to protect a person against unforeseeable dental expense and that in addition it will help to correct the present tendency toward under-utilization of preventive and prophylactic services. OTHER


Another type of development that is mostly in the experimental stage is the provision by hospitals of comprehensive medical services to small segments of the population. One such experiment was started in 1951 by Montefiore Hospital in New York city. The funds for the experiment were supplied by the Community Service Society. A co-sponsor of the program is the College of Physicians and Surgeons of Columbia University. The purpose of the project, which is called the Family Health Maintenance Demonstration, is to maintain health by bringing to bear on family problems the services of physicians, nurses, social workers, nutritionists, and other specialists. It is expected that in 1953 some 1,000 persons will be under observation. So far, the principle of prepayment has not been utilized, but developments of this type might well occur within the


in Extension of Coverage


framework of existing prepayment organizations, particularly those employing the idea of group practice. CONCLUDING


A consideration of the material presented in this chapter indicates that progress has been made in the direction of protecting against a larger number of illnesses and in covering additional groups of persons. Certain illnesses, such as tuberculosis and mental disease, are still not included. But in spite of remaining limitations it is encouraging that experimentation continues, for in this direction lies hope that the problems of medical care insurance will be solved.




All prepayment plans for the furnishing of medical care or cash payment for such care must conform to certain statutory requirements. Not all plans are organized under the same set of laws. Commercial insurers selling medical care contracts are organized under the general insurance laws of the state of domicile. Blue Cross, Blue Shield, and other noncommercial plans are usually organized under special enabling legislation. All plans are subject in some degree to supervision by the insurance departments of the various states. The material to follow summarizes the important features of certain legal aspects of prepayment plans. COMMERCIAL INSURANCE


T o be authorized to engage in accident and health insurance a commercial insurer must meet certain requirements as to capital and surplus. Under the New York law 1 a stock corporation, to engage in the business of accident and health insurance, must have a paid-in capital of not less than $100,000 and a paid-in surplus at least equal to 50 percent of its capital. In addition, every domestic company doing an accident and health insurance business must make a deposit with the superintendent of insurance equal to at least $100,000 in securities eligible for deposits. A mutual insurer, to organize under the New York law and engage in 1 The New York insurance law is used for illustrative purposes. There are some variations from state to state. Many large commercial insurers sell contracts in New York and hence conform to the New York law even though they are domiciled elsewhere.

Legal Aspects of Prepayment Plans


accident and health business only, must have not less than 500 bona fide applications for such insurance. Such an insurer must have received from each applicant in cash "the full amount of one annual premium on the policy applied for by him in an aggregate amount of at least $20,000, and shall have an initial surplus of $150,000 in cash, and shall have and maintain at all times a minimum surplus of $100,000." 2 The New York law defines any contract (except blanket health insurance contracts) which insures against disablement, disease, or sickness and which covers more than one person as a group health insurance contract. The law also states that no such contract may be issued or delivered in the state of New York unless the group of persons insured conforms to certain requirements.8 If the contract is issued to an employer or to the trustees of a fund established by an employer, not less than twenty-five employees must be covered by the contract. If the employer pays the entire premium, all employees must be covered for amounts of insurance based on a plan that precludes individual selection. If the employee pays part of the premium, then "such contract must cover not less than 75 percent of all employees or not less than 75 percent of any class or classes of employees determined by conditions pertaining to the employment." 4 A group contract may be issued to an incorporated or an unincorporated association of employees, including a labor union, if the following conditions are met. 1. The association must have a constitution and bylaws. 2. The association must have fifty or more members. 3. The association must have been organized for purposes other than that of obtaining insurance. 4. The association must have been maintained for not less than two years prior to the issuance of the contract. 5. The members covered by the group contract must be at least twentyfive in number and must represent at least 75 percent of all of the members. Additional rules are specified for contracts to be issued to the trustees of a fund established by the employer members of a trade association and to "trustees of a fund established by two or more employers in the same industry or by one or more labor unions or both." 'Insurance Law of the State of New York (Albany, Williams Press, 1950), p. 201. *The material in the remainder of this section is based on the New York law. See Section 221. 4 Insurance Law of the State of New York, p. 264.


Prepayment Plans

The law requires that every "domestic, foreign, or alien" insurer doing business in New York state must file with the superintendent of insurance its premium rates, classification of risks, and rules for issuing contracts, as well as maximum commissions or other compensation offered to soliciting agents. NONCOMMERCIAL HOSPITAL


As hospital service plans began to develop in the United States, the question arose as to whether these plans were in fact insurance and whether the organizations operating them should be treated in a manner similar to commercial insurers. The Baylor University plan was not considered insurance and was permitted to operate outside the general insurance laws. Other states took a different attitude, with the result that special legislation was necessary in states where nonprofit service plans could not be inaugurated unless they met the requirements of existing insurance laws. New York in 1934 was the first state to pass enabling legislation. Subsequently virtually all states either enacted special legislation or determined that such legislation was not necessary. The first enabling legislation was for hospital plans, which was followed later by laws governing the establishment of medical plans. Broadly speaking, the acts governing both types of plans were similar, with no new principles being established for medical plans. As of 1944, there were 33 enabling acts for hospital service plans and 14 for medical service plans. Odin W . Anderson, writing in 1944, indicated that enabling acts for hospital service plans had minor variations from state to state but contained the following basic features: 1. Authority is given to nonprofit corporations to contract with hospitals for the purpose of furnishing hospital care. 2. Any group of persons may incorporate, although in many states the incorporators have to be representatives of hospitals. 3. Any hospital, including any state hospital operating under state hospital laws, is eligible to participate in a hospital plan. 4. All contracts, whether with subscribers or hospitals, must be approved by the state insurance commissioner. ' F o r a more complete discussion see C. Rufus Rorem, "Enabling Legislation for Non-Profit Hospital Service Plans," Law and Contemporary Problems, VI (Autumn, 1939), 528-544 and Anderson, State Enabling Legislation for Non-Profit Hospital and Medical Plant.

Legal Aspects of Prepayment Plans


5. Prices (or premiums) charged to contract holders, rates of payment to hospitals, and acquisition and administrative expenses must be approved by the state insurance commissioner. 6. The corporation must be licensed by the state insurance commissioner, file an annual report, and be subject to an examination of its affairs by authorized state officials. 7. The corporation may invest its funds in the same type of securities as those permitted to life insurers. 8. Dissolution of the corporation is under the supervision of the commissioner of insurance. 9. The corporation is exempt from taxation.® The laws governing the establishment of nonprofit medical plans are similar to that of nonprofit hospital plans. In some cases the incorporators must be members of the medical profession, and in all cases the majority of the boards of trustees must be physicians. Some of the laws contain provisions designed to protect the right of the free choice of a physician, and in all cases participating physicians must be licensed under the laws of the state. There are a number of variations of the basic pattern. Some states are very specific concerning the composition of the boards of directors. In two states incorporation and licensing are not the responsibility of the insurance departments. A few states are very detailed concerning the content of the contracts. In two states, salary limits are set for officers of the corporation. One state, Ohio, will not permit a single person to enroll in a medical plan if his income is over $1,800 per year, and married persons may not enroll if their income is over $2,400 a year. Some states permit the enrollment of persons on relief, with the premiums to be paid out of public funds. Other variations concern the licensing of agents, dissolution and liquidation, investments, disputes, and reserves. Corporations organized under the nonprofit laws of a given state differ in many ways from corporations organized under the regular insurance laws in the requirements that they must meet for organization and in terms of the conditions surrounding the conduct of their business. The principal points of difference based on the New York law are: 1. No "non-profit, medical and dental indemnity or hospital service corporations" may issue a contract covering hospital, surgical, medical, and dental care, but such corporations may combine for administrative purposes. •Anderson, op. cit., pp. 12-13.


Prepayment Plans

2. These corporations may not be converted into organizations for profit, and "no foreign or alien medical expense indemnity or hospital service corporation shall be authorized to do business in this state." 7 3. Nonprofit corporations are exempt from taxes. 4. Agents are paid a salary and do not have to obtain a license. 5. The territory served by any nonprofit corporation must not exceed eighteen counties of the state. 6. A nonprofit medical care insurance corporation must have collected at least $1800 from subscribers before it may begin business. The differences in requirements between corporations organized under the regular insurance laws and those organized under nonprofit laws have important implications in the matter of insurance costs. Differences in the way agents are paid and exemption from taxation, if other costs are assumed to be equal, mean that one type of organization may be in a position to offer more benefits per dollar of premium than the other type. GROUP MEDICAL



Prepayment plans associated with the group practice of medicine face legal difficulties that are not associated with commercial insurance plans or with plans of the Blue Cross-Blue Shield type. The principal difficulty is the problem of the corporate practice of medicine, although restrictive legislation and professional discipline are also important factors. Generally the courts have held that corporations may not practice medicine, since corporations are "impersonal entities not qualified to practice healing arts under licensure statutes requiring personal qualifications such as professional competency and good character."® In a few cases it has been held that the corporate practice of medicine would debase the medical profession. Another view has been that the physician's loyalty would be transferred from the patient to the corporation. Although the corporate-practice rule has been a potent factor in deterring the formation of group-practice prepayment plans, it has been inconsistently applied. In a few cases the corporation has been declared to be "a convenient instrument for collective action of the members," and T

Insurance Law of the State of New York, Section 250, p. 286. •Horace R. Hansen, "Laws Affecting Croup Health Plans," Iowa Law Review, XXXV (Winter, 1950). 209-236. See also Article IX C, Insurance Law of the State of New York, Sections Ζ 50-260. 'Ibid., p. 212.

Legal Aspects of Prepayment Pians


the physicians involved were considered to be independent contractors. In all cases where the rule has been invoked, the corporations were those that had been organized for profit. A now famous case involving the question of the corporate practice of medicine is that of Croup Health Association v. Moor. In deciding in favor of Croup Health Association the court 10 said: I see no reason why an individual may not without violating the statute contract with a physician for medical services for a stipulated period at fixed compensation; and it would seem that a group of individuals might make the same arrangements with a group of physicians. It would seem that this group of individuals might incorporate themselves for their own mutual benefit for the same purpose. Such a corporation, not for profit, but for the mutual benefit of its members, is, in my opinion, not engaged in the practice of medicine or in holding itself out as doing so. It is true that a corporation can act only through its agents and employees, but the physicians with whom the plaintiff makes contracts are rather in the position of independent contractors, and the plaintiff does not in any way undertake to control the manner in which they attend or prescribe for their patients. . . . No profit is to be made for the plaintiff or its members. The question here is one of statutory construction. It is evident that the purpose of the statute was to protect the public from quacks, from the ignorant and incompetent. The actions of the plaintiff in no way tend to commercialize the practice of medicine. Its membership is limited to employees of the government in certain of the administrative branches. It is not in the business of making money by furnishing medical services to anyone who may come along. The cases cited bearing on the right to practice law are not closely analogous, they being based on the common law and governed by the courts independently of any statute.11 It is the opinion of supporters of group health plans that the courts generally should take the view expressed in the case cited. One of the difficulties is that the courts have not in every case distinguished between plans operated for the benefit of the members and those established for commercial purposes with a possible element of quackery and incompetence. There is enabling legislation permitting nonprofit medical plans in most of the states, but this legislation often requires that the incorporators or at least the boards of directors have a majority of physicians. Health plans organized as consumer cooperatives would not, in these states, be '·Group Health Association v. Moor, 24F Supp. 445 (D. C., 1938). Ibid., pp. 216-17. It should not be assumed that the decision handed down in this case is followed by all jurisdictions. Contrary opinions have been expressed by New York courts. See People Ex Rei Bennett v. Laman, 111 N. Y. 368 (1938) and People v. Woodbury Dermatologicd Inst., 192 N. Y. 454 (1908). a


Prepayment Plans

permitted to continue in business. Hansen has stated that "there are 30 states where the status of the law is such as to bar group health plans or at least to discourage their formation." In addition to legal restrictions group medical care plans face difficulties with medical societies. Physicians participating in group-practice prepayment plans may be censured by their professional societies through denial of admission or expulsion. This action ordinarily means that a physician is denied hospital privileges and may not be able to arrange for consultative services. Medical societies usually offer as reasons for opposing group practice that the system denies free choice of physician and that it places economic restrictions on the practice of medicine. In some cases antitrust suits have been brought against group plans. In spite of the difficulties a fair number of group medical care plans are now in operation in the United States. So far as they engage in insurance operations they ordinarily must meet the requirements laid down for other nonprofit insurance organizations.







Absence from work because of accident or sickness is a problem of vital concern to businesses of all types. Disability among workers may be of two general types: occupational and nonoccupational. Whether the disability arises out of and because of employment or is unrelated to it, medical care of some type is usually required. In recent years businesses have found that costs due to illness may be greatly decreased by appropriate medical attention. Since many employees could not or would not provide for adequate medical care out of their own incomes, employers have increasingly supported or helped to support programs that provide medical care. These programs are of three general types: (1) medical service provided in and out of the plant and financed by the employer; (2) prepayment medical care plans for nonoccupational sickness and accident; and (3) workmen's compensation.1 HISTORICAL


Some of the earliest medical care programs were of industrial origin. In the 1860s and 1870s mutual benefit associations were organized for the purpose of paying cash benefits to the employee when he was sick. These benefits were financed by the employer or the employees, or by both. In industries where employees were often isolated, such as in lumbering, mining, oil, and railroading, provisions for medical care frequently went 1

Hollingsworth, Johnston, and Baney, Health Programs Digest, p. 87.


Business and Medical Care

beyond cash payments, and workers received rather complete medical services through physicians and facilities provided by the industry. In spite of these early efforts to provide medical care, businesses generally remained apathetic, and little was done prior to 1900 to protect the health of the worker. Following the turn of the century many persons became interested in occupational accidents and diseases and the necessity for protecting the worker against their financial consequences. This interest resulted in experimentation with workmen's compensation legislation and in the final adoption, beginning in 1911, of workmen's compensation laws by all of the states. One result of workmen's compensation legislation was to provide compensation for industrial accidents (and in some states for disease) arising out of and in the course of employment. Another result of this legislation was the development of industrial medicine. Originally, if injury occurred, workers were sent to physicians outside the plant, many of whom specialized in compensation cases. Later, as industry expanded, many employers found that in-plant medical service saved time and money, and in some industries rather elaborate medical facilities were provided for employees. Although the employer's responsibility for medical care for injuries suffered at work has been established by law, little has been done in the direction of compulsory nonoccupational medical care legislation. Foui states have laws providing disability payments for nonoccupational illnesses, but only one of these states (California) provides any medical care. (See Chapter XIII.) Many industries have realized the importance of maintaining the worker's health and have voluntarily or as the result of collective bargaining established programs to care for all types of illness and in some cases have extended benefits to the workers' families. These programs, established for the most part in the last ten or fifteen years, may take the form of in-plant or out-of-plant facilities, health centers established by unions, or group medical care insurance contracts. IN-PLANT





One of the most recent surveys of industrial health facilities was conducted in 1951 by the National Association of Manufacturers. This survey * The material in this section is based primarily on Bachman, Health Resources in the United States, pp. 241-276.

The Role of Business in Medical Care


covered 3,589 member companies employing 3,312,647 persons. All sizes of companies were included. Approximately 56 percent of all responding companies reported in-plant medical services. These services were supplied by physicians, graduate nurses, and first-aid attendants. Approximately 5 percent of the companies employed full-time physicians; 17 percent, part-time; and 48 percent, on call. Almost 29 percent of the companies employed graduate nurses, and 45 percent, first-aid attendants. T h e types of personnel employed varied with the size of the company. T h e larger concerns (over 1,000 employees) made greater use of full-time physicians and nurses than did the smaller companies. Small companies tended to utilize part-time medical personnel and first-aid attendants. Approximately 52 percent of the reporting companies had in-plant dispensaries. A small number (twenty-four) of additional companies had in-plant programs as a part of company hospitals. T h e number of companies reporting dispensaries varied with the size of the company. Only 31 percent of the companies employing 250 persons or less had dispensaries, whereas almost 90 percent of the companies with over 2,500 employees had them. (See Chapter V I I . )



T h e National Association of Manufacturers survey reported that nearly 85 percent of all reporting companies utilized out-of-plant medical services. Almost 62 percent of the companies used services made available by insurers. T h e remaining companies cooperated with other employers in medical service organizations, utilized a community-sponsored service, or did not report the type of service used. Table 87 shows that the use of out-of-plant medical facilities varied only slightly with the size of the plant, in contrast to in-plant services, which increased considerably as the size of the plant increased.



T h e physical examination was the most prevalent type of medical care reported by the companies surveyed by the National Association of Manufacturers. Approximately 53 percent of all responding companies gave pre-employment physical examinations; almost 23 percent gave periodic physicals; 30 percent gave return-from-sickness examinations; and 38 per-


Business and Medical Care TABLE 8 7


Size Group All companies* 1-250 251-500 501-1,000 1,001-2,500 Over 2,500

Companies Reporting Out-of-Plant Services 84.8 84.0 86.2 86.0 86.2


Companies Reporting In-Plant Services 55.8 33.9 69.5 85.4 90.7 96.5

Source: Bacbman, Health Resources in the United States, p. 246. * Includes companies whose employment was not reported.

cent return-from-accident examinations. Sixteen percent of the companies provided visual care for employees, 2.3 percent gave dental care, and nearly 4 percent provided hearing care. In addition to the types of care already mentioned, approximately 41 percent of the responding companies had health education programs, 73 percent had accident prevention programs, and 77 percent participated in community health campaigns. DIRECT PROVISION



Very little information is available concerning the extent to which nonmanufacturing industries provide medical care either on an in-plant basis or by contracting for facilities outside the plant. Table 88 shows the results of a survey conducted by the United States Public Health Service during the period 1936-39. This table shows that in the mineral industry approximately 34 percent of the workers had hospital facilities available, almost 35 percent had access to a full-time plant physician, and 33 percent had full-time nursing service available. First-aid kits were available to approximately % percent of the workers in the mineral industries. The transportation industry made hospital care available to approximately 12 percent of its workers, a full-time physician to almost 41 percent of ite workers, and full-time nursing service to about 3 percent of the employees. First-aid kits were available to about 94 percent of the employees. The personal service industries made hospital care available to only about 2 percent of its workers, and a plant physician was available to

The Role of Business in Medical Care


approximately 1 percent. First-aid kits were available to about 91 percent of personal service employees. One conclusion that may be obtained from Table 88 is that industry generally provides first-aid kits for the benefit of workers. Other types of medical care are made available less often. A second conclusion is that hazardous industries are more likely to supply hospital, physician, and nursing care than less hazardous ones. PREPAYMENT


Blue Cross, Blue Shield, and Commercial Insurance. During the last ten years an increasingly large number of employers have provided medical care benefits for nonoccupational sickness and accident through the purchase of group medical care insurance contracts. In some instances the employer pays the entire premium, but in the typical case the employee contributes a part of the cost. In most cases the insurance is purchased from Blue Cross or Blue Shield, or from commercial insurers. The extent of coverage is not known accurately. It has been estimated that as of December 31, 1950, commercial insurers had sold group hospital contracts covering 10.1 million subscribers, surgical contracts covering 10.3 million, and medical contracts covering 3.4 million.8 Since group contracts are sold for the most part to employers, these figures are a reasonable estimate of the extent to which commercial insurers participate in providing medical care coverages. In a study conducted in 1948 and 1949 by the Research Council for Economic Security involving 6,800 firms, it was found that 42 percent of the firms utilized local Blue Cross plans and that 33 percent of the firms had group hospital coverage that was purchased from commercial insurers. The benefits were financed either by the employee or the employer, or by both. Approximately 12 percent of the firms carried surgical insurance with local Blue Shield plans. About 32 percent of the firms reported group surgical expense insurance. The financing of this type of insurance was similar to that of Blue Cross. Approximately 9 percent of the firms studied had group medical expense insurance, and an additional 4 percent had other types of nonsurgical coverage. These benefits were financed either by the employer or by the employee. 'Lear, Medical-Care Insurance for Industrial Workers.

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Tuberculosis 24,739 11,171 1,762 37,672



Sponsorship County City City-county Total

Total 1,066,562 1,257,575 285,098 2,609,235

Nervous General and Mental 1,011,626 8,067 1,204,663 337 1,439 2,217,728 8,404

Tuberculosis 24,695 17,099 41,794



Sponsorship County City City-county

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24,120 in nervous and mental hospitals, 37,672 in tuberculosis hospitals, 6,434 in other special hospitals, and 14,412 in institutions (see Table 117). General hospitals far outnumbered other types of local hospitals (approximately 70 percent of the total). Approximately 19 percent of the total were tuberculosis hospitals, and almost 4 percent were mental hospitals. These figures indicate that local governments are primarily con-


Governmental Programs

cerned with general hospital care for acute illnesses and are not especially concerned with the problem of chronic disease. HEALTH SERVICES OF LOCAL


Surveys that have been made of the participation of local governments in medical care have generally included all health services and have not given special treatment to the medical care services rendered by medical and allied personnel. Much of the material in this section will, of necessity, include items that cannot be strictly classified as medical care. The United States Public Health Service reported that as of December 31, 1950, there were 1,293 full-time health organizations that provided local health services in the United States. These organizations served 1,542 counties and 276 cities. In 1950 the Public Health Service collected health service information from 1,193 of these local units. The coverage included 47 states and the District of Columbia. Approximately 50 percent of all counties, representing nearly 71 percent of the population of the United States, were surveyed. Four types of health units were covered: (1) single county units (56 percent of total); (2) city health departments (15 percent of total); (3) local health districts (25 percent of total); and (4) state health districts (4 percent of total). The last type of unit was included because it acts as a substitute for a locally administered health unit. One of the important activities of local health organizations is the operation of clinical centers for the purpose of early detection and diagnosis of disease. In some cases treatment is also offered. Table 118 summarizes the number and percent of local health organizations that operated clinical centers of various types as of December 31, 1950. If all types of local health organizations are considered as a unit, Table 118 shows that 80.2 percent of them, in 1950, operated tuberculosis clinics; 75.8 percent operated venereal disease clinics; and 75.2 percent operated clinics for healthy children. Other types of clinics were less frequently in operation. Cardiovascular, diabetes, epilepsy, and special otological clinics, for example, were reported by only 13.4 percent, 13.7 percent, 10.3 percent, and 18.3 percent of the local organizations respectively. Venereal disease clinics were most often operated by single county organizations (79.6 percent), although 75 percent of the 69.1 percent

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