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Financing medical care; a critical analysis of the insurance and prepayment methods of financing medical care, with particular reference to California

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Financing medical care; a critical analysis of the insurance and prepayment methods of financing medical care, with particular reference to California

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Content FIN NCING MEDICAL CARE; A CRITICAL AN LYSIS OF THE INSURANCE AND PREPA. YMENT METHOD OF FINANCI NG MEDICAL CARE, WITH PA TICULAR REFERENCE TO CALIFORNIA D ssertation Present ed to the cult of the Graduate School Un versity of outhern California n P rial ulfi llment of h Requir ments for the Degree Docto r .of Philosophy b Paul T. Kinney ugust 1957 , This dissertation, written by ........ ..................... f ~µ l. ... T . , .... i t.nn. ~ . Y - _ .. _ . .. __ .......... ......... . under the di1·ection of hisGuidan e Cumniittee, and app,·oved by all its rnernbers has be ll pr - sented to and accepted by the Faculty of the Graduate School, in partial fulfilln1 nt of re qui1·ements for tlze degree of DOCTOR OF JJHJLOSOl'I--IY G uidancc Com mitt I I - TABLE OF CONTENTS CHAPTER I. INTRODUCTION • • • • • • • • • • • • • • • • • • I..&. • Statement of the problem • • • • • • • • • Scope and limitations of the study • • • • Definition or terms .. • • • • • • • • • • Medical care ............. . Medical char es ......•...... Medical costs .. Medical finance . Health insurance Prepayment ... • • • • • • . . . ,. • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Organization of the study . METHODS OFF NA CI G DICAL C Alternative eans of F nanc n Medical Care . . . . . . . • • • • • • • • • • • • • • • • • • • • • • • Volunta methods . • • • • • • • • • • • • Types of insurance covera e ... Individual and roup coverage .. In urers and prepa en • • • • • • • • or anization . . . ..... . • • • Union health and welfare funds .. • • • Public finance and medical care ..... . Development of Insurance nd Prepayment Plans . . ......... . PAGE 1 2 2 3 3 4 4 4 4 4 5 7 7 7 8 12 13 17 18 20 CH.APTER Early beginnings . • • • • • • Growth of health insurance • Blue Cross and Blue Shield . • • • • • • • • • • • • • • • • • • Development of medical service prepayment plans .•....• • • • • Present status • • • • • • • • • • • • • • III . ECONOMIC ASPECTS OF RISK AND UNCERTAINTY. Risk and Uncertainty • • • • • • • • • • • • Risk distinguished from uncertainty • • • Medical and financial risks • • • • • • • Uncertainty-Costs of Medical Care • • • • • ature of uncer ainty costs ...... . Social costs of uncertainty ..•...• Me tin inancial Risks of Illness .•.•. .Avoidance and i ndividual assumption of risk Preventive medicine S lf-in urance .. • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Combination and transfer of risks . • • • R sk-combination .•..•... • • • Transfer of risk ..•.. In u anc and Financial Risks of Medical Care ......•.. conomics of health insurance • • • • • • • • • • • • • • • • • • iv PAGE 20 21 25 29 31 36 36 36 40 40 41 43 44 44 45 48 49 50 50 51 52 CHAPI'ER Limitations to insurance ........ . Applicibility of insurance principle .. Limitations to risk measurement Limits to the liability of • • • • the insurer ....•........ Uncontrollable costs ....•..... N. LEGAL ASPECTS OF MEDICAL FINANCE ...... . Laws Governing the Practice of Medicine Who may practice medicine in the • • State of California .•.... • • • • Scope of medical practi ce • • • • • • • • Rendering medical services . • • • • • • V PAGE 53 54 56 57 57 59 59 60 61 61 Business aspects of medicine . . . . . . 62 Significance of the legal conceptions or medical practice • • • • • • • • • Laws Governing the Organization of Medical Services ....... . • • • • • Doctor-patient relationship .. • • • • • Corporate medical practice • • • • • • • • Regulations Governing Health Ins urance . • • Administrative framework . • • • • • • • • Duties of the Commissioner . • • • • • • Powers of the I nsurance Commissioner •. Uniform policy provisions ....•... 64 65 67 70 75 76 77 78 Bo ----------------------------------~ •-~ ;.. ,, __ _ CHAPTER Regulations affecting disability insurance • • • • • • • • • • • • • • • • Federal jurisdiction of the insurance industry ..... • • • • • • Prepayment Medical Service Plans Prepayment distinguished from • • • • • • health insurance ...... . • • • • • Incorporation of prepayment plans • • • • • Section 9201 ........ . • • • • • Section 9200 • • • • • • • • • • • • • • Administrative control of prepayment plans • • • • • • • • • • • • Control of trade practices .•. • • • • • vi r . A&E 81 83 85 85 87 87 89 v. SUPPLY AND COSTS OF MEDICAL SERVICES • • • • • 90 91 94 Nature of Medical Charges .. • • • • • • • • Factors influencing medical charges . Discriminatory pricing ....•.. • • • • • • 95 95 99 Measuring Medical Charges . . . . . . . . . . 101 Data limitations . . . . • . . . . . . . . 101 Significance and reliability . . . • . . • 104 Costs and Supply of Hospital Services . • • • Hospital facilities . . . . ..•• • • • Hospital income and expenditures • • • • • Hospital charges ....... . • • • • • 105 105 111 113 CHAPI'ER Charges, Incomes and Supply of Medical Services • • • • • • • • • • • • • Professional personnel in medical services ...• Employment and payrolls in • • • • • • • • medical services .•...•... • • • Fees For Medical Services ..... . • • • vii PAGE 118 118 VI. CONSUMER EXPENDITURES FOR MEDICAL CARE • • • • 128 134 142 Consumer Expenditures for Medical Care in the United States .......• Consumer income and expenditures • • • 142 for medical care . . . . . . . . . . . . 144 Composition of medical care expenditures . 146 Per capita expenditures for medical care ........ . • • • • • Family medical care expenditures and income levels ..... . • • • • • Regional Differences in Medical Care Expenditures ......•.. California family income and medical • • • care expenditures •..... • • • • • Family medical care expenditures in San Francisco ...... . • • • • • 150 155 157 160 172 CHAPrER viii PAGE VII. VIII. Significant Changes in the Costs of ~~d E penditures for Medical Care MEDI . L CHARGES AND INSURANCE COVERAGE • • • • • • • Measuring Insurance Coverage ...... . Insurance Coverage of Medical Charges .•. Per capita costs and charges • • • • • • Fam ly medical costs and covera Costs and coverage in California • • • • • • • • Income levels and insurance coverage Ag levels and insurance coverage .. Effects of Insurance Coverage ..... Incidence of illnesses and • • • • • • 177 182 182 184 187 190 196 200 204 211 insurance coverage . . . . . . . . . . 211 Income level and utilization rates . • . 213 Insurance and utilization rates EVALUATIO PLA S • OF INSURA C AND PREPAY • • • • • • • • • • • • • Eval atin the Quality o Cevera e • • • • • • • • • • • • • • 215 223 223 Measurin Financial Efficiency . . . . . 227 Lo s ratios . . . . . . . . . . . . . . . 227 Benefi a-expenditures ratio . . . . . . . 232 Benefit Provisions of Insurance and Prepaymen Plans ........ . • • • 236 Group accident and health insurance coverage • . . . . . • . . . . . . . . 237 CHAPTER Benefit provisions of Blue Cross Plans • Comprehensive prepayment plans • Complaints and Inquiries .•... • • • • • • • • • • Some Limiting Factors IX. SUMMARY AND CO CLUSIO S • • • • • • • • • • • • • • • • • • • • • Summary • • • • • • • • • • • • • • • • • • Conclus ons • • • • • • • • • • • • • • • • BIBLIOGRAPHY ..... • • • • • • • • • • • • • • • ix PAGE 246 249 256 261 273 273 283 289 LIST OF TABLES TABLES PAGE I. Distribution of Hospit 1, Sur ic 1 an Re ular Med c 1 Expense Cover ge by Type of Insurin Or anization December 31 . 1954 • 32 II. at o of Gener 1 Practi ioners to Tot 1 Physic an --1929-56 • • • • • • . • • • • • • 69 III. 11 Hospitals umber of Beds 11 Ho p ls Excep ederal an State Hosp t 1 mber of Beds in he United St ts 1 1- 5 . • • • • • • • • • • • • • • • • • • 107 IV. Percen Distr bution o Hos it ls BedQ Adm SQ ons ver e D ly Census in Un e s te 1 6 & 1 55 • • • • • • • • • 10 V. on-Po t Shor -Term Gen r 1 nd S ,.,eci 1 Ho~p 1 Ut 1 z on Un te s es by ions, nd C 11 orn a--1 5 • • . • . • • • 110 VI. Shor -Term General n Spec al on-Prof Hoqp t ls n he Uni ed S a umber 0 Ho~pi ls u ber of Beds To 1 and p 1 n ncome To 1 nd Pa roll x ense- - 1 4 -5 . • • . • • • • • • • • • • 112 VII. Percenta e Of emi-Priva e Non- aterni y Pt en Bille or Spec ied Hosp tal TABLE Services, Average Amount Billed, Percentage Increase--1942 and 1952 • • • • VIII . Percentage of Non-Profit Short-Term General Hospitals with Selected Services, by Bed Cap city and xpense Per Pt n xi PAGE 115 D y--1 51 . . . . . . . . . . . . . . . . 117 IX . Number of Physician Dentists nd Gradu t ur er 100 Thousand Population-- 1 20-54 • • • • • • • • • • • • • • • • • X. umber o Physicians er 100 Thousand Population n ted States and C 11 ornia--1 38 nd 1949 .. • • • • • • X . Aver e Net ncome of Non-Salaried Ph scans and Dentists--1 29-51 . • • • • XI . Aver e e ncomes Before Taxe of X I . Ph scans, 1 29, 1 40, 1947, 1949-51 mplo ment Compensation Paid and Value Added n edic 1 an Health ervices in . . he United States--192 -53 ....... . IV . Insured ~mplo ees Insured ages Paid and nsu ed Unit Report ng in Medical and 0 her Health Services in C lifornia--1938-54 .. • • • • • • • • • 119 122 125 126 129 130 TABLE XV. Insured Employment Number of Units Report ing, Insured Wages Paid to Employees in Offices of Physicians and Surgeons and in Hospitals--State of California-- 1940-54 ............... . • • XVI. Aver·age Retai 1 Prices of Selected Medical xii PAGE 132 Serv ces in 10 Cities, 1952 and 1954 . . . 135 XVII. Selected Fees for Services Render d Under California Workmen's Compensation Laws--1946, 1950 and 19 54 ..... • • • • XVIII. Relative Value Schedules for elected Surgical Procedures--Hypothetical Fee Schedules Based Upon Relative Value Schedules for California Connecticut 137 and Montana . . . . . . . . . . . . . . . . 1 9 XIX. Disposable Per onal Income (D.P.I.), Total Consumption Expend! ures (C), Con-um tion Expenditures for Md cal Car ( ), Consumption Ex enditur s for M dical Car as a Per Cen of Disposable Income and Total Consumption xpend tur s--1929-56 • • xx. Consumer Expenditur s for Medical Car b Type of Exp nditur 1929- 956 .... • • TABLE XXI. Indexes of Personal Consumption xiii PAGE Expenditures for Medical Care 1929-56 ... 149 XXII. Percentage Distribution of Personal Consumer Expenditures for Medical Care 1929-56 ... 151 XXIII. Per Capita Disposable Incume, Consumption Expenditures, Per Capita Expenditures for Medical Care by Type of Expenditure--1929-56 ........ . XXIV. Per Capita Expenditures for Medical Care by Type of Expenditure--1953, 19 54 • • 153 and 1955 . . . . . . . . . . . . . . . . 154 XXV. Average Family Expendit res for Medical Care in the United States--By Income Levels-- 1928-31 1935-36, 1941 and 1950 ...... 1 6 XXVI. Family Disposable Income and Total Expenditures for Med cal Care Per Family in 1 Representative Citie~ of the United State --1950 ......... . XXVI . Family Disposable Income, Expenditur son All Medical Care and Per Cent of Family Income Spent for Med cal Car in Selected California Cities--1950 • • • • • • XXV II. Los Angeles Family xpend tures for Med c 1 1 1 1 Care, br Disposable Income Levels--1950 .. 1 3 xiv TABLE PAGE XXIX. San Francisco-Oakland Family Expenditures for Medical Care, by Disposable Income Levels--1950 .. • • • • • • • • • • • • • XXX. Los Angeles Family Expenditures for Medical Car by Occupation of Family Head--1950 • • • • • • • • • • • • XXXI. San Francisco-Oakland Family Expenditures for Medical Car b Occupation of Family Head--1950 XXXII. California Family Expenditures for Med cal Cr b r ncome Levels-- • • • • • 1 2 -31 XXXII . Total M die • • • • • • • • • • • • • • • • • Char s Per Fam ly in Lo An el and n nc sco- kland Month Prod nd Pro ect nnua l To a --1 4 • • • • • . • • • • • • • . • XXX • Tota Grou X nd ure f'or edic 1 Car b Type of r ce Fami 1 R portin ach T 0 rvic , and vera e Family xp nd tur or ach T 0 d l and D n a Ser ic , 4 5 m lie in San Francisco Ba Are l 4 -4 8 • • • • • XXXV. Com a ion of Fami l M d cal Bill in Heller Committe and C.C.M.C. t des • • • • • • 165 168 170 171 174 176 " TABLE PAGE XXXVI. R nge of Family Expendi tures for Medical Car in San Francisco 1947-48 ...... 178 XXXVII. Rane of Expenditur s for edica Care as Percenta e of Family Income-- July 1952 - July 1953 .......... 179 XXXVI • Con ume Ex end ur s for e cal Car and Heal B n f s Ins ranc , I surance T so x end ur sand B n ts--1 54- • • • • • • • • • • • • XXXIX. Pr Ca a E pendi ures or d ca Car Pe C n ncr ase ·n nd ur for d ca Car nd H n urance -55 • • • • • • • • • • • • • • • • • XL. p C nd ur or d c 1 Cr n Un ed es T p of Co so H t nQu anc n o H h nu anc en 5 . • • • • • • • • • • • • XL . ec 0 o un Hal h nu anc B n s o Co er Gr Md c 1 Ch re - Jul 1 52 - Jul 1 3 . • • • • • XL I . R cei of Ho 1 Insur nee Benef o Cov r Gross Hos 1 al Char es Ju 1 52 - July 1 53 • • • • • • • • • 18 188 1 1 192 195 xvi TABLE PAGE XLIII. Receipt of Hospital, Surgical or Medical Insurance Benefits to Cover Gross Sur ical Char es-- Ju y 1 52 - July 1 53 . • • • • • • • • • • XLIV. Family Expend tures for M dical Car, x endi ur or Health In urance, Per Cen of Family D sposable Income Sp n or d cal Cr Pr C n of Fam 1 es Co red b Health In ur nc 197 even C 1 forn a C e 19 O . . . . . . . 1 XLV. Fam 1 end rs or edic 1 Car XL I. Ex endi res or H alth In ur nc P C n of Inco ent for cal Car P C n o m 1 s h om Heath Insu anc Co era e y Income Levels m 1 e n Los n el nd n anci co- 1 0 . • • • • • • • • • • • • • m 1 nd ur for edical C re xpend ur s or Hal h In urance Pr Cen of am111 s Cover b Heal h nsu nee, b e of am 1 He d 4 R s Lo .... r en e C t e Cities o n eles--1 50 . n h Un Cali ornia • • • • • • ed and • • • • • • 201 205 TABLE XLVII. Per C pita xpenditures for Medical Care and for Health Insurance Coverage in 4 R presentative Cities--The United States, by Age of Family Head--1950 .. XLVIII. Per C n of Persons Ill Receiving Medical Care Through Health Insurance and • • Prepa ment Plans--1 47-48 .. • • • • • • • XL X. Fam 1 Income and Care Received Per 1 000 Persons- -Medical Care for Illness and M dical Ca es Among 38 , 668 White Persons n 8 3 Famil e 1th Known Income, Sr e d or Twelve Consecutive Month, 2 - 1 . • • • • • • • • • • • • • • • • • L L. Hospi al Adm s on ates, Number of • Ho._ 0 Sur b am h n Cov r d ns b a 1 Das Per 00 Person, Number cal Procedur s Per 100 Persons ncom or P rson in Families ithou H alth n urance --Jul 1 - July 1 53 • • • • • ncome Group for Percentage of x enditure for Medica Care and or o un a Health nsurance, for amil e 1th Income Under $10,000, W th and ithout In uran e-- Jul 1 2 - Jul 1953 . . . . • • • • • • • xvii PAGE 209 212 214 216 220 TABLE LII. Loss Ratio s of Lead in . In urers, by Type Insurance Co era e--1955 ... • • • • • • • LIII. Per Capi t a Ex enditures for Hospitalization, Sur ical and Medical Care, Per Capita LIV. L • L • Ben fits Pa d b ~ Various Forms of H al th I nsu anc and the Percen e o the A a e xp nditur Cov red b T I nsur nc --19 ......... . • • • • Per C n of Blue Cro Par ic p n sin s he Un e Sta nd n h Pc f c on h Comple e Partial or o B ne ts o lecte nc llar Hop al erv c s--J nuar 31 1 5 • • • • • • • • d o u and Pr1 e e 1 e of v c o 100 000 Poul on z on a nd r Ch Ba don m e ud o P rman n Ha h Pl n m rs--1 O ma d Cha e or S v cs or am 1 o our Plan nd A 1 ed 0 lon n h PY' V C 0 a e a erm n n e H alth a Char U 11 z d • • • Per n n e He 1 h Plan--1 50 .. • • • • • xviii PAGE 229 2 8 2 4 2 5 xix TABLE PAGE LVII. Complaints Against Accident and Health Insurers, Filed With the Insurance Commissioner of the State of California, Durin the Months of March and April, 1955 .. 258 CHAPTER I INTRODUCTION Less than twenty years ago the health insurance industry was a sideline endeavor of little economic significance or monetary value. Prepayment devices for the financing or medical care were relatively unknown in most or the country. Those who had some insurance or prepayment coverage of the costs or medical care were decidedly in the minority. Now health insurance is a multi-billion dollar industry, and prepayment medical service plans have grown in similar fashion. t the present time nearly three-quarters of the nation's popu lation have had at least some experience with insurance or prepayment coverage of the costs of medical care. The phenomenal changes in the scope and importance or health insurance and prepayment plans are even more striking when one takes into account the relatively short time-span involved. Most or the growth in coverage of health insurance and prepayment plans has occurred during the last decade; the health insurance industry was still in it's infancy at the outset of the Second World ar. Substantial changes in the manner and extent of financing the costs of medical care have had some important affects on the nation's economy; and the 2 rapidity of these rather sweeping changes has amplified their economic impact. The organization of medical services, their quality, quantity and utilization, and the amount and costs of medical care all have been affected materially by the phenomenal changes that have occurred in the field of medical finance. Statement of the Problem The central problem is to examine the consumer's medical care bill and to analyze the insurance and prepayment methods of financing consumer expenditures for medical care. Particular reference is made to medical charges and health insurance coverage in California as compared to th Un ted States as a whole. Seo e and Limitations of the A variety of means and institutions are involved in the field of medical f nance. However our major concern s with the two pr ncipal voluntary methods of financin the consumer costs of m dical care--insurance and prepayment. Unfunded union h alth and welfare programs are not of direct concern to this stud . Nor are public measures taken o finance assume or subsidize the costs of medical care considered here. Voluntary post payment financial arran - ments do not directly concern this study. 3 Within the limits of available data we are particularly concerned with insurance and prepayment methods or financing medical care in California. This study is limited to a consideration of medical finance at the consumer level. Those financial aspects ot medical practice that affect the organization or medical services, division or medical labor, and so forth are not considered except as they relate to the consumer costs of medical care. The consideration of medical finance is with respect to medical services rendered by licensed physicians, surgeons and correlary institutions. The fringe segments or the healing arts (e.g., naturopathy, osteopathy) are not directly considered in this study. Definition or Terms For the most part terms will be defined in the section in which they are used. However the following terms are of such fundamental significance to this study as to warrant their special consideration at the outset: Medical care. Unless otherwise noted the term "medical care" will be used in its broadest sense and will include hospital services, services of physicians and surgeons, drugs, medical appliances, home nursing, and all other services and facilities utilized in the treatment of accident, illness and disease. 4 Medica~ charges. Billings to consumers for medical care received will be termed "medical charges." The term "medical charges" is the equivalent or the consumer's medical care bill. Medical costs. For this study "medical costs" is used with respect to consumer costs of medical care and is equivalent to "medical charges." Medical finance. As in the case or medical costs, the term "medical finance" relates to the financing or consumer-costs of medical care. Financial problems concerning the organization and provision of medical services are not included in the concept: "medical finance." Health insurance. For purposes or this study th term "health insurance" will include all insurance wherein the primary purpose is to provide cash indemnification against the financial contingencies of accident, illness or disease. Generally the term will connote insurance coverage of hospital, surgical and regular medical expenses; however unless restricted to the c ntrary, the term will include indemnification for loss or income or earning power as a result or accident, illness or disease. Prepayment. The term "prepayment" denotes a method or financing medical car 1 e wherein a fixed, periodic payment is exchanged for specified medical services when needed. While prepayment is a form or insurance in the technical sense, legal and practical distinctions warrant a separate treatment or prepayment in this study.l Organization of the Study 5 In the first four chapters the present position, economic importance and legal status of insurance and prepayment are analyzed. Chapter II examines alternative methods of financing medical care and surveys the historical development and the present status of voluntary insurance and prepayment methods of financing the consumer costs of medical care. Chapter III analyzes the economic aspects of health insurance and pr payment; the legal environment of health insurance and pr payment is examined in Chapter J.V. Chapters V-VI analyze the levels and trends in medical costs and charges, the supply of medical services, and consumer expenditures for medical care. Chapter V deals with the nature of medical costs and charges and factors influencing the supply of medical services and facilities in the United States and especially in California. Unit charges, fee and average retail prices lcr. infra, pp. 85-87. 6 of medical services in selected areas are also examined in Chapter V. Chapter VI concerns consumer expenditures for medical care. Individual and family expenditures ror medical care are compared on the basis of age, income, occupation and location. Chapters VII and VIII relate the costs of medical care to the extent of insurance and prepayment coverage. Chapter VII compares aggregate insurance and prepayment benefits to consumer expenditures for medical care. Chapter VIII involves a more detailed analysis and draws comparisons between the various types of insurance and prepayment coverage. A summary and the conclusions of the study are contained in Chapter IX. CHAPI'ER II METHODS OF FINANCING MEDICAL CARE Insurance and prepayment plans are two of several methods of financing medical care. This chapter briefly surveys the various alternative methods of financing the costs connected with illness, the historical development and present status or health insurance and prepayment in relation to the consumer's costs of medical care. I. ALTERNATIVE MEANS OF FINANCING MEDICAL CARE Insurance and prepayment are two of several means of financing medical care. Alternatives are classified according to two categories: voluntary methods and public finance. Voluntary methods include prepayment, pot payment, insurance, and charitable programs. Public finance of medical care may vary from the direct provision or medical services to indirect measures to assist reinsure or underwrite various private financial programs. Voluntary Method Voluntary health insurance and prepayment medical service plans are predominant methods of financing medical charges. Charitable programs generally are oriented towards the support and subsidization or medical research 8 and or facilities for the care or victims or the so-called dread diseases (e.g., polio, cancer, tuberculosis). Although widely used in the form of informal credit ex tended by the phyaician in connection with his normal practice, postpayment has not developed into an important alternative method or financing medical care. Hence further consideration or voluntary methods will be restricted to insurance and prepayment. Types or insurance coverage. Health insurance is a form of disability insurance, which in turn is a branch of the casualty insurance field. 1 Disability insurance2 covers one or more of the following hazards concerning health: (1) income foregone as a result of accident illness or disease; (2) compensation for loss or earning po er in connection with loss of limb or sight; (3) indemnification for hospital, surgical and/or medical expenses incurred as a result of accident, illness or disease.3 Coverage of any or all of these risks may be provided by accident or accident and health policies; or some coverage may be available in conjunction with lRobert Riegel and Jerome S. Miller, Insurance, Principles and Practices (third edition; New York: Prentice Hall, Inc~, 1947), p. 256. 2Franz Goldmann, Voluntacy Medical Care Insurance 1n the United States {New York: Columbia University Press, 19ij8), p. 6. 3Riegel and Miller, .Q_E. cit., · pp. 259-60. 9 other forms or insurance.4 Accident insurance p1~1mar1 ly indemnifies the insured against loss of income and loss or earning power; indemnification for hospital, surgical and regular medical expen~es generally are not the principal type of coverage provided by an accident insurance policy. Health insurance (or sickness insurance) covers the financial hazards connected with possible loss of income as well as with medical expenses incurred as a result of illness. A major distinction between accident and health insurance is that the form.er is limited as to the source of hazard or risk. Accident insurance restricts coverage to specific accidents affecting the insured's income, earning power or ability to meet meaical expenses connected th rewith. Health insurance specifies the type of risks covered rather than the source or hazard. Current trends indicate a dee in in the importance of the "pure" forms of accident or health insurance, and combined coverage of the risks pertaining to accident, 1llnes and disease is prevalent. In this study, the term health insurance will be used to denote policies or plans which have as their primary purpo e the indemnification again t the costs of 4e.g., A life insurance policy may provide disa bility benefits; automobile insurance may include indemnification for medical expenses incurred as a result of an automobile accident. 10 accident, illness and disease. Emphasis is directed toward the indemnification against the expenses of hospital, surgical and regular medical care. Loss or income provisions of such policies or plans are not of major concern to this study. Health insurance may be arbitrarily subdivided into the following categories: The first is a coverage of ho~pital expenses; secondly, a health insurance policy might cover surgical expenses as such. Generally, ho ever, the first and second types are combined into one policy. Third, health insuranc may be written o cover re ular medical risks. Fourth, a major medical policy ma be issued to cover unspecified medical co ts over and abo ea prescribed minimum "deductible" amount. The basic co erage of a ho pital pol cy concerns the daily room charge. In addition, hospital policies commonl cover a part or al~ of the co ts of m scellan ous services connected 1th hospitalization. Th type o charges covered may be specified in detail or the policy may simply provide for a general coverage of such char e based on some relationsh p to the number o da so ho pital confinement. Health insurance policies may underwrite th co ts of surgery. Comm.only, a schedule of surgical fees is included in such a policy; the specific amount~ allo able 11 for each surgical procedure presumably bears some relationship to the costs (fees) as well as to the usual maximum. benefit limiting the liability of the insurer under the terms of the policy. Surgical policies may cover some or all or the costs of relat0d medical care while in hospital con finement. Frequently, hospital and surgical coverage are combined in a single policy. Policies covering the costs of regular medical care are generally limited to group contracts. Coverage is not exten ive, for the regularity of such costs indicates that they are not readily insurable at reasonably low premium rate . 5 Insurance classed under the category of regular edical care frequently covers only in-hospital treatment; edication given on an out-patient basis may be restricted to specific disablements. The contingencies of regular medical care are covered more readily by prepayment plans than by disability insurance. ajor medical expenses are covered by health nsurance policies patterned after automobile insurance. The typical policy excludes all medical and hospital expense up to a specified amount (e.g., two hundred dollars for each illness or for each given period of time). The polic then covers all or most of the medical 5cf. Chapter III. 12 and hospital expenses in excess or the "deductible" amount up to an agreed upon maximum indemnity (roughly five thousand dollars under the typical major medical policies). Health insurance policies today generally involve some combination of coverage as outlined above. As in the case of accident insurance, few policies are so "pure" in form as to cover only one class of hazard. Individual and grou_,E coverage. Insurance differs in the unit a well as in the sc~pe of coverage. "Commercial" plans are written to cover individuals and families. Employees and members of organizations may obtain coverage on a group basis whereby a master plan covers all or at least a majority or the employees or members concerned. Most disability insurance is written on a group basis.6 For the insurer, the group policy usually involves a more representative sample and consequently a better selection of risks than ould be possible where insurance provides coverage on an individual basis.7 Group policies 6From the standpoint or nu bers of persons con cerned, group insurance outweighs individual-policy insurance by more than a ratio or 3:2. When gross premiums are considered, group nsurance has more than a 2:1 edge over the individual-policy insurance. cf. The Health Insurance Council, "The Extent of Voluntary Health Insurance Coverage in 'the United States," (Chicago: The Health Insurance Council, 1954), p. 13. 7Administrative expenses generally are lower with may result in a favorable risk selection in that age composition of the employee-participants would be lo er and hence preferred over the age-composition of the population as a whole. In turn, as a majority or employees have some form of coverage on a group basis, those most inclined to purchase individual coverage are individuals in the older-ag brackets. The dangers of adverse selection of risks vary inversely with the size of the group. 13 Insurers and prepaY!D~D~ organizations. Insurance and prepayment may be cl ssified according to types of or anizations sponsor1n insurance or prepayment plans B sically four types of sponsoring organizations are evident: consumer groups, unions or employers, commercial insurers and "p oducer" organizations (i.e. hose plans sponsored by medical societies o hospit la sociations). ore than 85 per cent o the roup he 1th and accident insurance business is transacted by 11 e nsur nee compan es.8 Health and accident companies are ro p th 1th individual plans Premium collection though payroll deduction nd lo er selling costs favor the group plan. Consequently, group insurance plans give broad r covera eat lower cot to the insured than do individu 1 policy insurance plans. ~eport of the Committee on Labor and Public elfare, United States Sena e, Health Insurance Plans in The United State ( ashington, D.C.: United States Government Pr nting Office, 1951), ppendix D, p. 75. 14 more important in the individual-policy health and accident insurance field. Fire and casualty companies and other multiple-line carriers account for the remainder of the health and accident insurance business.9 Single-line carriers in the health and accident field are often specialists in particular kinds of health, and especially acci en nsurance. 10 Aside from the disability insurance provided by commercial in~urers, plans sponsored by medical societies and y hospital associations are of considerable impor ance in the ield of medical finance. Blue Cross plans are non-profit hospital insurance plan f ted th the American Hospital Association. A pr sen, there ar more than 80 such plans in ex s nc cov rin a total membership of approximately million er ons.ll The rimar coverage of Bl e Cross plans is related to he co o hosp tal care; however some Blue Cross pl n o id covera e of other expenses including sur c 1 and ed c 1 costs.12 B e Idem 10 Iae ld is he medical society spon ored gro p 1 He 1th Insurance Council, loc. cit. 12e.g., Hospital Service of California. 15 organized to finance the costs of surgical and regular medical care for participating groups. Such plans generally are not treated as insurance but rather are classed as prepayment medical service plans. The original purpose or Blue Shield plans was to provide medical services at low cost to those or the lower income groups. Consequently, as a general rule, persons above a certain income level are excluded from participation in the plans.13 Some overlapping may occur in the coverage of Blue Cross and Blue Shield plans. Blue Cross plans may cover some risks related to surgical and regular medical expenses; some Blue Shield plans cover hospitalization as well as surgical and medical expenses. However where both plans are in operation within the same community, coverage is more apt to be complementary than competitive. Comprehensive medical care may be provided through prepayment medical service plans. These, in turn, may be sponsored by any one of the four types of sponsoring 13In California, "A" coverage has a family income limit of $4,200. "B" coverage carries a family income limit of $6,000. However in the Wilmington-San Pedro area, no income limit is in effect. The income limit does not delineate eligibility for coverage; rather the limit is significant only in that the physician may charge an additional fee to patients whose incomes are above that level. cf. Richard N. Baisden, Lee Bamberger and ohn Hutchinson, Health Insurance (Los Angeles: Institute of Industrial Relations, University of California at Los Angeles, [_f.95:i7), p. 7. 16 organizations. Group medical practice arrangements lend themselves to prepayment plans, and especially those operating in the larger communities and metropolitan areas generally offer some form of prepayment financing.14 In California, 52 medical groups were in operation in 1950; most or the larger groups offered medical services on a prepayment basis.15 Fraternal orders, employees and industrial concerns may sponsor mutual benefit societies or associations. While their principal purpose has been to indemnify against loss of income, provision for medical and hospital expenses is not uncommon.16 Employers and/or unions may sponsor elaborate clinical facilities for the care or employees and dependents. Usually the employer assumes the full costs of providing such facilities although a prepayment arrangement may be in effect where dependents are privileged to use the services provided by the clinical facilities. 14E. Richard einerman and George S. Goldstein, Medical Group Practice in California (Berkeley: School of Public Health, Universit of California Press June 1952), p. 24. 15Ibid., p. 12. 16Ib1d., p 8. 17 Union health and welfare funds. By 1950 nearly evecy major union in the country had negotiated some form or health and welfare program for their members.17 Early development of union-sponsored health and welfare programs emphasized the provision of direct benefits, either through the establishment or clinical facilities or through the participation in some form or medical service plan.18 However recent trends have manifested a shift to third-party contracts with insurers or with Blue Cross and Blue Shield plans as well as with some or the larger medical service plans.19 Consumer organizations established for the primary purpose of procuring medical services for their members serve as another example of prepayment medical service plans. Sponsorship is neither the industry offering the services or any other third party group. Memberships in such plans are generally extended on an individual rather than group basis. This fact, long with the difference in 17Margaret C. Klem and Margaret F. McKiever, Management and Union Health and Medical Pro~rams, United States Department of Health, Education andelfare; Public Health Service, Division of Occupational Health (Washington: U.S. Government Printing Office, June 1953), p. 17. 18 Ibid., pp. 4-5. 19Ib1d., p. 33. e.g., The Health Insurance Plan of New York, The Permanente Health Plan and the Group Health Corporation of Puget Sound. 18 sponsorship, distinguishes the consumer-sponsored medical service plans; the type or extent or coverage is comparable to plans sponsored by other organizations. Public Finance and Medical Care The taxing and spending powers of government should not be ignored as of possible assistance in the financing or medical care. Several alternatives are evident in the public financing of medical care. Direct measures may be taken to provide medical services; indirect measures may be utilized to subsidize or reinsure sundry schemes of a voluntary nature. The array of possibilities for the use of public funds to facilitate the financing of medical care is wide indeed. Public finance of medical care is hardly new or untried. Care of the indigent has long been a function of local governments. Preventive medicine and the control of contagious disease are fundamental tasks pursued b the Public Health Departments of federal, state and local governments. Provision for hospital and medical care for the medically indigent20 sufferers or catastrophic maladies is a recognized responsibility of government. Public sympathy and political pressure have condoned and enriched governmental provision or medical 20i.e., persons who are unable to bear the economic burdens of a catastrophic illness but who are otherwise "solvent." 19 and hospital care for particular groups, such as veterans, military personnel, inmates of institutions and others. Federal, state and local governments are not unfamiliar with the task of providing med cal care for at least a portion of the nation's population. Public finance of medicsl care may involve the direct provision of facilities, as heretofore described. Or, indirect means may be utilized. For example, the Veterans Adm nistration, as a matter or routine, has "farmed out" the provision of edical care on an out- patient basis to the Cal ornia Physician' Service (Blue Shield). Similar arrangements are made in re ard to the dependents of ml tary personnel. Ind rect financial aid, coupled with moral pers a on has been used effectively in connec ion i h rural h al h pro rams.21 Government easur to finance med cal care include provisions for h orkman' com en at on 1 o the variou state • In Cali or a for example lose of income and cost o hospital and med cal car arisin from occupational illnes or ace dens ar cov red b 21The Resettlement dministration o the Un ted States Departmen of Ar cultur (later, the .s .. ) in 1936 sponsored volun a prepa ent plans for low-incom arms who had obtained loan from the Durin the pea ear of 1943, 1,120 such plan ere in operation. cf. Goldman cit. p. 130. 20 workman's compensation.22 California unemployment compensation laws provide weekly cash unemployment benefits during periods of hospital confinement in addition to providing partial indemnification for the costs or medical services rendered, even though the hospitalization was caused by illnesses or accidents of a non-occupational character.23 II. DJW LOP NT OF I SURANCE AND PREPAYMENT PLANS Health insurance n a mass scale is r lat1vely ne . early to-thirds of th nation'a popula ion is covered by some orm of health insurance or pr payment mechanism; ye the apparent breadth o covers e is of r cent origin and does not date back much before the Second orld ar. Earl en preceedin the 1930s may be con ider d as "ancien h and prepa en 0 " nd un ons have edical racilitie it respec to th h alth insurance eld In cer ain ind tr e emplo ers ined lon e per ence in the provis on o d service for employees. ra er al 22The Cali ornia State Chamber of Commerce A of Volun a Health In urance in California fsan ----sco: The Cali a State Chamber of Comm rce June 1 54) p. xi, n 23rb1d. p. xi n. 3. 21 orders and benevolent societies have had similar experience on a limited scale. Conmercial insurers had ventured cautiously into the disability field before the turn of the century, but such activities were more the exception than the rule. Medical society sponsored plans such as Blue Shield did not materialize until the latter part of the 1930s, for organized medicine was slow to react to the need for extensive financing of the cost~ of medical care. Growth or health insurance. The first commercial disability insurance policy dates back 110 years.24 Althou h private insurance in the health and accident ield had its beginnings prior to 1850, any extensive coverage in these fields came only at a considerably later tim. In 1890 commercial insurance was written to cover major illness and to provide weekly cash benefits.25 Sur ical benefits were covered by commercial insurance as early as the 1900s. However, effective policy provisions 24p1erce Williams, The Purchase of Medical Car Throu Fixed Periodic Pa~en (New York: National Bureau of conomic ResearC, Inc., 1932), p. 253. 25Health Insurance Council, 2£· cit., p. 15. 22 in this field did not appear until the late 1930s.26 The first disability policies were on an individual rather than group basi~. In the year 1911, the first group life insurance policies were written,27 and in 1914 temporary disability benefits were first provided on a group basis.28 A typical health and accident insurance policy written prior to 1915 as limited in coverage cancellable at the option of the insurer {upon return of unearned premium), and pro ided coverage for period of one year at a time.29 As to the commercial health and accident insurance r tt n prior to the 1920s th volume as not large. Distin u shing health from accident policies the ormer co ered no ore han 20 000 people and th estimate dollar volume of o s premiums in 1915 a no more than 375 ooo. 30 Bu by 1 31 group h alth and acciden 26Ib1d., p . 17. 27Id 28 le and cKel er o . cit. p. 11. 29 1111am o . cit., p. 254. 30Social Insurance Commis ion Report of the Social In urance Comm ssion o the State of Cal1forn a Sacramento: Californ a State Pr1nt1n ffice 1917), p. 88. 23 policies covered more than two million wage earners.31 In the field of disability insurance, the scope of coverage, as well as the number of persons covered, did not expand materially before the period following the Second World War. A survey of policy coverage in the per od 1924-26 demonstrated the wide divergence between medical costs and insurance coverage.32 Pioneers in the provision of medical care through a rouping or transfer of risks were fraternal and emplo ee mutual benefit societies. Three early mutual benefit as ociations which were established primarily for the purpose of providing medical care on a more or less em1-char1t~ ba is were the French and German benefit societies of San Francisco and Los Angeles.33 Mutual 31Williams, o . cit., p. 272. 3 2 or those covered by some form of health and accident insurance in the period of 1924-26, surgical costs exceeded in urance coverage by more than 2:1. Hospital expenses amounted to nearly three times the covera e of insurance, and medical treatment or provision for re ular medical expenses was quite scantily covered by policies ritten during this period of time. illiams o . cit. p. 259 . 33Three early California pioneering groups were the French Benevolent Societies of San Francisco (1851) and Los Angele (1860) and the German Benevolent Society of San Francisco (1864). The French Hospitals of San rancisco and Los An eles were rounded by these French Benevolent Societies. The Franklin Hospital of San Francisco was similarly founded by the German Benevolent Society of that city. cf. Goldman, £E. cit., p. 36. 24 benefit associations date back to 1787;34 some unions in existence today trace their beginnings as benevolent societies.35 But the expansion or sickness benefits and the direct provisions of medical services did not develop to any appreciable extent until the 187os.36 Plans sponsored by industrial concerns can be traced back to 1868, when the Southern Pacific Railroad Company founded a major medical . care plan in Sacramento, California.37 Other railroad companies (or their employees) followed suit in rounding medical care plans and in sponsoring employee benefit associations for similar purposes.3 8 Firms in the lumber industry and in the retail trades demon trated an early interest in the provisions of adequate medical care for their employees.39 3 lem and McKeiver, 2.E• cit., p. 4. The Free African §ociet~ was formed in Philadelphia in 1787. 35Ibid., p. 5. e.g., the Brotherhood of Locomotive Firemen and Enginemen was formed as a benevolent society in 1873. Twelve years later it assumed the status of a labor union. 37Ib1d. p. 3. 38Ib1d.~ p. 3. e.g., Missouri Pacific Hospital AssociatiOll\1072) and Northern Pacific Beneficial Association (1882). 39The Macy Mutual Atd Association, founded by employees, was formed in 1885. Subsequent expension in benefits has taken place, and the plan now offers 25 Prior to the 1920s, judging from the number or persons covered, industrial and mutual benefit plans were not of great importance. The French and German societies or California, in 1915, covered a combined membership or less than 15,000.40 Coverage of plans sponsored by fraternal orders was equally sparse.41 Trade unions had provided sickness benefits for little more than 38,000 members in California in 1915.4 2 While an expansion of union-sponsored clinics and medical care plans occurred during the 1920s, mass coverage and a wider breadth of coverage did not materialize for nearly two decades- until the Second World War.43 Blue Cross and Blue Shield. The beginnings or Blue Cross plans can be traced to 1929, when a group of 1,500 comprehensive medical, hospital and dental care on a prepayment basis. Goldman, .2_.E. cit. p. 37. 4~eport of the Social Insurance Commission of the State or California, £.E • .£!i., pp. 84-85. 41Ibid., p. 81. 42Ibid., p. 84. One hundred-fifty of 501 unions canvassed provided some form of sick benef t for their members. Detailed information concerning the scope of coverage during this period is not readily available. 43M1chael Davis, Medical Care for Tomorrow (New York: Harper and Brothers Publishers, 1955), p: 231. school teachers contracted with Baylor University to provide hospital care to all subscribers.44 Following the example set by Baylor University, the hospitals of Sacramento, California, entered into contractual agreements with residents or that city in 1932 to form what was one of the earliest city-wide Blue Cross plans in the nation.45 In the years immediately following the inauguration or the Sacramento plan, Blue Cross plans spread throughout the nation. In 1936, the Hospital Service of California was formed and became popularly known as Blue Cross of Northern California.4 6 Two years later, its southern California counterpart, the Hospital Service of Southern California, was rounded.47 During the first 10 years of 44commission or Costs of Hospital Care, Hospital Care in the United States (New York: The Commonwealth Fund,19lffr, p. 574. 4SLouis H. Pink, "The Story or Blue Cross," Public Affairs Pamphlet No. 101 (Washington, D.C.: U.S. Govern ment Printing Office 1945), p. 2. 46Published testimony of J. Philo Nelson, Executive Director or Hospital Service in California, before the California Assembly Int rim Committee on Finance and Insurance, Subcommittee on General Insurance, Public Hearing, November 3-4, 1955, San Francisco, California, p. 1. 47Published testimony of James E. Ludlam, Director of Hospital Service of Southern California, before the California Assembly Interim Committee on Finance and Insurance, Subcommittee on General Insurance, Public Hear ing, Nov. 3-4, 1955, San Francisco, California, p. 1. 27 Blue Cross existence on a national scale the membersnip in Blue Cross organizations grew by staggering proportions. From 6,000 members in 1933, the Blue Cross plans grew to a total national membership of nearly 12 million within a decade.48 Present membership in Blue Cross plans of California exceeds 1 million persons.49 Nearly one-third or the nation's population has Blue Cross coverage at the present time.50 Blue Shield rose in response to the need for f nancing medical and surgical costs, esepcially for persons in the lo er income brackets. The first Blue Shield plan, California Physicians' Service, was formed in 1939.Sl At firs CPS-Blue Shield provided surgic 1 benefits 48 aurice J. ::>rb , "Blue Cross Statistics,' Special tud o. 42 Jul 19 3, s uoted in Helen H. vnet, Voluntary edic 1 Insurance in the United States: Jor Trends and Current Problems TN York. Gro p Health Cooperative, Inc. 1943) p. 17. 4 9Test mony by el on and Ludlam,£_£. ct., pp. 2 and 7, re pectively. 50Tes imon b elson loc. ct 511,ou1 S . Reed, Blue Cross and edic 1 Service Plans, U.S. Publ c Health Service ( shington, D.C.: U •• Government Printing Office, 1947), p. 137 However Reed traces the beginnings of Blue Shield to he 192Os. In Oregon and ash n ton, loc 1 edical societ es sponsored medical service bureaus to offset allegedly poor q al1 y care beir.g offered by priv te gro p clinics and hospital associations durin th t time. cf. Ibid., p. 136. 28 on a group basis, with no coverage of dependents.52 Subsequently, dependent coverage was offered (1942), restrictions on coverage of pre-existing conditions were relaxed (1943), and age-limitations were liberalized (1945).53 Coverage of medical care for non-surgical conditions was not available to members and families until 1949. In the same year, individual membership for families not affiliated with the group was made available for the first time.54 In the southern California area, CPS-Blue Shield cooperates closely with Blue Cross (Hospital Service of So thern California) and participates in Joint adminis tration nd enrollment.55 However, in the northern part of the state, CPS-Blue Shield operates independently of Blue Cross (Hospital Service of California) and each or anizat1on offers competitive coverage of hospital costs to their member in the northern California area.56 52Published testimony of Francis T. Hodges, President, California Physicians' Service, before the California Assembly Interim Committee on Finance and Insurance, Subcommittee on General Insurance, Public Hear i n San ancisco, California, November 3-4, 1955. p. 4. 53rdem 54Idem 55Council on Medic 1 Service, American Medical ssociation, Voluntary Prepayment Medical Care Plans (Chicago: American Medical Association, 1949), p. 18. 56Iden 29 Development or medical service prepayment plans. Widespread use of the prepayment system of financing comprehensive medical care is or fairly recent origin. Aside from a few industry-sponsored plans developed in the last century, comprehensive medical services on a prepayment basis, available for large numbers or people, did not develop before the Second World War. A principal barrier to the growth or comprehensive prepayment plans has been the concerted opposition by organized medicine.57 While the o ganization of medical services on a group practice basis has wide appeal, es~cially among the younger members of the medical profession, spokesmen for ·organized med~cine have main tained a traditional coolness to what they refer to as "contract medicine." From the standpoint or numbers convered, three medical service plans predominate in California: CPS-Blue Shield, Kaiser's Permanente Foundation and the Ross-Loos Medical Group. 58 57Phys1cians nd surgeons participating in the Ross Loos Medical Group were expelled b~ the Los Angeles County Medical Society; however action by the Judicial Council of the American Medi cal Association resulted in their re instatement. cf. Davis, £E· cit ~, p. 219. Physicians and surgeons participating in the Kaiser Permanente plans, the Complete Service Bureau, as well as in New York's Health Insurance Plan have all been the subject of censure by the various medical societies concerned. 58Although CPS-Blue Shield is classed as a service 30 The Ross-Loos Medical Group was organized in 1929.59 Their first major medical service contract covered employees and their families of the Los Angeles Department of Water and Power.60 The Permanente plans trace their beginnings to 1942. 61 Complete Service Bureau, a major consumer-sponsored medical service plan in California, commenced operations in San Diego in 1939.62 The Permanente plans have expanded rapidly and now offer some form of coverage ror more than 10 per cent of the Bay area's population.63 On the other hand, Ross-Loos coverage has not shared the same rapid rate of growth.64 rather than indemnity type plan, it is discussed separately and in conjunction with plans formally sponsored by organized medicine. Further consideration of prepayment medical service plans will be made ithout direct reference to Blue Shield, but with the tacit understanding that this organization does provide medical service benefits on a prepayment basis for its members. 59Health Insurance Plans in the United States, _, __ - -- ---- 2.E • cit., Appendix G p. 19 . 600o1dman, _Q_E. cit. p. 172. 61Health In urance Plans in the United States, loc. cit. 62Com lete Service Bureau . San Die o Countz Medical Societ~, 430. 2d, 201; 272 P. 2d, 97 {195-}. 63Test1mony of Sidne Permanente Foundation before Interim Committee on Finance on General Insurance, Publi San Francisco, California. Garfield, Director of the the California Assembly and Insurance, Subcommittee rin, v m r 3-4, 1955 64e.g., 102,000 persons were covered by Ross-Loos plans in 1943; by 1948 enrollment had increased to 31 Present Status More than 100 million persons were covered by some form of health insurance or prepayment by the end or 1954. 6 5 At present a fair estimate or the total covered would be approximately 120 million, or nearly 10 times the number or persons covered in 1940.66 Table I summarizes the population coverage of the various types or insurance and prepayment plans as of December 31, 1954. or the more than 100 million persons with some form of hospital expense coverage, nearly half were covered by Blue Cross-Blue Shield plans; about one third were covered by group health insurance, while individual health insurance plans covered about one-fourth of all persons with some form of hospital expense coverage. Hospital expense coverage through independent prepayment plans provided some protection for approximately 5 per cent of the population with hospital expense coverage. According to Table I about 8~ per cent of those with hospital insurance protection had some coverage or 114,ooo -- little more than a 10 per cent increase during this five year period when oh r repayment and insurance plans increased at astronomical rates. cf. Avnet, _£E. cit., p. 27; Voluntan7: PrepaY!l!ent Medical Care Plans, _£E. cit., p. 110. 65The Health Insurance Council, The Health In urance Story (Chicago: The Health Insurance Council, [195!/), p. 5. 66Ibid., p. 10. TABLE I DISTRIBUTION OF HOSPITAL, SURGICAL, AND REGUIAR MEDICAL EXPENSE COVERAGE BY TYPE OF INSURING ORGANIZATION, DECEMBER 31, 1954 32 Number of People Covered Type of Insuring Organization Insurance Compani~ss Group inaura.nce Irdividual-Polioy insurance Unadjusted total Deduction for duplication in persons with insurance compa~ protection Net total for insurance canp.njes Blue Cross-Blue Shield Plans Independent Plana t Industrial Conuuunity Consumer-sponsored Private group clinic College health plans Total for independent lans GRANDT ll Deduction for duplication of per ona protected by more than one type of insuring organization BET TOTAL OF PERSONS PROTEX:TED Hospital Expense 35,090 25,338 60,428 5,146 55,282 47,4~ 3,544 674 131 447 400 5,196 107,%2 6,469 101,493 Surgical Expense (thousands) 35,723 21,442 57,165 4,359 52,806 34,899 3,508 412 131 450 300 4,801 92,506 6,616 85,890 Regular Medical Expense 15,778 6,513 22,291 1,570 20. 721 24,668 3,021 417 103 W,7 900 4,908 50,297 3,049 47,2lf.8 Sources The Health Insurance Council, The Extent or Voluntary Health Inaurance Covera~e in the United States-'{chicagoa Health Insurance Council, 1955}~ P• 1,. 33 surgical expenses in 1954. The number or persons with surgical expense coverage through Blue Cross-Blue Shield plans was approximately 41 per cent of the total number of persons with some form or surgical expense protection. An equivalent proportion of the total were covered by group health insurance plans other than those affiliated with Blue Cross or Blue Shield. Approximately 25 per cent or those with some coverage of surgical expense were covered through individual health insurance plans. Less than half of those with hospital insurance protection had any coverage of regular medical expense. The bulk of these were covered by Blue Shield plans. Comprehensive coverage is far less prevalent. Estimates differ, depending on their definition of "comprehensive." Falk concludes that less than 4 per cent of those covered by hospit 1 insurance have comprehensive coverage of all medical costs.67 One other study shows a comprehensive coverage rate of 21 per 1,000 persons, as of 1949; this would be slightly less than the Falk 67Irving s. Falk, "The Need, Potential and Implications of Compulsory Health Insur nce, 11 The President's Commission on the Health Needs of the Nation, Building America's Health, Volume N (Washington, D.C.: United States Government Printing Office, 1951), p. 66. Falk's definition of "comprehensive" coverage is perhaps too stringent; he would count only those plans which provided coverage of 80 or more per cent or the total consumer-costs of illness. 34 estimate.68 From the standpoint or numbers covered by health insurance, the State of California does not quite measure up to the national average. As of December 1951, slightly more than 40 per cent or California's population had some form or health insurance or prepayment coverage;69 while in the same year, nearly two-thirds of the nation's population had some form of similar coverage.70 However, comprehensive coverage was more than twice as prevalent 1n the State of California than for the nation as a whole.71 Health insurance and prepayment plans are two or the principal voluntary means of financing medical care. Each can be traced back to early beginnings more than a century ago. But the ma jor growth in the financing of medical care through the various insurance and prepayment plans dates back only a relatively short period of time; most of the phenomenal growth in the scope of coverage and in number of persons covered has occurred in the years 68Health Insurance Plans in the United States, --- - -- ---- ---- £.E. cit., pp. 32-33 . 69california State Chamber of Commerce, .£E. cit., p. 1. 70Falk, loc. cit. 71Health Insurance Plans in the United States, -------- -- - - loc. cit. 35 following the Second World War. Approximately two-thirds of the nation's population now have some form or health insurance or prepayment coverage of the costs of medical care. The most prevalent coverage is hospital costs; few persons have insurance coverage of the costs or regular medical care. Current trends point to a broadening in the scope or coverage, a simplification of the policy provisions, as well as a continued expansion in the numbers or persons covered by health insurance and prepayment plans. CHAPTER III ECONOMIC ASPECTS OF RISK AND UNCERTAINTY For the consumer, insurance and prepayment plans reduce economic uncertainty by converting the financial contingencies of illness into relatively fixed costs. This chapter analyzes the economic aspects of risk and uncertainty as they pertain to the insurance and prepayment methods of financing medical care. The nature of risk and uncertainty is examined. Uncertainty-costs of accident, illness and disease are analyzed; in turn, attention is directed toward the scope and limitations of insurance and prepayment in meeting the financial risks and in reducing the financial uncertainties of illness. I. RISK AND UNCERTAINTY Risk and uncertainty are interrelated and often confused. With respect to this study, risk and uncertainty may pertain to the contingencies of accident, illness or disease; or they may concern the financial contingencies surrounding accident, illness or disease. Risk Distinguished From Uncertainty While terminology should not outweigh content, some clarification of the terms, risk and uncertainty, is essential. The two are distinguished primarily on the basis of measurability. .As a technical insura,nce term, "risk" is a combination of hazards to which the indi- vidual is exposed. 1 s a common word, "ris " is subject 37 to a variety of meanings. 2 It is related to probability and in this sense implies a calculation regarding a future event or et or circumstances; it is the chance or possibility of a loss (or disadv ntage) being incurred. n terms of mathematical probability, risk r lats to a frequency d stribution per aining to a homogeneou roup or r lated st of evens; th concept of r sk has no eanin in r ard to a unique event o vie ed n isolation.3 • o an en 1 rving Pe Publ sh d for he S. Educa ion ( om oo 1956), p. 179. er, Insuranc and Econo ic Theo S. Hu Foundation or In urance Ill nois: Richard D. Ir in, Inc., 2 cf. eb ____ Inter a ional Dictions of the n 1 sh L nguage cond ed ion, unabr d ed· Spr eld: . and c. err am Com an 1 1956). eb er defin th te 'ris' as ollo s: \1) the ource of dan r, hazard ~er l· (2) the sub ect or ite in danger, hazard, peril• ( ) h ~~.!;!_-__ d o dan er, hazard, per l· ( ) th act of da er hazard, peril. 3cr. Albert G. Hart, An icipation, Uncertaint, and ~amic Plannin ( York: Augu t . Kelly, Inc., 19 l~p. 51. This book wa ir published n 1940 b the Univer ity of Chica Pre _J cf. also ran . Knight, Risk Uncert inty and Profit (Boston and ew Yor: Houghton ifflin Company, 1921), pp. 234-35. The element of uncertainty and the degree of risk depend on t he uniqueness of an event.4 An event in isolation defies prediction in that its connection with the ast is not clear. Where events can be measured, class fied, rouped, and correlated with previous group behavioral patterns, the element of uncertainty thereby can be m nimized. Risk and uncertainty are interrelated in that, ... r k a fects economic behavior through the 38 psycholo ical influence of uncertainty." 5 Uncertainty is daub and 1 orance about the future. Risk is the calcul ted chance of n undesirable event occurring. Unc ran y is 1 norance or doubt as to whether--or as to hen n ho -an undesired event will take place. R k s uncerta nt reduced to measurability h OU h co n tion or roup ng. Risk implies a cond tion orbs s or ac ion· uncertaint forms a barrier o rat onal act on. To the extent that uncertaint can be 1 n H. Willett The Economic Theor of Risk and -- Insurance hed for the . S . Huebner Foundation for In on ( Homewood I llinois: Richard D. Irwin, n ) . 22 . his book was first published in 1 he Colum i Uni ersit Press. cf. Studies in Hi conomics and Public Law (New York: Columbia Un Press 1 01) XlV: No. 2.7 bid. , . 23 . 6icni ht o . cit . pp . 19-20 234 et assim. 39 quantified, it ceases to be uncertainty per se.7 It becomes in the nature of a risk that suggests alternate actions. It can be assumed, reduced, combined, transfered, depending on the particular circumstances involved. It can be insured against; the result is a substitution of a certain but nominal loss (the premium) for the uncertainty of a substantial loss (e.g., major medical expenses) . 8 To the individual, a major event affecting his health is unique, unpredictable and characterized by a high degree of uncertainty. In turn, "Uncertainty varies from person to· person and for any given person, from time to time." For a lar e group, however, medical catastro- phies are of airl re ular occurrence and are predictable within workable ran es of accuracy. The rediction for the group involves an estimation of the ratio between expected medical catastrophies (of a given t pe, during a iven period of time ) and the number in the rou --or simply the accident or i llness rate for the group. But while the illness or accident rate may be known for the group, which individuals within 7Ibid . , pp. 231-2. 8s. B. Ackerman Insurance (third edition; New York: The Ronald Press Company 1948) p. 17. 9Preffer 2..2· cit. p. 41. 40 the group will be inflicted during a given period or time is a complete uncertainty. Medical and Financial Risks Financial risks that have bearing on this study are those financial contingencies surrounding the economic burdens or illness. Medical risks, on the other hand, are the contingencies directly affecting one's health. An individual runs a medical risk of becoming seriously 111 within a given period or time. The possibility or illness implies a financial risk in the form of an economic burden of the costs that must be met in the event of such illness. II. UNCERTAINTY-COSTS OF MEDICAL CARE The mere presence of uncertainty does not imply an economic cost per se. For uncertainty may be a stimulant as well as a barrier to progress. The paradoxical quality or uncertainty may be explained by the presence or absence of a chance or reward. Uncertainty as to the outcome of a business venture may have a positive value in that, as expectations may be optimistic, efforts stimulated by such anticipations may exceed that which would have been evident in the absence of uncertainty. In this sense, uncertainty may be the principal source of profit.lO 10iuiight, ~- cit., p. 272. 41 But uncertainty with respect to a purely unpleasant event such as illness may not act as a stimulant to progress.11 In the sense that uncertainty is limited to contingencies having a negative economic value, uncertainty represents a social and economic cost. Of positive value to the consumer is the reduction or uncertainty with respect to the financial contingencies of illness. Hence the presence of such unilateral uncertainty implies an economic as well as a social cost. Nature of Uncertainty Costs Uncertainty is a disutility to be avoided unless there is a possibility of some offsetting gain.12 The presence of uncertainty involves a cost in that the allocation of resources is altered in order to cope with uncertainty.13 Uncertainty-costs of illness can be expressed in terms of (1) a disagreeable mental state involving anxiety and fears concerning future health needs and costs; llHowever it may be argued that uncertainties of illness may stimulate progress and productive effort in that the presence of uncertainty may encourage action to avoid or eliminate such uncertainty. Consequently an increase in production is possible. 1 2 Willett, ~- cit., p. 26. 1 3sidney Weintraub, Price Theory (New York: Pitman Publishing Corporation, 1949), p. 366. 42 (2) the disutility of a less efficient allocation of income than possible in a theoretical state of complete certainty, and (3) the amount or income diverted to the task of reducing uncertainties.14 Costs of uncertainty may affect the individual by reducing the level of his income in relation to what he might have earned in the absence or uncertainty regarding the contingencies of illness. Uncertainty-costs affect the individual's spending patterns; alternative expendi tures are curtailed by the amount of income allocated to the reduction of the uncertainty of illness and by the presumably lower efficiency of expenditures due to the presence of such uncertainty.15 Financial uncertainties may even be a causal factor in illness. Worries over the possibilities of becoming 111 as well as ove1 the potential costs to be faced in the event of illness, may contribute to ill health.16 To the extent that medical and financial co ts are increased by such a state of mind, thy may be classed 14F. Lavington, "An Approach to the Theory of Business Risks," Economic Journal 35:192, 15Pierce Williams, The Purchase of Medical Care Through Fixed Periodic Pa~ent {New York: National Bureau of Economic ResearC, lnc., 1932), p. 253. 16Bernhard J. Stern, American Medical Practice in the Pers~ective of~ 2entury (New York: The Commonwealth Fund, 19 5), p. 53. 43 as uncertainty-costs. Social Costs of Uncertainty Uncertainty costs of illness not only affect the individual but society as well. The aggregate loss in productivity attributable to such unilateral uncertainty means that national income and output is lower than possible in the absence of uncertainty. Medical uncertainties cause a reduction in productive efficiency which in turn affects the output of the firm employing the individual. As a probable consequence of medical uncertainties inefficient utilization of labor results in higher labor co~ts and, consequently, in higher prices for the firm's products; when all firm are taken into account, the reduction in productivity and increase in co~ts and prices results in a reduction in real aggregate and individual income. Whether financed or not, uncertaint -costs surrounding illn ss are borne by the econom .17 If not financed, these costs are borne in the form or a lower national income, output and plane of living, as well a a lower rate of economic growth. If financed, the costs 17Leon H. Keyserling "Health Services and the Expanding American Economy,d The President's Commission on the Health Needs of the Nation, BuildinE America's Health (Washington D.C.: United States Government Printing Office, 1951), Vol. rv, p. 125. 44 are borne directly through the re-allocation of resources used to cope with such uncertainties. In either case, the nation loses as a result of uncertainties surrounding the health needs of the nation. To the extent that appropriate financing can reduce uncertainty-costs by more than the costs of such financing, the nation will gain by undertaking such action. III. MEETI G FI A CIAL ISKS OF ILLNESS Th financial risks and uncertainties concerning illness may be dealt 1th in any one of several ways. They may be reduced or eliminated through appropriate preventive m asures· they may be a swned throu h the process o · saving and bud eting· 1nd1v1du 1 risks can be combin d 1th a result n r duction in individual uncerta1nt1e · risks can be transfered thro gh th 1nsuranc mechan sm 1th uncertain 1e. simil reduction n individual Avoidance and Ind1v1du 1 Assum tion o Risk Con iderin the pre ent and any foreseeable sta e o the edic 1 arts co lete avoidance of medical risks obviously is impossible. The financial and dical uncertainties surroundin such hazards can at least partly be avoided through appropriate preventive mea~ures.18 lBMichael Davis, edical Care for Tomorro {Ne Financial uncertainties can be reduced further by a positive assumption of risks through self-insurance. 45 Preventive medicine. Risk and uncertainty can be reduced by appropriate preventive measures. Despite great improvements in death rates, there is still a vast amount of preventable sickness. There is also much illness e do not know how to prevent but could reduce in duration, severity, or in its conseguences , th.rou h adequate and timely medical care.I9 hile illness may strike with no apparent warning to the inflicted., syniptoms ot pending illness can be detected throu h regular medical checkups. The incurability or many diseases (e.g., cancer) is relative to their stage of develo ment at the time they are first detected.20 Appropriate, eriodic examinations could materially reduce the incidence, duration and magnitude ot such illness. In turn, these measures would lessen uncertaint1es--both fin cial an edical--connected with the hazards or York: Harper and Brothers, Publishers, 1955), p. 317. 1 9Memoranda repared by the Bureau of Research and Statistics, Social Security Board, "The State of the tion 1 s Healtb.," Report to the Senate Committee on Education and Labor relating to the Bill (1066) to provide for a ational Health Pro ram, National Health Act or 1942, Senate Committee Print o. 4. Reprinted in Clarenc8A. Pet rs, Free Medical C re ( ew York• Th H W i Company, 1946), p. 20. 20 oscar • Serbein, Paying for Medical Care 1n the United States (New York: The Columbia University Press, 1953}, pp. 331-35. 46 illness.21 Preventive medicine is discussed here with direct reference to medical services . However, measures appropriate for the prevention of illness or the promotion of health are by no means restricted to the provision or timely medical care.22 Techniques of preventive medicine hold promise of improvement in the nation ' s health. For the individual, timely medical care can reduce the chance of serious illness, the financial risks involved, and the uncertainties present. But a number of barriers to more emphasis on the preventive side of medicine curtail its use. The chief among these is economic . . Two factors contribute to the individual's inability to budget for preventive medical care. One is the expense involved. 2 3 The other concerns individual 2lsome indication of the importance of the problem nd of the potential benefit of appropriate preventive measures is ga ned by an analysis of selective-service examinations of World War II. Primarily for reasons or health, approximately one-half of the 16 million men examined were found unfit for military service. Rejection rates varied with the economic and social status of the examinee. The major cause of the comparatively wide differentials in rejection rates was attributed to "past medical neglect." Undoubtedly the rejection rates could have been reduced materially through a more effective use or preventive medicine. Peters, 2-E· cit., pp. 23-25. 22navis, 2-E· cit., p. 305. 23The New York Academy of Medicine, Committee on Medicine and the Changing order, Medicine in the Changing 47 motivation. Budgeting for a desirable good or service is far easier than budgeting for an "undesired necessity" such as medical care. 24 ''We seek medical care. . . because we think we must, not because we like it."25 For the average person, medical services imply at best, a mildly unpleasant experience. A normal reaction is to avoid such experiences except where "necessary," that is, except when the symptoms are obvious or when self-medication has not corrected the condition. Another impediment in the path of preventive medical care is a general lack of understanding on the part of the consumer as to its value. The family physician, a logical channel of communication about affairs of this nature, is usually reluctant to recommend to the patient an obvious extension of his services.26 To a degree, medical risks can be controlled at their source through application of preventive medical services. To the extent that these risks cannot be reduced, the burden of their existence can be lightened by appropriate financing. This may simply entail Order {New York: The Commonwealth Fund, 1947), p. 152. 24navis, ~. cit., p. 17. 25rdem 26New York Academy of Medicine,~. cit., p. 151. self-insurance through prudent budgeting procedures, or may involve a more formal financial arrangement. 48 Self-insurance. Saving in anticipation of medical costs is a form of self-insurance. By assuming the financial risks of illness, by budgeting the costs of illness, some reduction of the related financial uncertainty can be effected. However, two obstacles thwart effective risk-assumption in so far as the contingencies or sickness are concerned. One is the degree of risks faced; the other stems from economic and psychological barriers to saving for this purpose. A risk for the group is an uncertainty for any individual within it. The incidence, impact and costs of illness can be averaged for the group, but these averages can be dangerously misleading when pplied to an individual; typical cases do not indicate the extent of deviation from a calculated norm or average. Budgeting the costs of illness has only limited application, especially in connection with hospital and surgical contingencies and with catastrophic illness. Expenditures for regular medical care can be budgeted to some degree. To the extent that such expenditures are fairly regular in occurrence and not subject to wide variation in magnitude, prudent budgeting can effectively equip the household with the means to meet these 49 contingencies. Even the costs of regular medical care involve elements of uncertainty. No matter how prudent the house hold is in its control of expenditures, the financial uncertainties of illness cannot be completely eliminated or handled as efficiently as may be possible through alternate methods of financing. Combination and Transfer of Risks Risks can be combined and jointly assumed; they can be transfered to a third party. In either case the intended effect 1s to reduce the uncertainti~s facing the individual participants; in addition individual financial risks are reduced. The combination or transfer of risks may not affect the amount of positive losses incurred by the group.27 The real value of either combination or transfer is found in the reduction of the range of possible losses to the individuals within the group. As risk and uncertainty vary in relation to the range of potential losses, a reduction in that range has the effect of reducing individual risks and, especially, uncertainties regarding the costs of medical care. 27Willett, ~- cit., p. 68. 50 Risk-combination. By combining risks, the risks for the group are less than the sum or the individual risks. By averaging losses for the group, the certainty of their occurrence is far greater than where losses are not combined. Where risks are combined, each participant pays to the group the equivalent of the average expected loss plus his. share of organizational and administrative expenses. So long as the latter are less than the difference between the individual risks and the average expected loss, then the participants have gained through combination. And to this extent that subjective uncertainties are reduced, an additional gain is realized. Risk-combination may take many forms. An informal arrangement may exist whereb the participants indemnify each other by agreeing to a distribution of losses when they are incurred. When a partic pant suffers a loss, the group bears the loss Jointly. The combination of risk may be formalized through the establishment of mutual or cooper tive organizations; for example, a Mutual Benefit ociety would illustrate this meth d of risk-combination. Transfer of risk. The effectiveness of combination or transfer of risks as a means to reduce uncertainty depends on the extent that individual risks can be 51 aggregated statistically and on the extent of risks not covered.28 For example, the average medical insurance policy indemnifies the insured for limited amounts in connection with specific conditions or illness. The insured has no guarantee that his insurance will cover costs incurred.29 Those costs over and above the coverage of his insurance leave an element of uncertainty in spite of transfer or combination or a part of.the risks. An agency of government may fill the role of insurer by assuming the risks, collecting the equivalent of premiums in the form of taxes, and either providing medical services when needed or indemnifying the "insured" gainst the costs o private medical care. IV. INSUR NCE AND FIN NCIAL RISKS OF MEDIC CARE By achieving efficient risk combination, financial uncertainties of illness can be minimized; consequently the insured derives a gain through his insurance in so far as the uncertainty-cost is in excess of the premium paid. The ga n may be shared by the insured, the insuring nstitution, nd by the society as a whol . The applicability of the insurance principle to the 25 However, cf. Pfeffer,~- cit., pp. 29, 153 179-185. 29This does not imply that insurance should cover all costs. 52 financial hazards of sickness is limited. Some of the costs or illness do not fill the role or insurable risks. To some degree costs may be influenced by the presence of insurance; a general lack of control over costs limits the ability or insurance to reduce the financial uncertainties or illness. Economics of Health Insurance An economic function or medical insurance is to facilitate a reduction in financial uncertainties or illness. Where the effectiveness of risk-combination can be increased by transfering risks to an insurer, the range of potential financial costs of illness is narrowed in so far as the insured is concerned. The economic value of insurance stems, not from the transfer of risk r se, but from a more efficient combination of risks through such transfer nee, and by the achievement of a groupin of risks which conforms closely to actuarial expectation.30 Health insurance serve an conomic function by reducing the financial hazards and uncertainties of illness. "Health in urance ... serves to tran mute heavy bills for the few into easily bearable premiums for the 30Pfeffer, 2-E· cit., p. 29 et passim. 53 many. "31 Risks and uncertainty vary inversely with the size of the group. The larger the group is, the less the chances are of a deviation between expected and realized I losses \i.e., expenditures for medical care plus compensation for income foregone because of incapaci tation). Uncertainty surrounding the contingencies of illness results in an allocation of resources that is probably less efficient than would be evident in the absence of uncertainty. If the presence of insurance achieves a reduction in uncertainty, a more efficient allocation of resources is made possible. If the gains in efficienc more than offset the losses due to the withdrawin from other fields o economic activity of resources utilized by insuring institutions, then a net gain to society can be r alized through the medium o health insurance. Limitations to Insurance - - - - --- Strictly speakin, health nsurance should be neutral in its erect on the (mon y) costs of med cal care. The task of such insurance is not to reduce the 3 The Health Insurance Council, The Health Insurance Story (Chicago: The Health Insurance Counc'il, [195!/), p. 9. financi.al costs of i l lness but to make such costs more certain and to disperse them over a wider base. While financial costs or illness will be decreased for some and increased for others within the insured group, the total group expenditures for medical care need not be different from that incurred in the absence of insurance. In urance has no direct effect on the medical hazards of illness; the chances of an individual's becomin 111 are not directly in luenc d by the use of insurance in the financing of medical costs. In ... urance functions as a reducer of financial worries nd uncertain 1es, not dlrec ly as an influence on the t tus of the na ion's alth. How ver, to th x ent that unc rtainty form a barrier to ff cien utilization of med cal fac 1 t es insuranc, b tac n hat barr er can make a direct con r bu on o the nation's health. A lic1b111 of The lue o in uranc v rie th th t pe o r inured a ain t. I n..,ur nee is of value to h person pro- tected hen th r skin ured a ans 1s aver s rious one and en its occurrence 1 unpre ictsble. h n n ranc eh d are ap lied o ris that are not very seriou and h ch a er lize airly re larl, hen h value of the rs -spreadin function o n ur nc d1m1n1 he . 32 32Ibid. pp. 2 -25. 55 Practical limits to the value of health insurance coverage concern the extent of uncertainty-reduction achieved through the medium of insurance; of equal importance is the relationship between the magnitude of contingencies insured against, the frequency of their probable occurrence and the costs of providing insurance coverage. Prudent business practice dictates the amorti zation of certain losses and in urance provision for unc rtain loss s. To the extent that the costs of medical care are reasonably certain and can be predicted for the individual provision for such costs through the insurance mechan sm is o dubious value. Adequate provision can be made thro h prudent budgeting practices if the anticipated costs of illness can be known within a reasonable degree of c rta n y. How ver for the individual family most of the co ts of uture medical care needs are imbued 1th a high degree o uncertain y.33 Hence the adequacy of the budgeting process as a means of providing for anticipated costs of future medical needs is limited. Ad in strative expenses, comprising a major part o the costs to the insurer, rise in relation to the 33navis, ~£. cit., p. 316. 56 number of claims as compared to total benefits.34 If the average claim is relatively small, as in the case of charges for regular medical services, and if the incidence of claims is relatively frequent, the necessary premium charges may well be in excess of the benefit value to the insured.35 Limitations to risk measurement. Reasonably accurate measurement or estimation of the risks involved in illness is a prerequisite for efficient action to meet such risks and to reduce the element of uncertaint . However, the accuracy of measurement of medical and correlative financial risks is limited; too many variables are involved.36 Relatively speaking, the actuarial basis for life insurance is sound in comparison to health and accident insurance because the pertinent variables are limited to two. The occurrence of death is a certainty; the unknowns are the ime and manner of occurrence. Illness implies all shades of character and intensity. The variables of interest to the insurer include the 34The Health Insurance Co ncil, o . cit., p. 25. 35Benefit value should be considered in terms of the reduction in financial uncertainties of illness as well as in terms of the insurer's ca!h outlays in behalf of the insured. 36Pfeffer, ~- ci~., p. 29. possibility of time, and manner or occurrence, the duration, and especially the cost of illness. Accurate prediction of these is considerably more difficult than the calculation of death risks. 57 Limits to the liabilitx or the insurer. Health and accident risks vary considerably and do not comform to high standards of actuarial perfection. As the behavior of the insured and the presence of health insurance coverage may affect the individual's costs of future medical needs, the insurer must either have some control of costs or be able to limit his loss to a specific cash indemnification for medical risks incurred. As far as the insurer is concerned, the indefinite ness of medical costs can be avoided by means of appropriate exclusions and limitations in the insurance contract. By confining disbursements to a predetermined schedule of benefits and by excludin conditions for which the actuarial base is not readily determined, health insurance can be offered at economical rates. Yet, from the standpoint of the insured, the substantial gap between medical costs incurred and insurance benefits received reduces the value of the insurance coverage to the insured. Uncontrollable costs. Contractual limitations on the liability of the insur dare in part a consequence of 58 the insured's lack of control over medical costs. Full reimbursement for medical services rendered to the insured is possible only when the costs are known. When medical care is administered on an indefinite fee-for-service basis, medical expenses are in effect uncontrollable in so far as the insurer is concerned. This problem becomes more important when the fact is taken into account that the economic risks of illness may be influenced by the manner in which they are financed. Traditionally, medical fees are geared to what the traffic will bear. Consequently, surrounding financial uncertainties are considerably greater than where at least some consumer control of costs is possible. The difficulty is magni fied when the patient's "ability" is defined broadly enough to include potential benefits from his health insurance. CHAPTER IV LEGAL ASPECTS OF MEDICAL FINANCE Legal considerations governing who may practice medicine and how medical services may be organized directly influence the possibilities of insuring against the financial uncertainties or illness. Provision for the cost or medical care through the medium of insurance is carefully restricted by law. Statutory regulations and court decisions govern the scope and nature of alternative methods of financing medical care. Each of these institutions must operate within the confines of law; therefore, an adequate understanding of the legal aspects of medical finance is an essential foundation for this study. I. LAWS GOVERNING THE PRACTIC OF MEDICINE Regulations governing medical practice influence the financing of medical care in three ways. In the first place, the scope of "medical practice" as defined by the law may be given a liberal construction so as to include "business" as well as "service" aspects of medicine. Secondly, the question of who may practice medicine has direct bearing on the quality, quantity and costs or medical care. In the third place, restrictions on group 60 practice and bans on the corporate practice of medicine may have considerable influence on the costs, quantity and quality of medical services as well as on the manner of their financing. Who May Practice Medicine in the State of California The privilege of engaging in medical practice is a franchise granted by the State. 1 The nature and importance of medicine necessitates restrictions as to who may practice medicine . Licensing standards are predicated on the value of perpetuating a high plane of professional competency and conduct and are granted only to individuals possessing the requisite knowledge, training, skill, and moral character.2 The license to practice medicine is not transferable and cannot be held b any one other than a duly qualified physician. California law restricts the field of medical practice to natura l persons; corporations may not engage in the practice o medicine .3 1 west's Annotated California Codes. Business and Professions Code, sec. 2000 et seq. n.b.: further references to parts of West's Annotated California Code will be ~esignated simply by the particular volume in question. e .g., Business and Professions Code, Insurance Code, Corporation Code, et cetera. 2Ibid., s c . 2009 , 2010 , 2141, 2377-2436 . 3Ibid., sec. 2008. 61 Scope of Medical Practice Statutes, administrative rulings, and court decisions relating to the scope of medical practice do not evidence any common agreement as to what the term medical practice -includes. Legal constructions vary from narrow conceptions encompassing only direct services rendered to broad definitions which include nearly every aspect of the doctor-patient relationship. A basic aim of the laws governing who may practice medicine is to assure a distinct separation of professional decisions from the profit motive. 4 Theoretically, the physician diagnoses, prescribes and treats ailments in accordance with the noble principals of the Hippocratic Oath. nd the motive of personal gain presumably does not enter into t e transaction; at least it is presumed not to affect the char cter of professional decisions or service. Rendering medical services. Little doubt exists as to the propriet of the term medical practice in so far as its use in the rendering of medical services. The courts have long agreed that " ... diagnosing, prescribing and treating ailments are constituent parts of the lii.os Anfeles County v. Ford, 121 C.A. 2d 402, 263 P. 2d 638 1953). 62 practice of medicine."5 Other court decisions have defined the scope of medical practice in terms of the type of treatment or services rendered.6 In so far as the service aspects of the medical care are concerned, ambiguity in the law primarily stems from duplication of services rendered by practitioners in the related healing arts.7 However the major source of confusion as to what constitutes the practice of medicine does not concern the re·ndering of medical services but pertains to the "business side" of the medical practice. Business aspects of medicine. In contrast to the narrow legal constructions of medical practice previously discussed, some courts have included in the concept, medical practice, not just the rendering of medical services, but virtually ' ... all conduct of the practitioner in carrying on his professional activities 5People v. Wah Hing, 79 C •• 286, 249, P. 229 ( 1926) . "One who does not diagnose, does not practice medicine." People v. Parish, 59 C •• 302, 210, P. 633, (1922). cf. Business and Professions Code, sec. 2000 et seq. 6e.g., cf. Louisana State Board of Medical Examiners v. Martindale, 834 So. 2d, 544; Business and Professions Code, sec. 2137, 2141 (1935), ~ seg. 7e.g., cf. Osterveen v. Board of Medical Examiners, 112 C.A. 2d 201, 246 P. 2d 136 (1952);People v. Mangiagli, 99 C.A. 2d supple. 935, 218, P. 2d 1025 (1950). cf. also Business and Professions Code, sec. 2137, 2141, 2232, et seq. u8 as well. . . . These could include such activities as the determination and collection of fees, administration of property, supervision of non-professional employees, et cetera. In California, a landmark in the evolution or the broad legal connotation of professional practice is the Painless Parker Case,9 wherein the court refused to distinguish between the "business"and "professional" side of dental practice . . . . the law does not assume to divide the practice or dentistry into two sides, one the side relating to the actual performance of dental work upon the patient and the other the 'business side,' but treats the subject as a whole .... 10 Subsequent court decisions of major import have expanded the concept of medical practice to include such acts as the selection of physicians for a third party,11 and the eterm1nat1on for negotiation of fees on behalf of the patient.12 "That only a doctor should practice medicine 8Forziat1 v. Board of Registration in Medicine 128 N.E. 2d, 789 (1955). 9Painless Parker v. Board of Dental Examiners, 216 Cal, 285, 14 P. 2d, 67 (1932).- llPeople v. Pacific Health Core:>ration, 12 C. 2d, 156 ( 19381. 12Pacif1c Employers Insurance Company v. Carpenter, 10 C.A. 2d, 592 (1935). 64 is true; but that only a doctor should perform the non medical duties relating to that practice is nonsense."13 A recent decision of the California Supreme Court added to the confusion as to what constitutes medical practice.1 4 Without bothering to refer to earlier court decisions to the contrary, the California Supreme Court formally recognized a distinction between the "business" and "service" sides of medical practice.15 A tacit distinction was made between the selection of physicians and the procureme~t of medical services for a third party; while making no reference to the former, the court held that the latter was not within the realm of unlawful medical practice.16 Significance or the leE,al conceptio~s of medical practice. How the courts an the legislatur define the term medical ractice in turn governs who ma be involved in the financing of medical care and influences the levels and nature of costs of medical care. Where the 13Jerry Phelan, "Medical Service Plans in California," 43 California Law ~view 683 (1955). 14com lete Service Bureau v. San Di~ Medical Societ 43 C. 2d, 201; 272 • 2d, 497 195ij). 15Ide 16rdem courts have chosen to restrict the term to medical services per se, lay participation in the financing of medical care is not hampered, and the possibility of a more efficient division of medical labor appears. On the other hand, if the courts refuse to separate the business and service aspects of medical care, the result is that activities of the purely business nature are preserved as a part of the exclusive domain of the licensed physician. Yet the professional skill of a physician does not indicate his business acumen.17 The assumption that the prof t motive is restri cted to commercial endeavor may be quite erroneous. There is not reason, per se to assume th t licensed physicians nd so-called "non-profit" organizations do not allow pecuniary motives to color the decisions relating to the qualit of medical care. The profit motive is not eliminated simply by excluding unlicensed individu ls or entities from the control of medical practice. II. LAWS GOVERNING THE ORGANI ZATION OF MEDIC L S RV CES Statutes, rulings and regulations of the State of California influence the organization of medical services through the exclusion of all unlicensed individuals from l 7Horace R. Hansen, ''Laws Affect in~ Group Heal th Plans,' 35 Iowa Law Review 209, 216 (1950). 66 the activities relating to the rendering of medical services, and through the restrictions on the type of business organization that can be used in connection with the rendering of medical services. Laws of the State of California governing the or anization of medical services favor an atomistic basis of organization of medical services. The extent of division of labor in the field of medical services is restr cted b law, especially in connection with those areas of operation which ma be and are somewhat arb trar ly cl sse as medical practice. The laws of the State of California restrict the t p o business or an zation that can be u ed under which o pract ce medicine. A corporation cannot practice m die ne an ha no professional rights under the laws of th State .18 Ph sicians ma or anize as a partnership or as oc ation b t cert in other restriction pertain to roup rac c e en 1 in unincorporated form.19 In an cas the laws of th tate of California ev denc an underl in philosophy reflecting the pre umption that the medical profession is in ome way abo e h ecuniary motivation w ich are part and parcel o commerc al endeavors, and that if the medical 1 Business and Profession Code, sec. 2008. 19Ibid., secs. 2389, 2392 2393, 2429, 2431, 2432, et seq. profession should be plagued with a tinge of commercial ism, the quality of medical care must in some way suffer. The quality of medical care is an indef nite combination of the science of medicine and the art of medical practice. The latter presupposes an ntimate, personal relationship between the ph sician and his patient. Doctor-Patient Relationship The practice of medicine is as much a matter of applied phychology as it is the application of scientific techniques.20 And th succes ul application o th "bedside manner" 1 predicated upon an ntima e relation ship between the general practitioner nd his atien. While th science of medicine may be able to de 1 1th medicine is dependent upon a close a 11 r 1th h pat ent.2 1 Curative procedures in olve a r leas fro ps cholo ical tensions as 11 as rom ph sical pa n.22 And a ne lect of the patient' attitud re ardin h s 2DJ3ernhard J. Stern, American dical Pr in the Pers~ective of a Centur Ne York: The Co 1th Fu d 19 5), p. 55. 2lcarl Binger, The Doctor's Job ( e York: • s . Norton and Company, Inc., 1945) p. 52 . 22stern, loc. cit. 68 illness can delay recovery.23 A close, continuing relationship between the doctor and patient is of value in promoting and maintaining good health. However the traditional intimacy of the doctor patient relationship may be challenged by the trend toward specialization. As indicated in Table II the proportion of eneral practitioners to total physicians has declined markedly in recent years; note that the decline in the nu ber of eneral practitioners 1s absolute as well as rel tive . The horse and buggy medical jack-of-all-trades is bein supplanted by an arm of specialists who have an ed eon the fam ly physician in so far as scientific proce res are co cerned, but who lag behind the general practitioner 1th respect to the applied art of medical prac ice. Th result may be that the ntimate phys1c1an patien relationsh p ma suffer the con equences, for the e cal sec alist has difficult in considering the patien s hole and may ne lect important psychological as ell as physiological aspects of medical practice.24 . Prost, The Patient is the Unit of ield: Charles C. Thomas, u lisher, 24s er o ct., p. 53 . Other pertinent criti- c ms o the evident trend toward specialization relate to the eneral qualit of medical care. The specialist is too apt to neglect a maJor function of an M.D.: "intelli ent listening. LBinger, -2.E• cit., p. 517. The specialists ' approach is" •.. almost exclusively curative and only incidentally preventive." ffitern, 2-E· cit., 1929 1930 1S']6 69 TABLE II RATIO OF GENERAL PRACTITIONERS TO TOTAL PHYSICIA S - 192 56 U •• - Tot 1 Number or: Physioi ns 152.503 201,277 21a.o61 G. P.' G . P. as per cent of Total ?le' 36 30 70 The personal nature of medical practice is conducive to an individual basis of organization of medical services. The individual generally is not competent or _ qualified to select appropriate specialists to treat his specific ailments. Consequently .he must rely on the competency and general knowledge of the family doctor. While savings in costs and increases in the quality of medical care can be achieved through more efficient division of prof ssional services, the intimate relationship between the doctor and patient may suffer. Corporate Medical Practice One manifestation of the general ban on commercia.l:tsn n medical practice is the prohibition against the corJX) ate practice of medicine. xplici t i n the law is the fact that "Corporation. s and other artificial entities have no professional rights, privile e . n25 or powers. . . . Hence, in general, the ri h o learned members of the recognized professions to pursue their field of endeavor through the medium of p. 51i7. Specialization has resulted in greatl increased costs of medical care. fibid., p. 537. Another consideration is that the patient must rely on the advice of the eneral practitioner in choosing an appropriate specialist. Else the patient may flit from one specialist to another in a vain attempt to avoid the costs of a eneral dia nosis. 25Business and Professions Code, sec. 2008. 71 incorporation is prohibited by law. A corporation may not practice medicine, directly or indirectly.26 The privilege of incorporating, and the privilege of practicing medicine in California are franchises granted by the State but California law prohibits the use of both franchises for the same purpose.27 Fundamental to the restrictions on corporate medical practice is the fear that, if such practice were allowed under corporate form, medical services might be sold under a respected "brand-name" and yet be performed by unknown and possibly inexperienced personnel. Another fear of corporate practice of any of the recognized professions is b ed upon the possibility that pro fessional status, while adhering to the corporate shell, or entity, would not be retained effectivel by individ al doctors employed by the corporation. In essence, the fear is that the professional status o the ph sician might be lowered to the point where he would be considered more a technician than a member of a di tinguished profession. 26iconnoff v. Fraser 62 C.A. 2d, 788, 14 5 P. 2d, 368 (1944); Masters v. Bo rd or Dental Examiners, 15 C. A. 2d, 506, 59 P. 2d, 827 '{ 1936)";BenJB.!!tin Franklin Life Assurance Company v. itchell, 14 C.A. 2d, 65~, 58 P. 2d, 984 ll935); Pacific Emplo ers Insurance G{up v. Carpenter, 10 C.A. 2d, 592, 52 P. 2d, 992 1935). 27Business and Professions Code, secs. 2008, 1625, et_~.; Painless Parker v. Board of Dental ~aminers, 2loCal, 285, 14 P. 2d, 67 (19321. A corporatio~ being an articial entity, separate and apart from its owners, assumes the position of the third party in so far as the patient-physician relation ship is concerned. The alleged danger 1s that the physician's essential loyalty to his patient might be diverted to the corporate source of his income.28 The courts in general have held that third party intervention into the patient-doctor relationship may constitute illegal practice of medicine. Where a corporation offers to provide medical services to its clients, the action may be construed as the corporate practice of medicine, and therefore unlawru1.29 72 The doctor may not serve in an employee capac1ty;30 rather, when hired by a corporation or other business organization, the physician must retain the legal status of an independent contractor or run the risk of havin~ his licen e cancelled.31 28Hansen, £.E· cit., p. 213. 29People v. Pacific Health Corporation, 12 Cal, 2d, 156 (1938}; cf. Compete Service Bureau v. San Diego Count} Medical Society, 43 C. 2d, 201, 272, P. 2d, 497 ~1954 . 30cf. Rockett v. Texas State Bosrd of Medical Examiners, 287 So. West 2d, 190 {1956). 31Exceptions, of course, prevail where the mployer s a licensed physician. 73 The legal ban on the corporate practice of medicine generally does not apply to non-profit corporations; the ban is most directly related to the presence or chance of profit realized from the sale of medical services.32 A corporation is not prevented from merely making contracts involving medical care.33 A municipality, even though incorporated, may sponsor or ·contract for the services or physicians in behalf of its employees and their dependents.34 Labor unions,35 employers,3 6 and fraternal organizations37 may arrange for the procurement and financing of medical and hospital service for members and their dependents. In essence, then, a corporatjon is not prevented from entering into contractual agreements involving the provision and/or financing of medical care. But such 32corporations Code, secs., 9200, 9201. 33Konnoff v. raser, 62 C •• 2d, 788 (1944); Pilger v. Ciry of Paris Dry Goods Company, 86 Cal. p. 277, 283, (1927; Electro-Medical Institute v. tate, 74 Neb. 40 (1905 . 34san Diero County v. Gibson, 133 C •• 2d , 519, 284, p. 2d, 501 1955); Butterworth v. Boyd, 12 C. 2d 140 (1938); Los Angeles County v. Ford, 121 C.A. 2d, 402, 263 P. 2d, 638 (1953} . 35Health and Safety Code, sec . 1203. 36Idem 37Pac1f1c Employers Insurance Compani v. Carpenter, 10 C.A. 2d, 592, 52 P. 2d, 992 (1935). 74 contractual arrangements must assure the physician's complete control over decisions and actions or a purely professional character. Secondly, the corporation may not derive a profit through its contractual agreements relating to the provision and financing of medical care.38 There must be no public sale of medical services. A corporation may not select a group or doctors for, or in behalf of, the patients.39 In the organization of medical practice, the corporate form of business organization is illegal even where the doctors or professional men are the only indi duals having interest in such an organization. • While a group of physicians and surgeons may organize and conduct their professional practice as a partnership, the are prevented from doing so under corporate form . But the exclusion of the corporate device in this regard rests on a technicality. A group of physicians and surgeons may combine their practice and may employ other physicians and surgeons on a salary basis while charging the public on the basis of fees for services rendered. For under such conditions the selection and control of medical pr ctice 3 6 corporations Code, sec ., 9200, 9201. 39People v. Pacific Health Corporation, 12 Cal, 2d, 156 (1938}. 75 remains in the hands or physicians who presumably will consider the health needs or the patient above his ability to pay. However, a medical group such as this may not be incorporated--even though such a medical group may have all the earmarks of a de facto corporation . . . . what objection can there be to a group of licensed doctors carrying on their practice by means of a corporation, organized by them? To say that such a group may practice as a partnership but not as a corporation is to draw a distinction where no real difference exists ... the distinction should be drawn between lay corporations and those organized by professional men, rather than between practice by individuals and practice by corporations.~O III. REGULATIONS GOVERNING HEALTH INSURANCE The State of California has pioneered in the development of health insur nee as well as in the formulation of rules and regulations governing this particular branch of the insurance industry.41 Regulation. s govern provisions of the health in surance contract, establish licensing tand rds and rules of conduct for insurers and their agents, an provide at least some control over the activities of insurers not authorized to con uct insurance business within the State. These regulations are administered by the Insurance 40Phelan, £.E· cit.; Cal Law Review 97 41sidney L. Weinstock and John . Mahonei, "History and Development of Insurance Law in California,' West's Annotated California Codes, Vol. 42, p. 39. Commiss i oner of the State of California and through the administra t i ve machinery of the Department of Insurance . Relative to the statut es of other states, California regulation of t he insurance industry has been reasonably complete .42 Tr ditionally, regulation of the insurance in ustry has been the exclusive province of the respective states of dom ci l e an operation. However, recent federal legislat on, 43 Supreme Court decis1ons 44 an Feder 1 Trade Commission activities have challenged the states concern i n t he c l ims to exclusive jurisdi ction in the field of insurance r e ulation.4 5 A dmi nistrative rame ork Concerning the statute s overning insurance, the State of Cal fornia h s been ' ... notoriously .. . . strin ent in its regulation of tie disabilit or ccident and heal th insur nee business. 46 or forty ye rs the 42Ide 43 cCarr n Act (P.L. 15, U. S . Statutes 1945). 44e.g., cf. Insurance La p . 533 · December 1956 , p. 784. 45Ib1d . evie, u ust 1956, 46weinstoc, £P· cit., p. 39. 77 State of California has attempted to regulate the policy provisions of the disability insurance contract as well as the status and requirements to admission to the field of disability insurance in the state.47 The Insurance Code is administered by the Insurance Commissioner, a political appointee,48 who in turn is in charge of the California State Insurance Department. Duties of the Commissioner. In addition to the general responsibility for enforcing compliance with the provisions of the Insurance Code,49 the Insurance Commissioner has a number of related duties. First, the Commissioner has the responsibility of protecting the p bl c interest n connection with insurance matters; secondly, he must oversee the' soundness" or "financial stabil ty" of insurers; third, he must pass Judgment on the fairness' of policy provisions of the insurance contract; o rth, he must protect the polic holder from d istre tment b the insurer.50 7rb d., pp . 7-8. Health i n urance is a form of t insurance. 48rnsurance Code, secs., 12900, 12901. 49rb1d., sec., 12926. 50 . L. Milstead, "Cr ticisms and Recommendations of Insurance Commissioners on Accident and Health Insurance, Tte Annals, March 1955, Vol. 7, No. 1, p. 127. 78 Powers of~~~ Insurance Commissioner. The scope or the Commissioner's authority in general includes a control over the form or organization and the financial conditions or insurers, the procedures regarding general company practices, evidences and indications or unfair trade practices, and activities of insurers not authorized to conduct business within the state.51 The Insurance Commissioner may make whatever reasonable rules and regulations are necessary concerning the procedure for obtaining policy approva1.52 Enforcement powers or the Commissioner include the power to inveetigate,53 power to subpoena witnesses and examine them under oath,54 the power to cancel insurance, prohibit the writing of an insurance policy, suspend, revoke or deny a license or authorization to insure, and the power to enjoin an insurer from continuing activities considered to be against the interests of the insur d.55 5lnavid McCahan (ed.) Accident and Sickness Insurance 1954, Publ shed for the s. S. Huebner Foundation for Insurance-Education (Homewood, Illinois: Richard D. Irwin, Inc., 1954), pp. 229-230. 52rnsurance Code, sec., 10327. cf. California Administrative Code, Title 10, Chapter 5, n.b. Subchapters 1-2, Articles 1.5-6. 53rnsurance Code, sec., 775. 54Ibid., secs., 1042, 12924. 55Ibid., secs., 12928.5, 10851. 79 The Insurance Commissioner may take whatever steps necessary to conserve or liquidate an insurer, or to mutualize or rehabilitate an insurer in order that those directly affected may su1fer minimum loss.56 Enforcement powers are supplemented by the provision that an insurer is guilty of a misdemeanor where he refuses to abide by the rulings of the Commissioner.57 The Insurance fode makes it illegal for an insurer to continue to issue a policy that has been disapproved by the Commissioner. 58 In the event that an insurer is involved in a criminal violation, the Insurance Commissioner is empowered to refer the matter to appropri ate local authorities.59 The I nsurance Commissioner has the duty and respon ibility to pass on the appropriateness or policy provisions; he will not approve policies that he finds ambiguous or uncertain in wordin or misleading in terms of payment or without any real economic value, or one that contains provisions that would tend to mislead the insured.60 56rnsuranc e Code, sec., 1043. 57Ibid., sec., 10291. 58Ib1d. 59Ibid., sec., 12928 . 6orb1d., sec., 10291.5. 80 Uniform Po l ic Provisions Cal ifornia was one of the first states to adopt a "Standard Provisions" law. 61 In turn, the State is unique i n its requirements concerning "min mum benefits" that must be included in each disability polic .62 Each disability policy must be submitted to the I nsurance Commis ion r for approvai,63 and the approval is dependen upon h pr sence of certain requ red standard pol cy provision 6 4 as ell a on eth r the Commis ion r olweins ock and the "S andard Pro i ion t. p. 40. lthou h -- s d n 1917 ef ec ive en orcem n as no until h 1930. 62sta 1 49, Chap er 1 86. Code, sec. 10290 .5. s c. 10291.5 6 4 standard pol c ision per n o the c n in ben f s du o a chan n occupa ional hazard h re tr ction on erb 1 co 1 n b h pplic n or en the condition und r ch h ol c a rene ed h n c it of prop r no ic o cla ma d 1 and h r o allo e for pro cl m h a 1mu per ods allo paym o claim a er proo ha b n bl1 h d n th time 1 mt fo s ttle en o ispu e claim. er. nsur nc Cod 10330-10346· c • als ec 103 9 . -103 9.12 co er 'un fo pro ision. A or Decemb r 31 1956, 11 pol cie r ten a ter hi da e must con ain the unifor pol c pro is on . Th revision par llel the tandard polic pro isions nd at the same t enable the in urer to u h so ordin in he con ract, so lon as uch ord n a lea ta favorable o the in~ red as h ord n of the tatu es settin forth h uni o pro 1s1on. 81 finds the policy to be worded ambiguously, or in a manner misleading to the insured, or "economical ly unsound. 11 65 Regulations Affecting Disability Insurers Whether the insurer is domiciled in California or in another state, the laws of California require the insurer to become admitted before conducting insurance business within this state . 66 General requirements for admission pertain to the financial status of the insurer, his trade practices, and tattle insurer's willingness to comply with the provisions of the Insurance Code and the rulin s of the Insurance Commissioner.67 on-admitted insurers' activities in the State of Californ a are confined in a number of ways, including a proh bi ion of unauthorized in urers or agents,68 and a ban o advert sing for or representation of non-admitted in urers.69 In addition, service of process powers are r n ed o he Insurance Commissioner in connection with unau horized or non-admitted, in urers.70 Contracts 0 5rnsurance Code, sec., 10295.1. 66Ib1d ., secs., 700, 708, 709, 711, 731, 733. 67Ibid., secs., 24, 1153, 1154, 68Ibid., secs., 708, 709, 711. 69Ibi~., sec., 703. 70Ibid . sec., 1610, et seq., n .b. 1616. - 82 written by non-admitted insurers, covering residents of the State of California, are voidable under California law . 71 Indirect control of non-admitted insurers is gained through reciprocity agreements with other states.72 Domestic insurers of the State of California doing business in reciprocal states, must agree to control their operations and the terms of their policies in accord with the laws of other states in which they do business.73 Non-admitted insurers are most active in the "mail-order" field and offer limited policies of dubious value at "bargain-counter rates." Their advertising policies have been a major influence on the Federal Government's interest in the regulation of the insurance business. 71Idem 72A reciprocal state is one in which" ... the laws . .. prohibit an insurer domiciled therein from insuring the lives or persons or residence, or property, or operations located in the State of California unless it then holds a valid and subsistant certificate of authority issued by the Insurance Commissioner of this state." In other words, reciprocal states prohibit domestic insurers in those states from doing business in California, except under an admitted status. Insurance Code, sec., 706.7. 73Insurance Code, sec., 706.7. As of December 31, 1956, there were 16 reciprocal states. Federal Jurisdiction of the _!nsurance Industry Traditionally the insurance industry has been exempt from federal regulation.7 4 Supervision of the health insurance field has been implemented exclusively by the respective state administrative agencies. In 1944 the United States Supreme Court reversed its earlier stand and held that insurance was subject to the federal regulations governing interstate commerce.75 However, Congress was ready to continue to exempt the insurance industry from federal regulation and attempted to do so by passing the McCarran Act of 1945.76 83 Simply stated, the major purpose of the McCarran Act was to give to the state preemptive rights in the field of insurance regulation. Specifically, federal anti-trust and unfair trade practices legislation could not apply to the insurance industry, except 1n the absence of adequate state control.77 The real intent of the legislators in passinr the McCarran Act was obscured by 74Insurance is not commerce. Paul v. Virginia 75 U.S. 168 (1868); Hooper v. California-:; 155 U.S. 648, (1893); Hopkins v. United-States,- 171 U.S. 578 (1897). 75u.s. v. Southeastern Underwriters Association, 322 u.s. 533 (1943). 76Federal Statutes 1945; Public Law 15, 79th Congress, 1st Session 19~5, v 59, p. 33. 77Ib1d., section 2 (b) ~ se_g. 84 the ambiguity of its wording, and one result has been a federal-state jurisdictional controversy at the administrative level. Attempts by the fed ral government to usurp some control over the insurance industry have centered on the activities of "ma11-order"insurers. For the most part, "mail-order" insurers operate in states in which they are not authorized to transact insurance business. hereas state laws ma display de uac in connection with the operations of admitted insurers, it is th activities of the unauthorized insurers that indicate a possible are for federal in erven on. The ederal Trade Co is io first displayed for al nterest in the insurance industry in 1950 by publishin repor on tr de practices in the cc dent nd health ield.78 In addition the ed ral Trade Commission p bl hed a "Code o a Trade Prac ice I h ch it reques ed each he l h nd accident insurer to ado t.79 Sub equen 1 the ederal Trade Commission issued forty- o com 1 n s a ainst insurer o eratin 1n the health n ace dent ield. Spok smen for the insurance ndustry have con ended hat the provisions of the cCarran Act exem he fro ederal re ula on. In contrast to th 78 cCahon £E· cit. p. 231. 79cf. Insurance La Journal August 1956, p. 533. position taken by the insurance industry, the Federal Trade Commission has remained firm in its claim to Jurisdiction over at least some aspects of the insurance industry.Bo TV. PREPAYMENT MEDICAL SERVICE PLANS California is a state which has pioneered in the field of prepayment medical service plans.Bl or more than 50 group practice medical service plans operating within the state, roughly one-third of these are experimenting in some form of pre- and/or post-payment.82 PrepaY!Jlent Distinguished From Health Insuran e Prep yment 1s a form of insurance, but as the cour sand the legislature of California have attempted to draw distinctions between insurance and prepayment, a im lar 1st nction will be made in this study. For this · thesis prepayment plan is defined in terms of service benef ts r ther than cash indemnity, which char cterizes a health nsuran e pl n.83 California statutes and cour 80 11 Suin Fore gn Corporations in California," 5 St Law Review 516 . 81 . ichard einerman and George S. Goldstein, e ical G1up Practice in California (Berkeley: School of Pub l c Heath, University of California, June 1952), pp. 1-2. 8 2 Idem 83cr. supra, pp. 4-5. 86 decisions are not in complete agreement concerning the nature of insurance and prepayment,84 but in general, California law recognizes the difference between insurance and prepayment in terms of cash versus service benefits.85 Insurance is a" •.. contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event."86 Linsurance is y ... device for the reduction of the uncertainty of one party, called the insured, through the transfer of particular risks to another party, called the insurer, who offers a restorationt at least in part, of economic losses to the insured.~ 64 Insurance Code, sec., 1072, defines .. indemnity" in terms of "benefits promised" and, hence, does not distinguish between service and cash indemnity. See also dissenting opinion of Justice Gibson, in California Physicians Service v. Garrison~ 'However, the true test is not the character of the consideration agreed to be furnished, but whether or not the contract is aleatory in nature. A contract still partakes of the nature of insurance, whether the consideration agreed to be furnished is money, property or services, if the agreement is aleatory and the duty to furnish such consideration is dependent upon chance or the happening of some fortuitous event." California Phfsicians' Service v. Garrison, 28 C. 2d, 811, 172 P. 2d, 4 1945}. 85cal1forn1a Phfsicians' Service v. Garrison, 28 C. 2d, 790, 172 P. 2d, 4 1945}; in re Barr's Estate, 104 C.A. 2d, 506, 231 P. 2d, 876 (195IT; Trans~rtation Guarantee Company v. Jellings, 29 C. 2d, 22, 174 P. 2d, 625 (1946); Physician's Defense Company v. Cooper, 118 C •• 50, 199 F. 76 (1912}. 86Insurance Code, sec., 22 . 87rrving Pfeffer, Insurance and Economic Theory Published for the s. s . Huebner Foundation for Insurance Education (Homewood, Illinois: Richard D. Irwin, Inc., 1956), p. 53. 87 With health insurance the ultimate risk-bearer is the insured, for the insurer limits the cash indemnificaticn to a specified amount which is generally less than the financial losses incur ed by the insured as a result of illness. But with prepayment, the supplier of medical services is the ultimate bearer of risk, for the pre payment contract exchanges the availabilit of medical services when needed for a fix d remium or membership ee. To the extent that the incidence of illness cannot be known, the contracting phys cian~ and other suppliers of medic l services bear the risks in the sense of the costs and effort involved nth render n of such services. ncorporat on of Pre a ment Pl ns n California to sect ons o the CorIX)r on Code perm t the forma ion of non-profit me ical service pl ns.88 Sect on 9201 s the spec ic enablin le s- 1 on or Cali orn Ph sic an ' ervice (Blue h eld) . h le sect on 9200 s eneral st ut p rm t n th orma ion o non-profit service corporations Section 9201 In 1941 sec on 2018 o the ed for the 88cr. Corpor ton Code, secs., 200, 9201 89 ormerl Civil Code sect on 593 a. ec C 88 purpose of laying the legal framework for California Physicians ' Service, or Blue Shield of California. Basically, section 9201 sets forth conditions for the f ormation of a medical service plan sponsored and con trolled by members of the medical profession.90 A principal feature of the code is the requirement of an open panel; membership must be open to all licentiates, and a minimum of one-fourth of the licensed physicians must be members in order that the plan be operative.9 1 ther provisions relating to voting and membership represen tation are designed to assure perpetuation of control by the reco nized medic 1 society.92 Until recentl, prevailing legal op nion ruled out the possibilit of orming a medical service corporation un er n other statute th n section 201.93 ccordin to thi vie, a medical service pl n, (e .. , Permanente -------- 90corporation Code, sec., 9201 . 91 dem 2rdem e .. , section 9201 details bo rd repre sentat on, fo ~ 1 tes votin procedures, et cetera. 93e . . , 'Corpor tions Code ection 9201 is the only st tuto r permission for prepaid medical service, as d·stin uished from medical indemnity, which is a phase of disabil t insurance.' Bernard Czesla, Deputy Legislative Co nsel Opinion 111, 'Health and Accident Insurance ' Septembe r 13, 1955 (sic.), reprinted in ppendix , ssemb l Interim Commtttee on Finance and Insurance, Prelimin r y Report o f Subcommittee on General Insurance, M rch 1956, pp. 12-13. 89 Foundation, Complete Service Bureau) must be either an unauthorized insurer or a participant in the unlawful practice of medicine.9 4 However such viewpoints fail to recognize the possibility of incorporating under section 9200. The language of section 9201 is permissive and not mandatory .95 Section 9200 . recent California Supreme Court decision relating to medical corporations held that: ... there is no valid objection to the formation or a non-profit medi cal service corporation under section 9200 as well as section 9201 • • • • • • • • • • • • • • • • • • • • • • • • • • • If the legislature by enacting section 9201 h d intended to eliminate the pre-existing non-profit medical associ tions formed under secti on 2 O [e.g., Complete Service Burea!!7 a que~tion of the impairment of contracts might arise. 9b Nevertheless a corporation organi zed under section 9200 may run the r isk of prosecution for engaging in the corporate practice of medicine. However as the ban on corporations a n other artificial entities f rom engaging in the recogni zed professions is based primarily upon assumed dangers of commercial exploitation, the law has been more liberal in its application of the doctrine of 94 Ibid . , p. 16 . 95complete Service Bureau v. San Diefq Count* Medical Society, 43 C. 2d, 201; 272 P. 2d, 97 (195 ). 96Idem 90 corporate medical practice in the connection with non- profit corporations. In the Com,EJete Service ~ureau case, for example, the court held that the Complete Service Bureau was not selling medical services but rather was procuring services for its members. The principle that professions are not open to commercial exploitation is not contravened by permitting groups of interested persons to form non-profit corporations to secure for themselves medical services at low cost.97 Administrative Control of Pre~yment Plans At present there is neither an integrated pattern of regulation legislation or a uniformity in the administrative framework governing the med cal service plans.98 Insurance companies are under the jurisdiction of the Insurance Commissioner and are regulated b provisions o th In urance Code. Blue Cross plans, although the nature of the consideration may be service rather than indemnit, ar treated as insurance and are therefore ubJect to supervision by the In urance 97Idem. Appropriate wording of the articles and b -laws of the corporation may avoid possible legal entanglements. A careful statement of purpose empowering the corporation o employ physicians as independent contractors and specifyin that the plan would be acting as agent rather than principal under such a contract might serve to avoid le al difficulties connected with the possible accus tion that such a plan was engaging in the co porate practice of medicine. Hansen, .2.E• cit., p. 19. 98Phelan, £E· cit., p. 685 . 91 Commissioner.99 Blue Shield, the medical counterpart to Blue Cross, is exempt from control by the Insurance Commissioner;lOO rather, C.P.S. is under the jurisdiction of the Attorney Generai. 101 Permanente Foundation, Ross-Loos Medical Group, Complete Service Bureau and the several other prepayment plans of California are regulated informally through the Attorney General's office.102 Control of Trade Practices Trade practices of medical groups and individual practitioners are overned in part by the Business and Professions Code and related Statutes . 10 3 Advertising, price competition and the use of fictitious names are restricted by law.l04 Fee-splitting with lay-person or 99rnsurance Code lOOcorporation Code, secs., 9201, 9505; California Phfsicians' Service v. Garrison, 28 C. 2d, 790, 172 P. 2d , 4 19~5). - l Olcorporation Code, section 9505 . 102Phelan, ~- cit., p. 685 . 103Bus1ness and Profession Code, section 2300, et seq.; Health and Safet Code, section 1200 et se . l 04i3us1ness and Professions Code, sections 2380 , 2393 et seq. - 92 organizations is not allowed.105 However these provisions pertain to the conduct of medical practice and may not apply to the act1v1t1es of individuals and organizations procuring medical services for others.106 If, for example, advertising is done in behalf of a medical service plan, but not in connection with any one or a specific group of physicians, then such advertising is beyond the reach of those sections of the Business and Professions Code heretofore cited.107 ---- -- -------- While physicians may not openly compete on a price basis, a medical service plan in which they participate may blatantly advertise its ability to procure medical services at "wholesale" rates.108 An organization involved in the financing of medical care ma be classed as an insurer and be subject to the insurance laws of the state. Subtle differences in the man er of financing may mean that the organization is not an insurer and, hence not subject to insurance regulation. Involvement in the financing of medical care implies 105Idem 106complete Service ~reau v. San~ Medical Sodet~, 43 C. 2d, 201; 272 P. 2d, 497---rI"95~). 107Idem l08rdem 93 a risk of being held as engaged in the unlawful practice of medicine. Rules, regulations, statutes and court decisions relating to the financing of medical care do not form a cohesive clear-cut body of law suitable for explicit codification. Rather, the legal maze surround ing the problem of financing medical care is complex, indeed. CHAPTER V SUPPLY AND COSTS OF MEDICAL SERVICES Insurance and prepayment methods of financing medical care are effective in so far as they serve to transfer the economic risks and to reduce the uncertainties surrounding the costs of medical care. Yet those institutions involved in ti1e provision of health insurance do not as a rule have any satisfactory means of con trolling medical costs. From the consumer's point of view, the valu of such plans is limited b~ this lack of influence over the costs of medical care. One of the principal problem conn cted 1th the financ n of medical care is the ·ndefinitene and independent variability of medic 1 costs and char es. This chapter will be concerned with th nature of medical costs or char with probl m of mea urin th costs o med cal care and 1th pertin nt statistical data concernin the co ts, unit char es, and the supply of medical servlc sand ac111t es. Chapter VI will continu the anal sis of medical co ts with a surve of consumer expenditures form dical care. Undertaint co~t do not lend th mselves to stati tical anal sis. 1 Indirect costs of medical care lcf. supr~, pp. 40-44. (e.g., wages foregone due to illness) present a problem of measurement and are not considered in this chapter. I. NATURE OF MEDICAL CHARGES 95 Pricing policies in the field of medicine are perhaps best characterized by their lack of uniformity. Hence generalizations concerning the costs of medical care are diff1.cult, and at times misleading. Factors Influencing Medical Charges Ability and need outweigh costs of providing medical services in determinin fees or char es. The kind or qualit of service presu abl is more directl related to health needs of th patient than to any other factor. Also, some of the costs of med cal care are met through charitable and governmen al sources n do not directl affect the patient rece vin the medical treat ment; this is specially tru inc nn ction w th th costs of hospital care. Hospital costs have been ch racterized int rms of: ... what it costs the hos ital to give service of the qualit it feels obli ated to maintain; what the patient thinks he can ay; what th hospital thinks the patient can pa; and what the hospital thinks the community will pa . 2 2Henry J. Southma d and Ged s Smith, Small Commlnit~ Hospital~ (New York: The Commonwealth Fund, 19"14~ , p. 83. 96 Hospital rate-m~king differs from the price policies of most commercial endeavors in that (1) competition plays virtually no part in the determi nation of charges; (2) for the most part private hospitals operate on a non-profit basis; therefore the traditional profit motive is absent; (3) the extent or variety of care and of charges cannot be known in advance; (4) the provision of medical care involves nothing that can be returned or repossessed in event of non-payment; (5) the nature and quality of service depends more on the needs of the patient than on the costs of providing such services, and (6) the "readiness-to-serve" costs are an essential element of total hospital costs; et they cannot be directly related to patient utilization rates.3 The problem of determining hospital rates and charges may be compared to the determination of school district tax rates. The revenue goal is paramount. Convenience of collection is second in importance. The patient's pocketbook and community resources potentially available for the financing of hospital care are the third and fourth objectives of rate determination for the 3comm1ssion on Financing of Hospital Care, Financing !{ospital Care in the Unite~ States. ,,Volume I, flFactors Affectin~ the Costs of Hospital Care, edited by John H. Hayes (New York: The Blakiston Company, Inc., 1954), pp. 234-5. . 97 typical private hospital. 4 Hospital costs vary directly with bed capacity, with initial capital outlays, and with investment in "readiness-to-serve" facilities.5 The costs or hospital care are inversely related to the average length of stay and with the rate of bed utilization.6 Hospital costs are less than one-third of the total coste of medical care.7 "Dramatic bills tend to obscure the fact that the combined total costs of outpatient service is greater than the total costs of hospitalization in general hospitals. " 8 For the typical consumer, "ordinary" medical costs outweigh the costs of bvth in patient and outpatient hospital care.9 Technological factors influence the costs and 4 Ibid. , p. 235. 5Ibid., p. 107. 6 Ibid., pp. 128, 131. 7cr. infra, Table XX, p. 147. Srrestimony of Sidney Garfield, Director of the Permanente Foundation, before the Cal fornia Assembly Interim Committee on Finance and Insurance, Subcommittee on General Insurance, Public Hearing, November 3-4, 1955, San Francisco, California. Outpatient service is clinical care not involving hospitalization. 9cr. infra, Table XX, p. 147. 98 quality of medical care. However the influence of technology in medicine differs substantially from influences of technological changes in industrial endeavors. In the latter case one would expect techno logical improvements to facilitate larger scale operations, lower unit costs of production as well as to bring about improvements in quality of product. Yet in the field of medicine, technological change has had its most prominent effect on the quality or service and the effectiveness of treatment; the apparent goal has not been to provide the same service at lower cost but to increase the effective ness of treatment per se. There can be no doubt that because of advances in medical knowledge, in techniques or diagnosis and treatment, and in new drugs, and because more, better organized, and better trained a sistants are utilized, physicians are now in a position to deliver be ter services than twent years ago and in some instances more services per unit of physician time.10 Increasing specialization and fragmentation of medical practice have accompanied technological advance in the field of medical services. One result of this tendency to specialize has been to i.crease the intensity (and presum bly the quality) of treatment and at the s me time to increase the costs o such services to the consumer. Factors external to the field of medical practice lOMichael M. Davis, Medical Care for Tomorrow (New York: Harper & Brothers, Publishers, 1955), pp. 311-12. ' 99 have had their influence upon the costs of medical care. Developments in the fields of insurance and prepayment have lessened the economic uncertainties surrounding medical needs and costs. General economic conditions most certainty have influenced the costs of medical care. The effects of war, inflation and broad welfare programs undertaken by governments all have influenced the costs and suppl y of medical services. Discriminatory Pricing The patient ' s income and his visible wealth have important influences on the determination of fees for medical services rendered. Presumably the physician allantl reduces his char ges for the family of limited means while ra sing his fees for the patient with above avera e income and/or wealth. The ability-to-pay approach to the determination of fees possesses a Robin Hood" fl vor and is usually justified upon moral or ethical grounds. In theory, such discriminatory pricing policy can be supported by virtue of its influence on eneral welfare. Presumably services can be rendered at a lower average price {fee) than would be possib l e if a JX)licy of uniform pricing were pursued . Consumer surplus is usurped by the physician or sur eon ; in turn services are rendered to some at fees set below cost . ' 100 If a uniform fee for service rendered was common, those who could not afford charges of this magnitude would demand care furnished by some other means, presumably involving charitable or governmental financing; or they would be forced to forego needed medical care. To the extent that a uniformity of fees or charges would reduce rates of utilization of medical services, either overhead expenses per patient would increase, or the supply of "readiness-to-serve" diagnostic and curative equipment might be reduced; p1~esumably a drop in the supply and/or quality of medical services also would occur. A major practical difficulty in the application of discriminator pricing policies by ph sicians and surgeons is the lack of sufficient objective criteria for the determination of the patient's ability to pay. The physician generall does not have access to sufficient data to evaluate the wealth and income po tion of his patient. And even if such data were available, me sur able differences in abilit to pa could not be discerned with any reasonable degree of objectivity. Practical shortcomings to the widespread practice of discriminatory pricin of medical services include not only a lack of criteria for the objective determi nation of fees. Also included is the danger of poor public relations. In the absence of a well-developed and 101 intimate physician-patient relationship, a common mis understanding and consequent mistrust or variable fees can be a strong source of friction between the doctor and his patient. II. MEASURING MEDICAL CHARGES The consumer costs of medical care defy careful, accurate measurement. Such costs are tied closely to the fee-basis of pricing medical service, and in the field or medicine rugged individ alism is especially evident in connection with the determination of char e and fees for medical service rendered. Consequently a iDDDeasurable ran e of variation 1 evident n the unit costs or medical care. Data Limitations Data concernin the costs o medial care are limited for a num er of reasons. The 1 var a on in the fees for medicals rvices render d co pl c th treatment of unit costs. Trend n unit co so e cal care are not re dil discernab fro ava la le da . Data pertainin to re on 1 and local d fference in charges and expenditures or med cal care are inc plete. Chief reliance for such information is placed upon a comparison of various independent studies of regional variations in medical costs and expenditure • 102 Basic sources of statistical data concerning the costs of medical care include various agencies of govern ment, professional and commercial associations, and a number or independent studies. The Department of Commerce, and especially the Bureau of the Census provide primary source material for the estimation of medical costs. The Bureau of Labor Statistics compiles infor mation concerning the prices of medical services and indexes of consumer prices of medical services. Other agencies of government, such as the Federal Security Agency and the Department of Health, Education and Welfare have sponsored a number of special studies on consumer prices, costs and expenditures for medical care. Industry studies sponsored by such institutions as the American Medical Association, 11 the California Medical Association, 12 the Health Information Foundation, 1 3 and the Chamber of Commerce1 4 provide valuable source lle.g., cf. Frank Dickinsen and James Raymond, "Some Cate~ories of Patients Treated b Physicians in Hospitals, Journal of the American Medical Association, 162:1546, December 22, 1956. 12California Medical Association, Committee on Medical Costs, Relative Value Study {San Francisco: California Medical Association, 1956J. 13e.g., cf. Odin W. Anderson, National Family Survey of Medical Costs and Voluntary Health Insurance, Pre ITminary Report (New York: Health Information Foundation, 1954). 14california State Chamber of Commerce, A Survey of 103 material for the analysis of medical costs. Although a wealth of detailed information is compiled in connection with the 1950 census population, general availability of such data is limited by costs of tabulation and publication. A recent publication sponsored by the Wharton School of Finance and Commerce of the University of Pennsylvania, in cooperation with the Bureau of Labor Statistics, has provided valuable detailed census data on urban family income consumption and savings characteristics for the census year 1950.15 Volume VIII is especially important to this study in that it contains detailed tabulations of consumer expenditures for med cal care and other health services.16 Data concerning the costs of hospital care are compiled continuously b~ the American Hospital Association and ts regional counterparts. Aggregate hospital income and expenditures, incom and expend tures VoluntaIT Health Insurance in California (San Francisco, 1954}. - 15united States Bureau of Labor Statistics, Stud of Consumer Expenditures Incomes and Saving~; Statistical Tables, Q!_-ban U.S. -- 1950. Tabulated by the United States Bureau of Labor Statistics for the Wharton School of Finance and Commerce, The University of Pennsylvania. 19 Volumes (Philadelphia: University of Pennsylvania Press, 1956). 16Ib1d., "Summarr, of Family Expenditures for Medical Care and Personal Care,' Volume VIII. per patient day, and various other series on hospital utilization are compiled periodically and published in the trade journal: Hospitals. 104 Statistical data concerning the costs of medical care may be found in a wide variety of sources. Yet the problems of incompleteness and incomparability are potent barriers to a comprehensive analysis of medical costs and charges, and expenditures for medical care. Significance and R~iabilit~ Information concerning the costs of medical care has been derived from a number of independent studies. Differences in definitions of statistical concepts, variations in sampling techniques as well as d fferences in statistical populations surveyed are evident in an examination of these studies. Various studies utilize samples which have been limited by economic status, racial background, degr e o ur anization, differ nces in occupation, age composition as well as ot er factors which may 1nfluence their results and conclusions. Therefor caution and prudence are pertinent b -words for the interpretation of such data concerning the costs of, and expenditures for medical care. 105 III. COSTS AND SUPPLY OF HOSPITAL SERVICES Although the total number of hospitals in the United States has not changed substantially since the 1930s, the bed capacity of these hospitals has increased materially. A more important influence on costs and quality of hospital services is the significant expansion in variety and utilization of ancillary hospital services. Hosp~tal ~£!lities Hospitals vary with respect to the scope and nature of their operations. They may be classified according to average length of stay (e .. , short term, long term), according to ownership and control (e.g., private, governmental), and according to the t pe of overall services available (e .. , general, special). Private hospitals include proprietary hospitals and those owned and operated by non-profit associations. From the standpoint of consumer finance the non profit short term general hospital is of primar importance. Although a minor fraction of all hospitals are in this category, their importance lies in the fact that they account for the bulk of hospital admissions and are the direct recipients of a substantial segment of consumer expenditures for hospital care in the United States. 106 For purposes of this study, non-profit short term general {and special) hospitals will be desi nated: "NPA hospitals. "17 The supply of hospital facilities consists of three major compenents: (1 ) the number of hospitals per se; ( 2) the bed capacity of such hospitals, and ( 3 ) the extent and variety of anc·11ary hospital services available. As indicated in Table III , nearly 7 thousand hosp t ls comprisin a tot 1 bed capacity of more than 11 mill on were in existence n 1955. o appreciable chan e has occurred in he to al number of hospitals n he Un ted St es be wen the ears 1931 and 1955. However h total bed capac has ro,n from 1 h 1 l ess than 1 m 11 on to in exces of 11 mill on durin th e rs 1931-55. 0 h o 1 number of hosp t 1 n x s enc le s han 15 pr c nt re oper e b ed r 1 or t te ov rnments. Ye accord n o Table III ederal nd st te h spit 1 conta ned 57 . 5 per cent of the tot 1 bed capac t of all ho pi als n 1 55. T ble illus r tes the fact that cent of all hosp als in he Un ted S tes bout 4~ pr ere P 17 PA s nds for non-profit association 107 TABLE III ALL HOSPITALS, NUMBER OF BEDS, ALL HOSPITALS EXCEPT FEDERAL AND STATE HOSPITALS, NUMBER OF BEDS IN THE UNITED STATES, 1931-55 Non-Federal and All Hospitals Non-State Hospitals Number of Number of Humber of Number of Year Hospitals Beds Hospitals Beds 1931 6,613 974,115 5~ 746 485,663 1932 6,562 1,014,354 5,693 497,602 1933 6,437 l,027,o46 5,585 491,765 1934 6,334 1,o48,101 5,477 497,201 1935 6,246 1,075,139 5,4o4 507,792 1936 6,189 1,096,721 5,342 509,181 1937 6,126 1,124,548 5,277 517,664 1938 6,166 1,161,380 5,313 527,853 1939 6,226 1,195,026 5,374 538,113 l~O 6,291 1,226,2.45 5,404 5'-4-5 ,238 1~1 6,358 1,324.381 5,400 ~.859 1~ 6,345 1,383,827 5,341 556,452 1~3 6,655 1,649,254 5,'297 562,466 1~ 6,611 1,729,~5 5,274 569,785 1~5 6,511 1, 738.~ 5,257 572,918 15U> 6,280 1,468,814 5,259 575,865 1~7 6,276 1,425,222 5,312 58'3,370 1~8 6,335 1,423,520 5,396 590,036 1~9 6,572 1,439,030 5,638 6oo, 165 1$50 6,430 1,456,912 5,523 605,100 1951 6,637 1,529,988 5,695 629,673 1952 6,665 1,541,615 5,730 638,697 1953 6,978 1,580,654 5,987 667,~8 1954 6,970 1,577,961 5,988 671,170 1955 6,956 l,6~ 1 408 5,976 682,093 Sources Ho pitals 30112, Part II, August 1, 1956. TABLE IV PERCEN'I'AGE DISTRIBUTIO N OF HOSPITA~, BEDS, ADMISSIONS, AVERAGE DAI LY CENSUS, IN UNITED STATES., 1~6 & 1955 Hoapitala Bede 1~6 1955 1O'fo l<>O'fo 93 97 100 100 91 97 100 100 88 ~ 100 98 ~ 100 100 100 58 61 9'2 93 55 13 100 100 49 54 90 9'2 4o 59 99 100 33 49 97 97 ~ 37 91 97 18 27 76 83 14 19 10 11 17 17 4o 45 3 5 72 83 6 12 38 ~ 3 3 51 64 4 5 4o 53 2 2 4o 54 ources Commission on Finat10ing of Hospital Care , Firanoing Hosfital Care in the United State,. Volume 1, "Factors Affecting the Cos s or Hospiial Care.• edited by John H. Bayes (New York1 The Blaldston Company, Ino •• 1954), PP • 109-10. 118 less of the 19 selected services. The variety of services available in NPA hospitals is related not only to bed capacity but also to average expenses per patient day. In Table VIII a comparison is made between expense per patient day and variety of services offered by NPA hospitals. Those NPA hospitals with expenses exceeding $20 per patient day offered a substantially greater variety of services than the average NPA hospital in each bed-capacity classification. IV. CHARGES, INCOMES AND SUPPLY OF MEDICAL SERVICES Consumer charges for medical care are directly related to the supply of professional, technical and other personnel engaged in the field of medical services. Compensation paid to medical personnel and incomes of private practitioners affect directly the consumer costs or medical services. Professional Personnel in Medical Services Although the number of physicians, surgeons, dentists and graduate nurses has increased substantially in absolute terms, the supply of professional personnel in medical services has little mo r e than kept pace with the growing population in the United States during recent decades. Table IX illustrates the relatively constant supply of physicians and dentists per 100 thousand Year 1920 1930 l~O l~O 1954 TABLE IX NUMBER OF PHYSICIANS, DENTISTS AND GRADUATE HORS~ PER 100 THOUSAND POPUIATION -- 1920-54 Phyaioiana 136 125 133 135 136 Graduate Nura a 98 175 216 2.49 241+ 119 Dentists 53 58 54 59 59 Souroei United States Department of Commeroe, Bureau ot the Census, Statistical Abstract of the United States ( ashington, D.C.: United States Goverment Printing Ot.fioe, 1956), P• 314; of. lso Survey ot Current Business, August 1~9, Jamtary 1950, July 1951, and July 1~2. 120 population. Stability of the physician-population ratio is demonstrated by the fact that the ratio for 1954 was no higher than that for 1920. While some variation in the ratio did occur, the moderate increase in the physician population ratio since the 1930s little more than offsets apparent decline in the number of physicians per 100 thousand persons during the 1920s.23 The supply of dentists per 100 thousand population has remained relatively stable since 1930. The moderate increase in the dentist-population ratio during the 1920s was reversed by the mild decline in the ratio during the 1930s. An examination of Table IX will indicate that the number of dentists per 100 thousand population was not significantly higher than that for 1930. While the number of dentists and physicians per 100 thousand population have been relatively stable for the last few decades, Table IX indicates a substantial increase in the number of graduate nurses per 100 thousand population. In 1920 the ratio of graduate nurses per 100 thousand population was 98, while by 1930 the ratio had increased to 175, and by 1954 there were 244 graduate 23Note that while the supply of all physicians remained relatively stable in relation to population, important internal changes occurred in total physician supply. The number of general practitioners declined relative to the total supply of physicians; full and part time specialists comprise an over-increasing segment of the total supply of physicians. cf. supra, Table II, p. 69; infra, Table X, p. 122. 121 nurses per 100 thousand population. The sharp increase in the graduate nurse-population ratio has accompanied a growing complexity in the technology of medical and hospital services. Employees per patient day in hospitals have increased by one-third during the years 1946-54. 24 The number of routine nursing procedures increased by a corresponding amount;25 over a longer period of time the increases are more pronounced. Too much emphasis upon physician-population ratios hides important changes in the degree of specialization among physicians and other factors affecting the quality and costs o f medical care. A relatively stable ph sician population ratio conceals them rked decline in the proportion of ph sic ans enga ed in eneral practice. Table X illustrates the decl ne in the proportion o f general practitionars to total physicians. I n 1938 two-thirds o all ph sic an were en a ed exclusivel in eneral practice. B 1949 the proport on o eneral practit oners to tot 1 ph sic an eclin d to one-half. The eneral pr ct toner-population ratio eclined rom 84.5 to 64.7 durin the years 1 38-49 . The number of ph scans per 100 thousand popul tion 24Ray . Brown, 'The Nature o Hospital Costs,' Hospitals 30 : 36 April 1, 1956 . Reprinted in Public Health Economics Vol. 13, no. 5 Ma 1956, pp. 264 - 69 . 25rdem 122 TABLE X NUMBER OF PHYSICIAN PER 100 THOUSAND POPULATION, UNITED STATE D CALIF NIA -- 1938 NT) ~9 All Full-Time Non-Federal peoialists in General Area United St tes Californi Physici ns Private Practice Practitioners 1938 1938 127.3 127.7 21.6 162.7 154.7 30.6 1$49 1938 37.0 84.5 49.5 97.0 Source: Frank G. Die nson and Charles E. Bradley. Comparisons of tate Phy ici n - Fop lation Ratios for 1938 and 1~9. Bull tin o. 78 • .--rioan edic 1 oci tion. Bur au of dioa.l Economic Ree rch (Chic o .......... ~ ical o ton. 1950). P• 7. •p y ioiana Dd r ona not mployed by th federal overnment. 123 is substantially higher in California than for the nation s a whole. s shown in Table X California physicians numbered 162.7 per 100 thousand population in 1938;26 th s was 28 per cent above the national average . Primarily because of the substantial influx of population from other st tes the Cali ornia physician-population ratio declined to 154.7 in 1949. Still this was more than 21 per cent h her h n the nation 1 average. In Cali orni the proportion of eneral pr ct toners to tot l non-federal physic~ans was 60 per cen in 1938 s indicted in Table X. This was slightl less th n the vera e or the United States at that time. B 1 49 the r at o o n r l practit ones to total non- ed r l ph s c· ns pr ctic n in Cal for ia h d declined o 46 per c n . n oth r words, n 194, more than one • n e er o C 1 ornia physici ns devoted o h"s profe son 1 t me to pecialt . t least some correspond in d ere se occurre in h proportion o~ ener 1 pract oners o 11 ph ic ans or the United States as n 1 2 er cent of 11 ph sici n not employed by the der 1 o ernment were full-time specialists in pr v te prac ce . rl one-third of non-federal ph s c ns pr cticin n California were classified as 26 xclu es ph sicians in military service or mplo e by the federal government. 124 full-time specialists in private practice in 1949. In 1938 less than one-fifth of all non-federal physicians were full-time specialists engaged in private practice in California and the percentage for the nation as a whole was 17 per cent at that time. According to Department of Commerce data shown in Table XI the average non-salaried ph sician received $13,432 in net income before taxes in 1951, or more than 200 per cent higher than the average for 1940. When compared to 1929 the relative increase has not been so great. With an increase in the average net income before taxes of from $5,224 in 1929 to $13,432 in 1951, the relative increa e was little more than 150 per cent for the period 1929-51. vera e net incomes of dentists have not kept pace with the increase in non-salaried physicians' incomes. Table XI shows an increase in dentists' average net income of from 4,267 in 1 2 to 7 820 in 1951 -- an increase of 83 per cent. For the period 1940- 51 the relative increase in avera e net incomes of dentists was 136 per cent. s shown in Table XII salaried ph sicians' net income before taxes averaged more than one-fourth lower during the years 1949-51 than the net incomes of non salaried physicians. The median net income of salaried Year 19'29 1930 1935 l~O 1~5 1950 1951 TABLE XI AVERAGE BET INCCME OF HON-SAIARIED PHYSICIANS AND DENTISTS -- 1929-51 Physioiana t 5,224 4,870 3,695 4,~l 10,975 12,324 13,432 125 Dentists 14,267 4,020 2.485 3.314 6,9'22 7,436 7,820 Sources United States Department ot Commerce. Bureau of the Cenaus, Stat1at1cal Abstract ot the United States ( ashington, o.c., U nited States Gowrment Priiiting otf'lce, 1956), N o. 380, P• 31h; cf. also SUM"e{ ot Current Business, August 1~9, January 1950, July 1951 and July 9,2. All llean edian Non-salaried an Median Salaried Mean Median TABLE DI AVERAGE BET IRCCMES BEFORE TAXES OF PHYSICIANS. 1~. 1~0. 1~7. 1~9-51 1~ l~O 1~7 1~9 tll,058 a.a35 t5,224 $4.~l $10.726 11,744 9,561 8,434 7.678 Source: Surver of Cur_~ent Bt!_sine_s_~, 3216-7, July, 1952. 1950 t11.53a 9,311 12.324 10,518 8,~ 8,087 1951 112,518 10.255 13,432 11,191 9,542 8,829 t-' f\) °' 127 ph sicians was approximately 80 per cent of the median net income of non-salaried physicians during the years 1949-51. Compared with the national averages, California physicians' net incomes before taxes were relatively hi h · the vera e income for all California physicia s in 1949 as 12,820, whereas then tional vera eat that time was 11, 058 . 2 7 C 1 ornia physic ans in inde endent pract ce rece ved n vera e net ·ncome of 14 353 in 1949· their med an income was 12, 082 . 28 Avera e incomes of n epen en physic an (i.e., non-salar ed) n Los An eles an n S n Francisco were 13 772 an 13,917 respect el · n these to cit es aver e phys cans' incomes were l htl below the st te ver e but n ·c ntly abo e the vera e for then tion in 1949.29 In contras to the rel t vel h era e net ncome o n penden phy c n n C 1 orn a the vera e net ncome for s lar ed ph c n in Cal forni as 7 914 s comp red to then ton 1 ver e of 8 434 n 1 4 .30 27surve of Curren Bus ness, 31:17 Jul 1951. d. D. 19 -- 2 Ib d. p. 20. 30 rb d . p . 19. 128 Employment and Payrolls i~ Medical Services The "process of production" of medical services utilizes labor as a primary input . Hence trends in employment and payrolls are significant in that they bear close relationship to the trends in the costs of and char es for medical services. T ble XIII surveys the supply of labor and compens tion paid to employees in medical services during the ears 1 29- 53 . The total number of persons engaged n med cal and health services in the United States nearly doubled dur n the twent -four year period ending in 1953 . Durin th me period o time the number of full-time equ valent emplo ees increa ed by more than 160 per cent. To 1 compens tion paid to emplo ees of medical nd he 1th serv ce r ose from 398 million in 1929 to nearl 3 11 on n 1952 . 31 The rel ve increase in total compensation for th s per od w s a substant al 29 per cent. tated on per-emplo ee bass the i ncrease in comp nsation was 174 per cen durin the ears 1929-53, accord n to comput tons ba ed upon Table XIII. mplo ment a n wa es paid in medical services in th St te o C lifornia are analyzed in Tables XIV and 31The term : "medical nd other health services' ncludes health resorts, various recreational activities as well as those services directly pertaining to the prov son of medical care. Year 1~ 1930 1931 1932 1933 1934 1935 1936 1937 1938 1~9 1 0 l~l 1~ 1~3 1~ 1~5 1~ 1~7 1~8 1~9 1930 1951 1cn2 1953 129 TABLE XII I EMPLOYMENT, CCMPENSATION PAID AND VALUE ADDED I N MEDI CAL AND HEA.J.TH SERVICES IN THE UNITED STATES -- 1929-53 Humber ot persons engaged Number or in medical full-time and health equivalent services employees (thousands) 750 429 749 434 725 419 691 399 679 390 695 403 711 420 750 455 785 491 807 516 813 522 841 549 861 580 878 614 8~ 655 89'j 665 892 661 983 701 1,071 767 1,127 818 1,163 S'jO 1,238 ~3 1,319 1,005 1,386 1,071 1,465 l,~ Total compensation or empl oyee s i n m edical and he 1th V a lue added in medical and health services services (millions 398 1, 536 4o6 1,476 386 1.308 ~ 1, 037 317 S48 324 1, 0;6 349 1, 115 388 1,253 433 1,323 468 1,330 478 1,381 513 1,463 558 1, 575 641 1,806 744 1,988 845 2, 341 932 2,459 1,134 3. 024 1,410 3,~ 1,610 3,910 1, 753 4, ~7 1,990 4,496 2,303 4,935 2,600 5, 387 2, 903 5,802 Sources United States Department of Comm rce , Bur eau of the Censu , Ra.tiom.1 Inoome, 1S54 (Washington, D.C.: United St tes Gover nt Printing Office, 1954), PP• 202-3, 196-7, 208-9, 178-9. Year 1938 1~9 1 0 l~l 1~ 1sti; 1~ 1945 1~6 1Sli7 19+8 1549 1950 1951 1952 193; 1954 • • n • 130 TABLE XIV I SURED iPLOYEES, I SURED GES PAID ND INSURED U ITS REPORTING IN MEDICAL AND CYl'HER Hx!ALTH SERVICES I CALI OR IA -- 1938-54 Number of Units n. • n.a. n.a. n.a. n. • n.a. n. • n. • n.a. 11,4140 12,;02 12,66; 1;,179 13,615 14.,077 14,744 15,560 of C liforni, De yrolls," nnual loye sand loyi Number of loyee 9,439 9,6;5 10,454 11,346 14,001 16,;70 17,o60 16,605 30,96 34,817 36,2~ 31,300 39,195 42,566 46,700 50,652 54, 75 ent of Emplo e d rl R por unit ubject , Total ages Paid 9,340,000 9,79+,ooo 13,261,368 15,783,103 20,472,888 28,824,520 34,717,269 35,291,359 65,224,189 79,o48, 3 84,881,081 90,878,976 96,89+,934 109,640,133 128 ,46 7, 748 143,241,3 158,380,160 C 11 orni , 193 5. u ~loyment Sec ct. In 19+6 the C ___ .,_ ____ ct s nd d to cover e ployer t o thi plo r 1th fo or more employee ere cov rd. Cf. ction 9.1 of t e C ornia _!!ne ployment Sec ct. 131 XV. Note that the coverage of unemployment insurance chan ed in 1946; hence data shown in Tables XIV and XV f or years preceeding 1946 are not strictly comparable to data pertainin to years subsequent to 1946. Before 1946 unemployment insurance covered employers having four or more employees , thus a substantial portion of the physic ns and surgeons enga ed in independent practice in the State of California dur ng the years 1938-46 were not af ected by the un mployment insurance requirement . Ho ve n 1 4 em loyers of one or more employees w r cove ed ; hence v r uall all ph sicians and surgeons in nd penden pr c ice w r then r quired to repor the number o h r emplo es and the total wage paid. pad n h m ho p mplo 76 occur D t hos rd n the number of mploy sand wages als dur n the ar 1940 - 54 are comparable he chan e th defini ion o inured emplo - ec ho pitals, for virtually all ould no als em l o con iderabl mor than four em 1 es. Dur n he e r 1 38-45 th num r of inured es in med_c 1 ser ce 0 Cal fornia increased by r c n acco d n o Tabl XIV. similar incr ase ed dur n th rQ 1946- 54 . Total wages aid to e plo ees n he ield of med cal services in California ncrea db 27 per cent dur·n the ears 1938-45. For h year 1946-5 th r lative increase in total wages paid was 14 3 per cent . TABLE XV INS TIRED DIPLOlMENT, NUMBER OF UBITS REPORTING, I~URED WAGES PAID TO EMPLOlEES IN OFFICES OF PHYSICIANS ARD SURGEO~ AND IN HOOPITALS -- STATE OF CALIFORNIA -- 1c_i,.o-54• - -··- - -- - -- - - --- - - - - -- - - - - - -- ----- - - --------- - - ---- ----------- --- - ---- -------- - - - --- 0tticea or Physicians and Surgeons Boapitala Number or Total Wages Humber ot Total Wagea Year Unite Emplo19e1 Paid Unit■ Blll>loyeea Paid 1540 n.a. 1.486 t 2,241,~ n.a. 6.771 t 7.456.953 l~l n.a. 1.629 2, ;:e1, 70 n.a. 7.231 8,524,m 1~ n.a. 2.009 3. 1.362 n.a. a.a76 10.881, 1~3 n.a. 2.391 4,976.512 n.a. 9,689 14.643,565 1~ n.a. 2.515 5.~.6o6 n.a. 9,605 17.488,323 1~5 n.a. 2,772 6,885.583 n.a. 8,~9 15,105,4~ l~ .. n.a. 10,805 .. 23.111,ac.;8 .. n.a. B.386" 16,537,193 .. 1547 5. 79-i 12,399 29,172,357 311 9,503 20,597,u9 1~8 6.312 13,537 3~,022,246 315 9.028 20,324, 0 1~9 6,578 14,218 36,337,525 303 8,825 20,609,323 19'30 6,877 14,882 38,935.407 ,~ 9,0l.6 21,339,339 lgjl 1,133 16,056 43.623,245 309 10,061 25,216,989 19;)2 7,340 17,890 51.453.496 310 11.226 30,398,013 19'53 7. 758 18.696 55.260.196 318 12~720 36.468,013 1954 8,138 20.235 62,308,71? 310 13.233 39 • 708 • 3e.4 Sources State of California, Department ot Employment, "California Employment and Payroll■," Annual and t-" Quarterly Reports, 1541-55. Pa11im. ~loyeea and employing units subject to the California Unemployne~ Securitl Act. •~1oyera subject to change in California Unemployment Securi..ty Act. 133 Trends in wages paid n med cal nd other health services in California corr spond closely to trends for he nation as a whole. In 1938 the avera e wage paid to e pl s n medical and health services in the United States was approximately 909;32 the aver e for Californ w s 990 in the s me year . In 1953 avera e w esp id to med cal and health serv ce employees in the Un ted States as 2,538, wh let vera for California as 2,828. The avera e w e or med cal s rvice emplo ees n Cal fornia was 9 per cent bove the nat on l ave a e n 1 38; n 1 53 the Cali orn v ra exce d d the avera e for he Un ed Stats by 11 per cent accord n to com u at ons ased u n Table XII Insur d emplo men in Cal or a hos t 1 ne rly dou 1 d urn h er 1 40-5 nd to pad o m ely cco n n C 1 1954. nsur d emplo es have incre sed rom a p x - 7~ m llion in 19 0 on arl Om 11 on n 1 5 o ble XV. A er a e pr hos it 1 em lo ee r ia ncr ed from 1 101 n 1 40 o 3 001 n The a era e num r fem o e per ho 1 1 incr a ed subs anti 11 dur n the prod 947-5. n 1947 th 31 hosp als hav n nsur d mplo e repo ted 9 , 503 emplo ees or app x mately 31 mplo es Pr 32c . SU ra Table XI I p. 129. 134 hospital. By 1954 the total number of insured employees of California hospitals increased to 13,233; at that time the average number of employees per hospital was 43. The rowth in the number of employees in medical serv ces has accompanied a substantial increase in wages paid t such employees. Especially in hospital services of California the significant increases in numbers employed and n avera e wages paid have been a major contribu n factor to the rise in hospital charge urn the 1 t to decades. v. ES FOR DIC L RVIC S t st cal dat concernin fees and unit charges for ed cal ser c are 1 mited and difficult t obta n. Tha h chi v 11 ble has onl 11m ed applicability. ee chedul cop led b n urance companie generally h ve 1 le b arin upon th n one tim . e sch dule n in on rates existin at approved b v rious ocieties th medical profe sion or or n z tons r pre enerall re 1 mit d n applicat ion to speci ic economic roups. Pr cs of s 1 cted medical ood ands rvices in m or c s are com iled b t h Bureau of Labor tatistics n connect on w h the Consumer Price Index. Table XVI cont n a summary of unit charges for 4 selected medical TABIE XVI AVERAGE RETAIL PRICES O F SELECTED ICAL SERVICES IN 10 CIT~, 1952 AND 1554 City cember Atla Balt1.more Chicago Cincinnati Detroit Los Angeles York Philadelphia st. Louis San Francisco dian 10 city aver dian Hospital Services, Daily room rate for Physicians' Services1 emi-private room Offioe visit l'n2 10.88 13.10 11. ]h.6 16.80 15.60 11.62 9.30 17.aa 13.51 13.90 l_ - . 10.19 11.25 15.20 13.aa 15 .L,4 18~70 16.6o 13.3a 10.90 21.6 J.4.72 15.32 19;2 2.6o 2.67 2 •. .33 4.17 3.50 2.80 2.71 4.67 3.24 3.07 1554 3.67 2.60 3.00 2.92 ,.67 4.33 3.a3 2.90 3.00 4.67 3.46 3.67 Surgical Procedures 1 Appendectomy Tonsillectomy 19'32 • 115.00 161.00 133.3 150.00 200.00 175.00 1.40 • 150.00 185 .oo 156.59 155.54 1554 145.83 125.00 154.17 133.33 154.1 191.67 1a3.33 140.00 160.00 1a7.50 157.50 154.17 1952 • ,5.00 65.00 60.00 59.17 91.67 a7.50 51.67 70.00 75.00 67.22 67.50 1554 - .oo 4a.33 10.a3 61.67 67.50 93.53 87.50 53.33 10.a3 79.17 70.00 70.a3 Source, United States Bureau of labor Statistics. "Average Retail Prioesi Collection and Calculation Techniques and Problems." Bulletin No. 1182 (Washington. D.C.t United States Government Printing Office. June 19>5), PP• 51-2. Not ilabl.:s • t-J l>J \J1 136 services in 10 representative cities of the United States. Note that unit charges for these 4 selected services are significantly higher in the two cities of California than for the ten-city average. Ranked according to level of unit charges, San Francisco and Los ngeles are highest in all cases . Semi-private hospital room rates are hi hest in San Francisco; Los Angeles ranks second. The same relative position of the two cities of California ar ev dent n connection with ph sicians' office visits. Avera e fees or the two selected surgical procedures w re cons stantly hi her in Los Angeles than in any other c ty included in he sample shown in Table XVI. es for s l ected medical services rendered under C 1 forn·a orkm n ' s Compensation laws ar summarized in able X I. Relat ·ve to the avera e fe for selected erv·c l l ustr ted in T ble XVI, fees for comparable services 1 s ed n h rkmen's Compensation schedule ere n can 1 lower. valua le d nth analysis of fees and unit char es is he elative Value Study published b the C 1 orn Med c 1 sociation in 195 .33 In preparing th Committee on Medical Costs collected dat on ctual f ees charged b physicians and 33cal forn M dical ssociation, Committee on ed cal Costs , Re l ative Value Stud (San Francisco : Cal orn a ed cal Association , 1956). 137 TABLE XVII SELECTED FEES FOR SERVICES RENDERED UNDER CALIFORNIA WORKMEN'S COMPENSATION IAWS -- 1946, 1950 AND 1954 --- - MEDICAL SERVICES First office visit Subaequent visits Office Home (Day) Hospital (Day) SURGICAL PROOEDURES Appendectomy Adenoidectomy Tonsillecto y Tracheotomy Cataract, extraction of Skull fracture Cesarean section ISCELLlNEOUS PROCEDURES Administration of anesthetio 1st hour 2nd hour Casts -- le or fore rm -ray Foot, ankle, band. ri t 1 view 2 vi s Ribs. chest, shoulder, pelvice, hip 1 vie 2 views 2.00 2.50 2.00 100.00 ( 40.00 ( 50.00 75.00 25.00 150.00 ~ 20.00 6-9.00 1950 100.00 ~ 60.00 75.00 100.00 25.00 150.00 10.00 10.00 6-9.50 6 50 a.so 1954 125.00 ;5.00 75.00 100.00 125.00 25.00 190.00 15.00 10.00 7.50 4.oo 5.00 Source: California dical As ociation, chedul of~ for hysioi ns nd Sur o for rvio s Rendered Und r the or en' Compensation alXl afety I& s, Approved by Industrial Accident Commission, t t of Californi • 1~, 1950 and 1954 ( an Franoi co: California edical Assooi tion, 1946, 1950, 1954). pas im. 138 sur geons in representative sections of C a l ifornia . Median char es wer e calculated for each procedur e and were t hen r es t a t ed . 1.n r elative terms . Although the Rel ative Valu e Stud doe~ not indicate the l evel or ran e of actual f e es, it does state the val ue of one medical or sur ical procedure in terms of the val,1e of others . For example the r e lative val ue of an appendectom i s 35 . 0, and the r e l a t ive va l ue of a tons llectomy s 15.0 . If th ur eon normall cared 150 or an appendectomy, his fees or tonsillectom should b ap ro ·m t el y 64 . If h s usu 1 ch re or n appendec omy w s 100 , then h s tons llec omy fee should be abou 43 . T bl XV show h r el t ve values of s ec ed vU C 1 p oce ure o toe rl er stu and co pare th es b m cal nd ont n . By re l at n t h hre e {appen ec om · ua l s 100%) h hree is enhance . I n s ar a th h the results ociet es n Con ct cu ud e~ o a common comp ra 1 ty o h relative lue o e c ur c 1 proc ure cone rne s r n sim lar s e den . Th close carre l on n rel tive alues of m cal proc dures ug s s th althou h nd v du 1 fees ary widel , the r l eve l s ·n re l tion o each her demons rte a sur pr is n cons s enc . Durin the pas 25 year s t he costs of medical c re TABLE XVIII IATIVE VALUE SCHEDUIES FOR SELEX:TED SURGICAL PROCEDURES - HYPOTHETICAL FEE SCHEDUIES BASED UPON RELATIVE VA.IlJE SCHEDULES FOR CALIFORNIA, CONNECTICUT ilID MONTANA. RelatiTe Value Schedules Hypothetical Fee Schedules 139 urgioal Procedure Calif. Conn. Mont. Calif. Conn. Mont. Appendectomy Colles fracture, closed reduction Dilatation, catheter ezation, curettage Fractured femur olo ed reduction open reduction Fractured metatarsal, closed reduction Gastr ctomy, total Hemorrhoidectomy, internal and external Herniorrhaphy, in im.l., bilateral unilate 1 Hysterec amy, abdominal, total tee o y, radic 1 8 1 Pro t teo omy, transurethr 1 To ill ctomy/ adenoid o o child 10.0 30.0 60.0 15.0 100.0 4o.o 30.0 60.0 60.0 4o.o 70.0 11.9 a.o a.o 22.0 12.4 11.0 17.3 19.9 10.6 17.2 Souroer California dical ssociati .. ( n Fr co , ----, "Se Your Fee Eoono 32:137-39, eptem er 1955. 11.a 11.7 10.7 17.0 19.2 10.8 18.1 100 43 29 86 171 43 286 71 114 86 171 171 114 200 43 t100 67 34 90 139 67 18'3 82 1~ 92 145 167 89 145 49 100 65 33 83 130 64 183 87 99 91 ~ 163 92 153 52 , Committe on dical Costa, C orni dical Associatio, 1th This Scale," die 1 140 have increased substantially. This increase has been accompanied by significant changes in the supply of medical personnel, facilities and in the technology and quality of medical care. To say that medical care costs more today than it did 25 years ago does not reflect the substantial changes that have occurred in the quality of medical services. Effectiveness of treatment has increased; medical hazards have been reduced; th complexity of medical services has increased substantiall . Changes in the ualit and costs of medical care h ve been accompanied by similar chan es in the supply of me cal resources and in the incomes o these human and material re ources en a e in the field of medicine. Ho~ tal income and expense~ have ncreased substantially. I ncomes of profes onal and technical personnel have evidenced a correspond n increa e dur n the past few cad s rv of d • Unit co ts o medical c r, or fee for med cal , • re not readil anal zed due to an obvi ous 1 ck ec 11 trends in unit costs scape careful m sure en . eneral ndication of medical fee~ for select d procedures can be obtained from an examination of relative value schedule~ (cf . Table XVIII). more complete understanding of medical costs 141 requires an analysis of consumer expenditures for medical care. Such will be the central theme of Chapter VI. CHAPTER VI CONSUMER EXPENDITURES FOR MEDICAL CARE In the preceding chapter factors influencing the costs of medical care were analyzed. The supply of medical services and facilities was surveyed, and a brief analysis of unit cost or charges for medical care was undertak n. Chapter VI continues the analysis of medical co ts from a different vantage point; her the emphasis is upon the trends and lev ls of consumer xpenditures for medical care in the United States, especially in Cal1forn1a. 1 I. CONSU EXP !TURES OR I THE U ITED ST TS Con um r xpendi ures form d cal car differ from t e co ts o med cal car by the extent o financing from oh r ourc st n from d rect payments by consumer A r o o al cos of m dical car m from publ c funds. Privat char ty contr butes anoth r por ion 0 he total costs o medical rices As ndicat d n Chapter v 2 d rect payments by lconsumer nd tr s for med cal care include ins ranee benefits and net costs of insurance or prepayment cov ra e. 2cf. su ra, p. 111. consumers of medical services are an increasingly important segment of the total medical care bill. This is especially true in regard to hospital costs and charges. Thus consumer expenditures for medical care have increased by somewhat more than the increase in the total costs of medical care. Time is a factor in differentiating expenditures for med cal care from medical charges. During any given period of time consumer expenditures for medical care may include payments for medical charges incurred previous to the specific time period in question. In urn, ne medical charges may be incurr d but not paid during the given period or time. Hence some discrepancy may exist bet een med cal charges and consumer expend tures for med cal car. However to the ex ent tha t lead-lag relationship bet een medical charges and consumer ex endi tures or m dical car does not change appreciably over 1 e, the to will correspond clos ly. An indeterminant portion of total med cal charges may be included in th category: "bad debt . " To the extent that th med cal charges prov · to be unco lectable est ates of consumer expenditure s for med cal care may understate the level of actual charges for ed cal services. Consumer expend tures for medical care give no 144 hint of unit charges or fees charged for services rendered. Without knowing the quantity of services rendered, average fees or unit charges cannot be deduced from an examination or trends in consumer expenditures for medical care. With these limitations in mind an analysis of consumer expenditures for medical care can be a valuable aid in achieving a clearer understanding or the levels and trends in the costs of medical care and the charges for medical services. Consumer Income~~£ Ex£enditures for Medical Care American consumers spend approximately 4 per cent of their disposable income for all medical and health ser ices. As indicated in Table XIX the proportion of d sposable income allocated to the costs of medical care has varied within a range of from 3.1 to 4.3 per cent during the years since 1929. In dollars, total consumer expenditures for medical car and all other health services have increased from sl ghtly less than $3 billion in 1929 to nearly $12 billion in 1956. This represents an increase of nearly four-fold over the 1929 level. However the bulk or this increase has occurred during the years subsequent to the beginn ng of the Second World War. Total consumer expendi tures for medical care have more than doubled since the end of World War II. Year 1929 1931 1933 1935 1937 1~9 1 1 1~3 1~5 1~7 1~8 1~9 19;0 1951 1952 1953 1954 1955 1956 TABLE XIX DISPOSABLE PERSONAL INCOME (D.P.I.), TOTAL CONSUMPTION EXPENDITURES ( C), CONSUMPTION EXPENDITURES FOR MEDICAL CARE (M), CONSUMPTION EXPENDITURES FOR MEDICAL CARE AS A PER CENT OF DISPOSABIE INCOME AND TOTAL CONSUMPTION EXPENDITURES -- 1929-56 K. as per cent of c. M. D.P.I. c. (Billions) a3.1 t 79.0 2.9 3.~ 3.~ 63.8 61.3 2.5 4.o 4.2 45.7 46.4 2.0 4.3 4.3 5a.3 56.3 2.3 3.9 4.1 71.0 67.3 2.7 3.a 4.o 10.4 67.6 2.8 4.o 4.2 93.0 a1.9 3.3 3.5 4.o 133.5 100.5 4.2 3.1 4.2 150.4 121.7 5.0 3.4 4.1 169.0 165.0 6.8 4.o 4.1 187.6 177.6 7J., 3.9 4.2 188.2 180.6 7.7 4.1 4.3 206.1 l~.O a.3 4.o 4.3 226.0 208.3 a.a 3.9 4.2 237~ 21a.3 9.4 4.o 4.3 250.2 230.5 10.0 4.o 4.3 254~ 236.5 10.2• 4.o• 4.3• 270.6 254.o 10.a• 4.o• 4.3• 286.7 265.7 11.5• 4.o• 4.3• Sources United States Department ot Commeroe, Bureau of Census., Statistical Abstract of the U nited States, 19'36 ( ashington, D.C.: United States Governmen Printing Ofi'ice, 1956), PP• 293, 2~., 297J United States Department of Commerce., Bureau of the Census, National Income, 1954 ( ashington, D.C. • United States overnment Printing ol'l'lce, 1954), PP• 162-3, 206-7; Federal Reserve Bulletin, Ml.rah 1957., PP• 334-35• ~atinated from earlier years. 146 While the variation in the proportion of disposable income spent for medical care has been within a fairly narrow range or between 3.1 and 4.3 per cent, the constant relationship between total consumer expenditures and consumer expenditures for medical care is far more pronounced. As indicated in Table XIX the range of variation has been narrow -- between 4. O and 4 .· 3 per cent of total consumer expenditures during the years following the end of 1929. The portion of total consumer expendi tures allocated to medical care has varied within a range of less than two-tenths of one per cent during the years following World War II. Composition of Medical Care Expenditures A high degree or correlation is evident between total consumer expenditures and consumer expenditures for medical and other health services. However expenditures for particular kinds of medical care, as indicated in Table XX, have varied widely during the years following 1929. While consumer expenditures for all medical care increased from less than $3 billion in 1929 to more than $11 billion in 1956, the relative increa e in consumer expenditures for hospital care was considerably greater during the same period of time. Expenditures for physicians' and surgeons' fees have increased from less than $960 million in 1929 to more than $3 billion in 1956. TABLE XX CONSUMER EXPENDIT~ FCE MEDICAL CARE BY TYPE OF EXPENDITURE 1929-1956 (Millions of Dollars) 147 Health All Year Total Hospital Physicians Dentists Insurance• others 1929 2,937 403 939 482 108 985 1931 2,549 395 819 4oa 92 835 1933 1,983 363 617 276 70 657 1935 2,288 4o6 731 302 93 756 193. 7 2,672 454 854 350 123 891 1939 2.848 4~ 866 386 153 951 l~l 3,298 555 <151 459 196 1.131 ~~ 4,189 752 1,092 539 279 1,527 4. 7(;/j 846 1,321 573 315 1,670 1~5 5.~ 9'25 1,370 620 374 1,753 1~ 6,1~ 1,163 1,720 772 ~ 2.005 1~7 6,817 1,397 2.020 7e4 513 2,103 1~8 1.3f15 1,591 2,203 833 550 2,208 1st,.9 7. 702 1,730 2,312 857 557 2,246 1950 8,276 1.975 2.435 869 636 2,361 19'31 8,780 2,167 2,528 888 651 2,546 1952 9,382 2,398 2.676 906 74o 2.662 1953 10,001 2,602 2,815 ~3 887 2,754 1954 10,176 2,707 2.859 ~ 19'35 10,sa.. 2,~ 2,998 983 1956 11,468 3,188 3,154 1,032 Sources Unit d tates Department of Commerce, Bureau of the Census, National Income, 1954 ( a hington, n.c., U nited tates Government Printing Otfioe, 1954), PP• 206-7; data for years 1954-56 are e1ti ted trom Tables XIX and XXII. ~emiums less ola , administr tive xp es of medical care plans, membership f ea for student health service. 148 Medical expenditures for health insurance have increased substantially since 1929. The net costs, defined as the difference between premiums pa.id and benefits received, have increased from slightly more than $100 million in 1929 to nearly $900 million in 1953. Current estimates indicate that the net consumer costs of health insurance is in excess of 1 billion dollars.3 All other expenditures for medical care have increased by approximately 3 times during the period 1929-53, as indicated in Table XX. The category "all other" expenditures includes drugs, other medications, medical appliances, services of related healing pro fessions, and a variety of miscellaneous health and medical services. Where consumer expenditures for medical care are expressed in the form of indexes, as in Table XXI, the relative change in each expenditure aggregate is clearly shown. For example, where the base period is 1947-9, the subsequent increase in consumer expenditures for medical care has been 57 per cent. Expenditures for hospital care have doubled during the same period of time. Consumer expenditures for physicians' and surgeons' fees have not kept pace with the relative increase in expenditures for other medical and health services. Consumer expenditures 3cr. infra, Chapter VII, Year 19'29 1931 1933 1935 1937 1939 l~l 1~3 1~ 1~5 1~ 1~7 1~8 1~9 1950 1951 1952 1953 1954 1955 19% TABLE DCI INDEXES OF PERSONAL CONSUMPTION EXPENDITURES FOR MEDICAL CARE :.929-56 (1947-49. 100) Total Hospital Physicians 40.2 25.6 44.o 34.9 25.1 37.6 27.2 23.1 28.3 31.3 25.a 33.6 36.6 28.9 39.2 39.0 31.3 39.a 45.7 35.3 43.9 57.4 41.a 50.1 66.9 53.a 60.6 69.1 58.8 62.9 a3.6 73.9 79.0 93.4 88.8 92.7 101.1 101.2 101.1 105.5 110.0 105.7 113.3 125.6 111.8 120.3 137.a 116.1 128.5 152.5 122.8 136.7 165.4 129.2 139.4 177.3 131.2 148.2 1a7.2 137.6 157.1 202.7 ~-8 Source: Tables XIX and XX. 149 Dentists 58.4 49.5 33.5 36.6 42.4 46.8 55.7 65.4 69.5 75.2 93.6 9'3.l 101.0 103.9 105.4 107.7 109.9 114.3 1l4.7 119.4 125.1 150 for dental care have increased by only 25 per cent during the same period of time. 4 While consumer expenditures for all medical care have increased by nearly 4 times during the period 1929- 56, the relative importance of each type of consumer expenditure for medical care has changed materially. Table XXII indicates that the costs or hospital care as a per cent of total consumer medical care expenditures have more than dou led between 1929 and 1956, whereas the per cent of consumer expenditures for the services of physicians and surgeons has declined during the same period of time. Table XXII also illustrates a relatively sharp decline in th per cent of total consumer expendi tures for medical care alloted to the costs of dental care. h reas more than 16 per cen of total con umer expenditures for medical care wa for den al care in 1929, little more than 9 per cent of total consum r expenditures or medical care has been spent for dental care during recent years. Per Ca 1ta Ex enditures for edical Care hile the aggregate consumer expenditures for medical care has increased by nearly 4 tim s n the 4The read r should note that the indexes discussed herein are not price inde es. Rather they indicate relative changes in total consumer expenditures for medical care. Year 1929 1931 1933 1935-39 l~l 1~3 1~ 1945 19+6 1~7 1~8 1S49 1950 1951 1952 1953 1954 1955 1936 TABLE XXII PERCEN'l'AGE DISTRIBUTION OF PERSONAL CONSUMER EXPENDITURES FOR MEDICAL CARE, 1929-1956 Total Hospitals Physicians 100.~ 13.7/4 32.~ 100.0 15.5 32.1 100.0 18.3 31.1 100.0 17.0 31.6 100.0 16.8 29.2 100.0 18.0 26.1 100.0 18.0 28.l 100.0 18.4 27.2 100.0 19.1 28.2 100.0 20.5 29.6 100.0 21.5 29.8 100.0 22.5 30.0 100.0 23.9 29.4 100.0 24.7 28.8 100.0 25.6 28.5 100.0 26.o 28.2 100.0 26.6 28.1 100.0 27.2 27.7 100.0 27.a 27.5 151 Dentists 16.4% 16.0 13.9 13.3 13.9 12.9 12.2 12.3 12.7 11.5 11.3 11.1 10.5 10.1 9.7 9.4 9.3 9.1 9.0 ource: Frank G. Diokinaon and Jamee Raymond, "The Economic Position or dical Care, 19'29-1953,"J Jourm.l of the American dical s ooiation, September 3, 1955, Table,; P• 45. of. also Tables XIX and XX. 152 period 1929 to 1956, per capita expenditures for medical care obviously have not increased by a corresponding amount, as indicated in Table XXIII. In 1929 the per capita expenditure for medical care was $24; whereas by 1956 the per capita expenditure was approximately $67, according to the Department of Commerce estimates. However it should be noted that estimates of per capita expenditures differ. For instance in Table XXIV the per capita expenditure for 1955 was expressed as $69; whereas the corresponding figure in the Department of Commerce series would indicate a per capita expenditure of approximately $65. The apparent discrepancy primarily is due to differences in sampling techniques as well as to differences of definition of medical care. The per capita expenditures in 1953-55, according to Table XXIV, show a corresponding increase to that of the estimates by the Department of Commerce. The Department of Commerce estimates show an increase of from $63 to $65 per person, whereas the Brewster estimates in Table XXIV show an increase of from $65 to $69 during the same period of time. While the per capita increase in consumer expendi tures for medical care shows a gain of 179 per cent over the level of expend tures in 1929, the increase in consumer expenditures for hospital care was considerably Year 19'l9 1931 1933 1935 1937 1939 l~l 1~3 1~ 1~5 1~ 1~7 1~8 1~9 1950 1951 1952 1953 19j4 1955 1956 153 TABLE XXIII PER CAPITA DISPOSABLE INCOME, CONSUMPTION EXPENDITURES. t PER CAPITA EXPENDITURES FOR :MEDICAL CARE BY 682 514 364 458 551 538 697 977 1.060 1.075 1,126 1.173 1,279 1.261 1,,59 1.465 1,508 1,568 1,569 1,630 1,686 TYPE OF EXPENDITURE -- 1929-56 c. 648 4~ 369 1442 522 516 614 735 1~ 870 1.037 1,145 1,211 1,211 1,279 1,350 1,390 l,lJ..4 1.456 1,530 1,563 Consumption Expamitures tor Medical Care Total 24 21 16 18 21 22 25 31 34 36 44 47 51 52 54 57 60 62 63 65 67 Hospital 3.28 3.26 2.93 3.10 3.62 3.19 4.20 5.5a 6.12 6.62 eJ.,.o 9.64 10.97 11.70 12.99 l.4.11 15~ 16.30 16.69 17.73 1a.75 Physician, & urgeons 7.f1j 6.74 4.98 5.69 6.64 6.9j 7.30 a.09 9.93 9.79 12.41 13.91 15.20 15.60 15.9a 16.46 17.19 17.69 17.57 18.06 18.55 Source: Tables XIX and XI.IIJ United tates Department of Connnerce, Bureau of the Census, Statistical Abstract of the United State , No. 357. P• 297; United States Department oTCommerce, Bureau or the Census, llatioral Income, 19j4 (Washington, D.C.: United States Government Printing Office, 19j4), PP• 2o6-7. Figures for 1935 nd 1956 obtained by projection. TABLE XXIV PER CAPITA EXPENDITURES FOR MEDICAL CARE BY TYPE OF EXPENDITURE -- 1953, 19'34 AND 1955 1953 19'34 All edical Care $64.91 $65.85 Ho pitalization 18.59 19.09 Physicians' Services 18.81 18.64 her ervices and Supplies 24.32 24.50 t Cost of Health Insurance 3.19 3.62 154 1955 tl,9.00 20.74 19.24 25.24 3.78 ource: Adapted from Agnes • Brester, "A ethod of easuring the dequacy of Health Insurance Ben tits," United State ooial ecurity dministration. Division of Research and ta.tistioa, Note Noa., 31 nd 53, July 19, 1955 am November 6, 19']6. Reprint d in Public He 1th Bconomics, Vol. 13, No. 1, January 19'36, Vol. 14, No. 2, February, 19'37. 155 greater -- 472 per cent. The consumer expenditures for hospital care increased from $3.28 per person in 1929 to approximately $18.75 in 1956.5 Family Medical Care Expenditur~s and Income Levels Per capita and per family expenditures for medical care in the United States have increased substantially during the past few decades. However no small part or this increase may be attributed to rises in average individual and family incomes. Table XXV clearly demonstrates this close relationship between income levels and consumer expenditures for medical care. Within given income brackets the variation in consumer expenditures for medical care was not pronounced during the period 1928-50. In spite of difficulties in :>The per capita figures for cost or hospital care and for physicians and surgeons were estimated from Tables XIX and XXII whereby the total expenditures for medical care was divided by population figures for the corresponding yean and subsequently the breakdown or hospital care and physicians fees was based ori the percentage distribution of personal consumption expendi tures for each of the corresponding years. Note that the per capita consumption expenditures for hospitalization indicates an expenditure of $18.59 in 1953, as compared with an estimate based upon the Department of Commerce data of $16.30 for the same year. However as in the case of the change of the per capita consumption expenditures for medical care, the relative increase in per capita expenditures for hospitalization and for other particular kinds of medical and health needs show corresponding increases consistent with those indicated in Table XXIII. TABLE XXV AVERAGE FAMILY EXPENDITURES FOR MEDICAL CARE IN THE UNITED STATES - - BY INCOME LEVELS -- 1928-31, 1935-36, l~l AND 1930 Inc ome Leve ls 1935-36 .. Less than 1,000 32 27 Less than $1, 200 49 1,000 - 1, 999 62 72 1,200 - 1, 999 67 2,000 - 2, 999 95 105 100 3. 000 - , . 999 142 3, 000 - , 999 138 153 4. ooo - 4 , 999 186 5, 000 - 5, 999 6, 000 - 7,499 7,500 - 10, 000 5, 000 - 10, 000 249 2f>4 Over 10, 000 503 467 156 91 97 136 196 227 252 302 370 443 Souroes: Based on data in Irving S. Falk, lilrgaret C. Klem and than Sina.i, The Incidenoe of Illness and the Receipt and Costs ot Medical Care ~.Representative Familie (Chicago: niver ity otChicago Presa , 1933), PP • l57, ~M; tional Resources Planning Boa.rd, Pamill ~enditures in the nited States; tati tical Tables and Ap1endfu1 ( ashington, W-1 United States Government Printing 0t1Ioe, ;iii), pp . 13, 122; Helen Hollingsworth, rgare C. nem and Anna • Baney, dical Care and Costs ~ Relation~ Family Inoome, Bureau morand Number 51, Federal Securi y Agency, Social Security Administration, Bureau of Research and Statistics (second edition, a hington, D.C.: nited State Govermnent Printing Office, y 1547), PP• 155-63J United States Bureau of labor Statistics, 1 tudl of Consumer ~endi turea Incomes and Savings; tati ical Tab ea, Urban U •• -- 550. Tabulated by the United State Bureau ot Labor Statistics tor the Wharton Sohool of Finance and Commero , The University of Pennsylvania.. Volume VIII," umrna.ry of ily Expenditures for dical Car and Personal Care" (Philadelphia: University of Pennsylvania Pres , 1956), PP • 10- 11. *8,639 hite families **all urban oo4Dllllnities *families in 91 representative cities 157 comparing the results of these 4 studies6 summarized in Table XX.V, a marked stability in the relationship between consumer expenditures for medical care and given levels of consumer income is evident. This stability has been accompanied by a general increase in expenditures for medical care by families within the lower income brackets. For example families whose incomes ranged from $2-3 thousand increased their average expenditures for medical care by about 43 per cent during the years 1928-50. Consumer expenditures for medical care by families whose family incomes were between $5-10 thousand did not increase significantly during the same period of time. Families with incomes in excess of $10 thousand spent less for medical care in 1950 than in 1929. II. REGIONAL DIFFERENCES IN MEDICAL CARE EXPENDITURES Detailed information concerning local or regional medical costs and consumer expenditures for medical care is limited. Continuing series generally are not compiled 6nifferences in sampling techniques and in defi nitions of aggregates to be measured reduce the signifi cance of comparisons made in Table XXV. Nevertheless an undeniably close correlation exists between income levels and medical care expenditures and is demonstrated in Table XXV. As will be shown in the following pages, this close relationship prevails on the local and regional level as well. 158 on a local or regional basis. Selected studies have surveyed medical costs and expenditures in various regions; however such data are apt to be incomplete and allow only limited comparison. Census data tabulated for the Wharton School of Finance and Commerce do cover detailed characturistics of consumer income and expenditures in selected urban communities during the year 1950;7 in this study tabu lated by the Bureau of Labor Statistics, 91 "representative cities" were selected upon the bases of size and geographic location. Family expenditures for medical care in the 91 representative cities averaged $197 in 1950, according to the data summarized in Table XXVI. However this estimate of family expenditures for medical care is higher than would be evident by adjusting the per capita estimates that are included n Table XXIII. 8 For the 91 cit 7onited State Bureau o Labor Statistics, Stud of Consumer Ex~nditures Incomes and Savin s; Statistical able Urban U.S. -- 1950 . Tabulated by the United States Bureau o Labor Stat·stics for the harton School of F nance and Commerce The Un vers ty o Penns lvania. 19 Volumes {Philadelphia: University of Penns lvania Press, 1956--) assim. 8'rhe average family expenditur for medical care, as indicated in Table XXVI, is $197. hen this figure is divided by the average family size for the 91 city sample (3.1) the result is $63.55, or about 18 per cent higher than the Department of Commerce estimate of $54 for 1950, as shown in Table XXIII. 159 TABLE XX.VI FAMILY DISPOSABLE I?EOME AND TOTAL EXPENDITURE.S FOR MEDICAL CARE PER FAMILY IN 91 REPRESENTATIVE CITIES Location 91 Cities - large Cities 1'orth South West Suburbs North South West Small Cities• North South est . OF THE UNITED STATES -- 19;;0 Number of Families (thousands) 12,489 3.853 1.923 2,192 1.242 503 638 629 443 1.o66 Size of Families 3.1 3.0 3.0 2.8 3.2 3.3 3.1 3.1 3.3 3.0 Family Disposable Income 3,911 3,938 3,514 3,887 4,690 4,124 4,o66 3.666 3.071 3.8~ Family Expenditures for Medical Care 197 197 166 209 227 201 225 175 164 199 Sources United States Bureau of labor Stati tics, Study of Consumer Expenditure, Incomes and Saving11 Stati tical Tables, Urbiii U.S. -- 1950. Tabulated by the United tate Bureau or labor Statistics for ~th,_e ... Wha1.-. rton School ot Finance and Commerce, The University of PennsylTa.nia. Volume VIII. "summary of Family Expenditures for Medical Care and Personal Care" (Philadelphia1 U niversity of Pennsylvania Press, 1956), Table 1-8, P• 3. ~opulation less than 50,000. 160 sample excludes rural low-income families and emphasizes the larger metropolitan areas where family incomes tend to be higher than the national average. A closer examination of the data included in Table XXVI indicates that a per capita medical care expenditure of $56.45 was the average for small cities in the North;9 this compares closely with the national average indicated in Table XXIII. Per capita expenditures for small cities in the South were about 12 per cent lower than the national average, as shown in Table XXIII. Western cities in all three city classifications showed significantly higher medical care expenditures than for the 91 city average. California ¥amilr Income and Medical Care Expenditures Seven California cities were included in the 91 city sample. Table XXVII shows that average family income (after taxes) in the 7 California cities was $4, 079, or approximately 4 per cent higher than the 91 city average as indicated in Table xxvr. 1 ° Family expenditures for 9Per capita estimates may be made by dividing the family estimates by the average family size. 10Accord.1ng to the Seventeenth Census of PoJulation the median family income in Californla {1949)Was3,585, whereas the median family income in the United States was $3,073. This difference of 17 per cent is significantly greater than the difference between the 7 city average for California and the 91 city average for the United States. United States Bureau of the Census, Seventeenth Census of TABLE XXVII FAM ILY DISPOSABLE INCCIIE, EXPENDITURES O N ALL MEDICAL CARE AND PER CENT OF FAMILY IIEOME SPENT FOR MEDICAL CARE IN SELECTED CALIFORNIA. CITIES -- 1950 City Bakersfield Lodi - Los Angele■ San Franoiaoo-C.kland San Jose Santa Cruz All Citiea - California Number of familiea (thousands) 67 49 423 289 117 57 1,002 Family- size 2.7 2.9 2.6 2.7 2.9 . 2.3 2.7 Disposable family income $4,846 3,852 4,185 4,129 3,663 3,141 4.079 Expenditures tor all medical care $243 201 241 235 197 215 231 Per cent of income spent for medical care 5.0J' 5.2 5.a 5.7 5.4 6.8 5.7 Souroe, United State■ Bureau of I&bor ·statiatic■, Study or·consumer ~nditurea Incomes and Savi~•J Statistical Tables, Urban u.s. -- 1950. Tabulated by tlie7Tnited Stat8Sureau of labor Statiatios or the tiliarton School of Finance and COJiineroe, The Uninraity of Pennsylvania. Volume VIII, "Sua,n•:ry ot Family Expenditures tor Medical Care and Peraoml Care" {Philadelphia, University ot Pennayl'vania Pr•••• ..., 1~6), Table 1•8, P• 3. °' .... 162 medical care in the 7 California cities were significantly higher than the average for the 91 city sample; in 6 of the 7 California cities family expenditures for medical care exceeded the 91 city average of $197. While, in line with the 91 city average, families of Bakersfield allotted 5 per cent of their disposable income for the costs of medical care, families in all other California cities included in the sample spent up to 6.8 per cent of their disposable income for medical care. Per capita expenditures for medical care in 7 California cities were appreciably higher than the national average as indicated in Table XXIII, or the average for the 91 city sample as shown in Table XXVI. Table XXVII indicates that per capita expenditures for medical care in the 7 California cities were approximately $81 in 1950, or more than 25 per cent higher than the 91 city average or $63.54, and roughly 50 per cent above the national average as shown in Table XXII I. Family expenditures for medical care were signifi cantly higher in the two leading metropolitan areas of California than for the average 91 city sample. Table XXVII indicates that the families or Los Angeles and the United States: 195Q Population, Vol. II {Washington, D.C.: United States7lovernment Printing Office, 1952). Under tl,000 t1,ooo-1,999 2,000-2.999 3,000-3,999 4,ooo-4,999 5.000-5,999 6,000-1.499 7,500-10,000 Over $10,000 TABLE XXVIII LOS A.NGEIES FAMILY EXPENDITURES F<lt MEDICAL CARE, BY DISPOOABI.B INCOME LEVELS -- 19'j0 Humber or famili•• (thousand.a) 33 55 55 96 71 42 34 22 15 Family 1ize 1.3 1.6 2.3 2.8 2.9 3.4 3.4 3.6 2.7 Disposable family income ·~ 1. 3 2,508 3,530 4,497 5,433 6,748 8,557 14,989 Expenditures for all medical care tl48 225 161 197 243 262 343 473 423 Per cent of income spent for medical care 26.6% 14.6 6.4 5.6 5.4 4.8 5.1 5.5 2.8 Sources United States Bureau ot l&bor Statistic■, Stud! or Conaumer Expenditure■ Incomes and SaTi!!f•J Statiatioal Tables, Urban u.s. - 1<;50. Tabulated by t • United States Bureau of labor Statistioaor the Wiiarton School or Finance and Commerce, The Uniwraity of Pennsylvania. Volume VIII, "suJIIIIJ8,ry ot Family Expenditures for Medical Care and Personal Care" {Philadelphia1 University ot Pezmaylvania Preas, 1S56), Table 3•8, P• 17. ,-, 8i 164 San Francisco- Oakland areas spent $241 and $235 respectively for medical care in 1950. This exceeds the 91 city average by about 20 per cent. The close relationship between the level of disposable income and the level of expenditures for medical care is evident in Tables XVIII and XXIX. As noted in Table XIX, the aggregate consumer expenditures for medical care varied directly with the changes in disposable income. 11 This direct variance is evident on a regional basis as well; for in Table XXVI, it may be noted that family expenditures for medical care are generally higher in those cities in which per capita income is higher. Where families are grouped according to income levels, as in Tables XXVIII and XXIX, the close correlation between consumer expenditures for medical care and income levels is magnified. Los Angeles families with disposable incomes within the range of $2-10 thousand spent from 4.8 to 6.4 per cent of disposable income for medical care. Families within the corresponding income brackets in the San Francisco-Oakland area spent from 4.3 to 6.9 per cent of disposable income for medical care. Expenditures for medical care by families whose incomes are less than $2,000 did not vacy directly with llcr. supra, Chapter V. Under 11.000 1,000-1,999 2.000-2,999 3,000-3,999 4,ooo.J+.999 5,000-5.999 6,000-1.499 7,500-10,000 ()yer t10,ooo TABLE XXIX SAN FRAl1CISCO-OAKIAND FAMILY EXPENDITURES FOR MEDICAL CARE, BY DISPOOABIE INCOME LEVELS -- 1950 Number of famili {thousands) 25 29 38 61 56 37 20 16 7 Diaposabl ,mily size family income 1.4 . ' 614 1.5 1.592 2.7 2,519 2.6 3,556 3.2 4.~3 3.1 5,489 3.2 6,455 3.4 8,340 3.1 14, 9'31 Expenditures for all dioal car $122 84 1?4 239 272 269 366 362 409 Per cent of ino ome spent for edioal care 19. 5.3 6.9 6.7 6.1 4.9 5.7 4.3 2.7 Source: United States Bureau of labor Statistics, Study of Conaumer Experniturea Inccmes and SavingaJ Statistical Tables, Urban U.S. - 19)0. Tabulated by the United States Bureau of labor Statistics tor the Wharton School of Fim.noe am Commerce, The University of Pennsylvania. Volume VIII. "sunmary ot Family Expenditures for Medical Care am PeraoD&l Ca. re" (Philadelphiaa University ot Pennsylvania Presa,..., 1956). Table 3-8, P• 17. $ 166 income. Tables XXVIII and XXIX show relatively high percentages of income spent for medical care by Los Angeles and San Francisco-Oakland families with incomes less than $2 thousand. One reason for this apparent opposition to the trend may be attributed to the high proportion of elderly families in full or semi-retirement in California. The needs for medical care increase sharply with age. In Tables XXX and XXXI, Los Angeles and San Francisco-Oakland families are grouped according to occupation of family heads; however the level of family expend tures for medical care does not show any signifi cant r lat1onsh1p to occupational differences. Those families whose family heads were self-employed did spend a higher portion of their income for medical care than did families in other occupational groupings. Whether this higher level of family expenditures for medical care is r lated to differences in fees charged for persons in the self-employed category, differences in the age composition or the families or differences i n the rates of utilization of medical services by members of families o head is self-employed cannot be determin d by presently available data. Earlier studies of family in ome and expenditures support the contention that the level of expenditures for Ocoupation Self-employed Salaried, professional and ottioiala Clerical and sales Skilled wage-earner, Semi-skilled wage-earners Unakilled wage-earner■ Not gainfully eq,loy.d TABLE DX LOO AlllEIES FUIILY BXPENDITUR&S FCR MEDICAL CARE BY OOCUPATIOH OF FAMILY BEAD -- 1950 Number ot tamilie1 (thousands) 55 58 65 70 61 50 64 Family size 2.8 2.8 2.3 3.0 3.1 2.4 1.9 Expenditures Disposable tor all family inoo• medical oare t5,967 t353 6,221 257 4.106 235 4,373 ~8 4.146 227 2,817 143 1, 7f1S 218 Per cent of income spent for medical care 6.13% 4.56 5.43 5.~ 5.32 4.73 9.9 Sources United States Bureau of IAbor Stathtio■• :tu:7 ot Consu•r !;11J:Jditures Incomes and Sartnr; Statiatioal Tabl••• Urban U.S. -- 1950. Tabulated y he United Stat9aureau of labor Statisticaor the Wiiarton School or Finance and Commeroe. The University ot PennaylYania. Volu11111 VIII, "SuH ... .,ry ot Family Expem.iture1 for Medioal Care and Persom.l Care" (Pb.iladelph1a1 University ot Pennayln.nia Presa,~ 1956), Table 8-8, P• 52. ~ SAN FR.A TABIE :XXXI ND FAMILY nPENDITURES F~ JEDICA.L CARE CUPATION OF FAMILY HEAD -- 1950 Number of amiliea Expemi tures Disposable for all oupation ( thousanda ) Family siz family income medical care Self-employed 31 3.2 15. 700 $352 Salaried, professioral 2.4 5.493 and of'fic ia la 51 250 Clerical and sales 44 2.3 3.670 209 Skilled wage-earners 44 3.4 4,663 242 Semi-skilled wage-earners 32 3.2 3.636 196 Unskilled wa.ge-earners 52 2.5 3.464 241+ Not n.inf'ully employed 35 2.1 2,~ 155 Per cent of income spent for medical care 7.0(f/o 4.69 5-W.i 5.15 5.29 7.62 6.70 Souree1 United States Burea u of labor Statiatios, Study of Consumer Expenditures Incomes and Savings; Statistical Tables, Urban U.S. -- 1950. Tabulated by the United States Bureau of' IAbor Statistics for the Wharton Sohool or Finance and Commei""oe, The University of' Pennsylvania. Volume VIII, "summa~y ot Family Expenditures for lladioal Care ar.d Peraom.1 Care" (Philadelphia: University of Pennsyl'ft.nia. Press, 1956). Table 8-8, P• 52. 1--' 0\ (X> 169 for medical care is closely tied to levels or 1ncome.12 Table XXXII summarizes the findings of the Committee on Costs or Medical Care that concern California.13 In spite of the fact that the median income per family was considerably lower in the survey period 1928-31 than in 1950, expenditures for medical care at various income levels correspond closely to the findings for the 91 city sample. Those California families whose incomes were between $2-3 thousand spent $123 for medical care in the period 1928-31. Los Angeles and San Francisco-Oakland families in the same income bracket spent $161 and $174, respectively.14 As indicated in Table XXXIII, projected family expenditures in Los Angeles and San Francisco-Oakland areas in 1934 add further support to the conclusion that income levels and medical care expenditures are closely related . While Lo Angeles families in the $2-3 thousand income bracket spent an estimated $108 for medical care, San rancisco-Oakland families in the same income bracket 12cr. supra, Table XXV, p. 156. 13Margaret C. Klem, Medical Care and Costs in California Families in Relation to Economic Status--C-San Franc sco: State Relief Administration of California, 1935), p. 109. 14cr. supra, Table XXV, p. 156. TABLE :XXXII CALIFCRNll FAMILY EXPENDITURF,S FCfi MEDICAL CARE BY INCOME IEVELS -- 1928-31* 170 Income Levels Number or families Total Expenditures Expenditures per family Under 1,200 112 9,123 81 1,200-1,999 290 22,214 11 t2,ooo-2,999 248 30,516 123 t3,ooo-4,999 126 21,616 172 15,000-9,999 71 24,461 ~ 10,000 - above 32 20, 7'31 646 All inoomaa 85~· 128,681 150 Source, Margaret c. Klem, dioal C re and Co ta in California Families in Relation to Eoonomlo Status 1San FranoTicoa State Relief' ldminl trition of Caiflornla, 1935), P• 109. ~ased on a sample of 878 white families. **Nineteen family incomes unknown. TABLE XXXIII TOTAL MEDICAL CHAR~ PER FAMILY IN LOS AWEIES AND SAN FRANCISCO-OlKL&.ND, 3 MONTH PERIOD AND PROJECTED ANNUAL TOTAlS -- 1934 171 San Francisco-C.kland Projected Charges tor annual Los Angeles Projected Charges tor annual Inoome Levels 3 months charges 3 months charges Families on relief 5.60 22 4.52 18 Less than 599 9.23 37 9.20 31 oo-$1,199 15.53 62 17.55 70 1.200-1.999 18.60 74 18.69 75 12.000-2.999 38.02 152 26.88 108 13.000 and over 59.66 239 34.99 l4o -- - -- ----- --- ------ Source: rgaret c. Klem. dioal Care nd Coate in California Families in Relation to Economic Status (San FranoTico1 State Relief' Idmin!strition ot Cal!forni, l935), P• 96. 172 spent approximately $152 in 1934, according to Table XXXIII. Family expenditures for medical care in California have been consistently higher than for the nation as a whole. And this higher level of medical care expenditures cannot be fully explained by differences in average incomes. For example, Tables XXVIII and XXIX show family medical care expenditures by income levels for families in Los Angeles and the San Francisco-Oakland area. Average expenditures by these families for medical care are consistently higher than average family expenditures for medical are by corresponding income levels in the 91 city sample illustrated in Table XXVI. Earlier studies of family medical care expenditures by income levels support the conclusion that such expenditures have been consistently higher in California than in other areas of the nation.15 Family Medical Care Expenditures in San Francisco Family expenditures for medical care in the San Francisco-Oakland area was the subject of an intensive analysis by Professor Emily H. Huntington, of the University of California at Berkeley. 16 In the Huntington l5cr. supra, Tables XXV, p. 156; Table XXXII, p. 170; Table XXXIII, p. 171. 16Em1ly H. Huntington, Costs of Medical Care; the Expenditures for Medical Care 9f 455 Families in the San FranciSco Bpy Area, 1247-48 {Berkeley: University of California ress, 1951). 173 study for the Heller Committee, 455 families were selected on the basis or occupation of family head. Only three occupational categories were included in the sample: milk wagon drivers, painters and grocery clerks. Thus the comparability of the Huntington study with other studies is limited. As indicated in Table XXXIV the average family expenditure for medical care in the San Francisco Bay area in 1947-48 was $296.66. This was somewhat higher than the estimate for San Francisco-Oakland families in 1950, where family expenditures for medical care were estimated to be $235. However incomes in the city of San Francisco are appreciably higher than in the city of Oakland. To the extent that the Huntington study includes a greater proportion of San Francisco families than Oakland residents, higher estimates of income and medical care expenditures would be expected. Yet the occupational limitations of the 455 family sample presumably would result in a lower average income and hence a lower estimate of medical care expenditures than would be evident if a more representative sample were analyzed. The relative importance of consumer expenditures for various types of medical services is iilustrated in Table XXXIV. Families in the San Francisco Bay area spent nearly $297 for all medical care during the year 1947-48. 174 TABLE XXXIV TOTAL GROUP EXPENDITURE FCR MEDICAL CARE BY TYPES OF SERVICE, F. ILIF.S REPORTING EACH TYPE OF SERVICE. AND AVERAGE FAMILY EXPENDITURE FOR EACH TYPE OF MEDICAL AND DENTAL SERVICE. 455 FAMILIES IN SAN FRANCISCO BAY AREA, 1~7-48 Families Reporting Type of Service Total Per cent Avera.ge Group of Total Family Type ot Service Expenditures Expenditures Expenditure Total Medical and Dental Expenditure 100.~ 134.980 100.0'/o $296.66 Total Jledical Expenditure 100.0 109,643 81.2 240.89 Physicians a5.1 ~.007 32.6 96.71 Hospital 32.5 13,201 9.8 29.07 Dentists 74.9 25.337 18.8 55.77 All other 9a.5 52,435 38.8 115.~ Source, Emily H. untington, Coat 2£. edical Care; The Expenditure for Medic 1 Care of 455 Families in the San Franoiaco ;1 Area, 1947-8 "{rerkeley1 Univer8ity of Califoriira Press. lS5l). P• • 175 Of this, $29.00, or nearly 10 per cent, was for hospital care;l7 $97.00, or about one-third, was spent for the services of physicians; and about 19 per cent was allotted to the costs or dental care. A re-examination or the data included in Table XX indicates that the relative importance or expenditures for hospital care may be understated in the Huntington study or families in the San Francisco Bay area. Expenditures for hospital care accounted for more than one-fourth of total expenditures for medical care in the United States during the year 1948, according to Table xx.18 Conclusions of the Huntington study are compared to the results of the earlier study by the Committee on the Costs of Medical Care in Table XXXV. Expenditures for hospital care are relatively more important to the total family medical bill according to the earlier study than in the Huntington stud for the Heller Committee. Note that conclusions or the C.C.M.C. study demonstrate a fairly close relationship to those estimates by the Department of Commerce or the relative importance of expenditures for hospital care, as indicated in Table XXXV. 17Excludes insurance benefits covering hospital care. 18Exclusion of hospital insurance benefits may account for the difference. TABLE XXXV COMPARISON OF FAMILY MEDICAL BILL IN HELJ.ER C<lD.!ITTEE AND c.c.M.C. STUDIES 176 Heller Committee Study 1~7~8 c.c.M.C. Study 19'28-31 Amount Per cent Amount Per cent Total Pa.mily Expenditures on Medical Care 296.66 100.0% 108.14 100.(1.( Hospitals 29.01 9.a 14.09 13.0 Physicians 96.72 32.6 43.05 39.a Dentists 55.69 18.8 19.9a 18.5 Prepayment premiuma 23.27 7.8 ( ( ( 31.~ ( 2a.7 All other 91.97 31.0 ( ( Sources Emily H. Huntington, Coats or dical CareJ The Expenditures tor dical Care of 455 Famili a in the San Fn.ncisoo ¥3~ Area. 1947.Ji.8 (Berkele11 Univerity ot Californfa Pre 1, 1951). P• • 177 Tables XX.XVI and XXXVII indicate the need for caution in placing too much emphasis on median or average expenditures for medical care. While the average family included in the San Francisco Bay area spent nearly $297 for medical care, the range extended from zero to more than $1,500. More than 16 per cent of the families included in the sample incurred medical care expenditures of less than $50; one-tenth of the families studied spent in excess of $500 for medical care during the year 1947-48. III. SIGNIFICANT CHANGES IN THE COSTS OF AND EXPENDITURES FOR DICAL CARE Chapters V and VI have analyzed levels and trends in the costs of, and expenditures for med cal care in the United States and in California during recent decades. A careful review of the data surve ed in these chapters reveals certain significant trend an developments regarding the consumer costs of medical care. One obvious conclusion dra s a tention to the fact that the overall level of medical costs, charges and expenditures for medical care has increased substantiall during the last 25 years. hether easured in aggregate or individual terms med cal costs and expenditures for medical care have increased sharply during this period or time. 178 TABLE XXXVI RANGE OF FAMILY EXPENDITURES FCli MEDICAL CARE IN SAN FRANCISCO, 1547-48 Total ily expenditure for medical care Total Less than 50.00 50-99 100-199 200-299 300-399 oo-499 500-599 Oo-699 100-999 1,000-1,499 1,500 and OTer Number ot families 455 75 81 107 66 47 28 21 13 1 4 6 Per cent of total families 100.~ 16.5 17. a 23 .5 14.5 10.3 6.2 4.6 2.9 1.5 0.9 1.3 Souroea ily H. Huntington, Cost or dical CareJ The Expenditures for dioal C re of 455 Families inthe an Francisoo,!!z Area, ~7-48 {Berkeleya Univer ity ot California Press, 1951) , P• 22 . TABLE XX:X.VII RAIGE OF EXPENDITURES FOR MEDICAL CARE AS A PERCENTA.GE OF FAMILY INCOME -- JULY 1952 - JULY 1953 Total No outlay for health Some outlay for health Per cent of family income Under 5 per cent 5 - 9 per cent 10 - 19 per cent 20 - 49 per oent 50 - 99 per cent 100 per cent and over Per cent or family income unknown dian per oent for total outlay for health a a percentage of family income ■ 4.1 per cent lfumber of families 2,809 131 2,678 1,492 624 333 132 31 16 50 Per cent or f'a.miliea loo' 5 95 53 22 12 5 1 1 2 179 Sources Odin • Anderaon, tional Family S velor dical Costs arid Voluntart Health Insurance, Preliminary Report""'TNeY Yorka Heal' h Information oundation, 1~). P• 46. 180 Several factors have influenced the increase in the charges and expenditures for medical care. One influence is the trends in population and population growth rates. As the size of the nation's population increases, its demand for medical services shows a similar increase. Another factor is aggregate and per capita income. The level of consumer expenditures for medical care shows a very close correlation with income levels. Aggregate income (i.e., disposable personal income) of consumers has risen in direct relation to the rise in consumer expenditures for medical care during the years 1929-56. Per capita and per family incomes and expenditures for medical care are closely correlated. Regional differences in individual incomes and consumer expenditures for medical care are closely related. Although individual incomes and expenditures for medical care in California evidence an equally close relationship as is indicated for the nation, the amount or income spent for medical care is higher in California. Medical and especially hospital costs in California are higher than in any other region or state in the nation. Income is not the sole influence upon the levels of consumer expenditures for medical care. Since 1929 many significant internal changes in the field of medicine have taken place. The overall quality of medical services 181 has risen substantially. Changes in techniques, in degrees of specialization and division or labor are also evident. Changes in the supply of human and material resources have accompanied the secular rise in medical costs and charges, and in the consumer expenditures for medical care. Exogenous factors have affected the costs of, charges and expenditures for medical care. Inflationary pressures , competing demands for medical resources and indirect subsidization or a portion of the costs of medical care for particular groups have influenced the consumer's medical care bill. A change is evident in the relative importance of expenditures for particular types of medical services. Expenditures for hospital care have increased r lative to expenditures for other medical services. Charges for hospital services have increased relative to unit charges for other medical services. Expenditures for dental care have declined in importance relative to expenditures for other types of medical care expenditures. One important influence on the costs of, charges and expenditures for medical care is the manner of their financing. Insurance and prepayment financing devices undoubtedly have had important affects upon the costs of and charges for medical care. The extent of their influence is examined in detail in the following chapter. CHAPTER VII MEDICAL CHARGES AND INSURANCE COVERAGE Levels and trends in costs of and expenditures for medical care have been analyzed in the two preceding chapters. The present chapter relates the levels and trends in medical costs and charges to the presence of health insurance coverage. Basically the question in the present chapter is "to what extent does the consumer pay for his costs of medical care through the medium of insurance or prepayment?" This chapter considers the extent of medical costs and charges covered by insurance; also consideration is given to the effects of insurance coverage on the costs of medical care and the utilization of medical services. I. MEASURING INSURANCE COVERAGE Three general methods of measuring health insurance coverage are evident . One deals with the number of persons covered by insurance . Another approach compares total consumer expenditures for medical care with levels and trends in health insurance benefits. A third method of measuring health insurance coverage examines the extent or coverage of various types of medical, surgical and hospital procedures. 183 Levels and trends in the number of persons covered by health insurance have been treated in Chapter II. 1 But estimates of numbers covered indicate the numbers "reached" but not necessarily "covered" by health insurance. 2 The extent or insurance and prepayment coverage of medical charges may not be known simply from an examination of the number or persons having some form or health insurance coverage. In this chapter two measures of insurance coverage are utilized: (1) the per cent of total medical charges covered by insurance and (2) the differences in coverage of charges for particular services. In either case comparisons are made on the bases of income and age as well as regional differences. Unless other i estated consumer expend tures for health insurance a.re in.eluded in the total consumer expend tures for edical care The ,.net costs o nsurance" is understood to mean the dif erence bet een gross premiums paid the insurance benefits received. 1 cr. supra pp. 31-34. 2 ichael • Davis, Med cal Care for Tomorrow ( e York: Harper and Brothers . Publishers 1955) p. 252. 184 II. INSURANCE COVERAGE OF MEDICAL CHARGES Consumers spent more than $11 billion in 1955 for their medical care. More than one~fourth of these expenditures were through the medium of health insurance. As indicated in Table XXXVIII more than 28 per cent of aggregate consumer expenditures for medical care was in the form of gross premiums paid for health insurance coverage in 1953.3 When compared to the preceding year the proportion of health insurance to total consumer expenditures for medical care increased by approximately 7 per cent. Twenty-six per cent of total consumer expenditures for medical care was in the form of gross health insurance premiums, during the year 1954. Health insurance coverage is particularly important in connection with the provision for the costs of hospital c re . For instance, as ndicated in Table XXXVIII consumers' total expenditures for hospital care (including net costs or hospital insurance) was $3.7 billion in 1955; o this about 54 per cent was spent for hospital insurance. In ranee benefits covered 50 per cent of hospital charges nd 45 per cent or aggregate consumer expenditures for hospital care in 1955. 3As the net cost of health insurance is equal to the difference between gross premiums paid and benefits received a calculation of gross premiums paid may be made b umming net costs of insurance and insurance benefits. TABLE XXXVIII CO OMER EXPENDITURES FOR MEDICAL CARE AND HEALTH INSURANCE, INSURANCE BENEFIT , TYPES OF EXPENDITURE AND BENE ITS -- 1954-55 1954 185 1955 Expenditures Amount Per cent Amount P r oent (millions of dol rs) Tot 1 10,476 100.()'fo 11,198 100.{)'fo Direct nd third-party exp nditures 9,899 .5 10,584 .5 Hospit 1 s rvioe 3,038 29.0 3,365 30.1 Direot 1,596 15.2 1,686 15.1 Insur nee b n fit 1,442 13.a 1,679 15.0 Phy ioi na' ervices 2,966 28.3 3,123 27.9 Direot 2,229 21.3 2,266 20.2 Insurance benefits 737 7.0 85,.,. 7.7 Denti ts 975 9.3 1,017 9.1 Other profes ional rvices 583 5.6 610 5.4 dicine nd ppli ce 2,197 21.0 2,319 20.7 r in hom 140 1.3 150 1.3 Expenditure for obt 1nin prep yment i ur nee 577 5.5 614 5.5 of o pit 1 servic s 325 3.1 339 3.0 of phy ioi ns' ervic 252 2 275 2.5 ource: • re tr, Privat enditures or edic l Care nd th Growth in Volun ry Health Ins e Protection, 1954-55, Unit d tate ooial eourity Admini tration, Divi on of Pro m Re rch, ote o. 53, o mb r 6, 1956. Publi hed n Public Halt conomios, Vol. 14, o. 2, bruary 1957, P• 105. •rnol s pprox t ly 500,000 in benefit for dent 1 care. 186 In the preceding year, 1954, consumers' total hospital care bill amounted to $3.4 billion (including net costs or hospital insurance) according to Table XXXVIII. Consumers' gross costs of hospital insurance coverage were equal to more than half of consumers' total hospital care bill in 1954. As compared with aggregate consumer expenditures for hospital care in 1954, hospital insurance benefits amounted to 43 per cent or the total. The extent of insurance coverage or physicians' services is less than insurance coverage of hospital costs . or the $3.4 billion spent for physicians' services n 1955 (including net costs of insurance) one-third was in the orm of gross premiums for insurance coverage. Insurance benefits covered only 25 per cent of total cons e r expenditures for physicians' services in 1955 ccording to Table XXXVIII. In 1954 consumers' total pen tures for physicians' services (including net costs of insurance) equaled 3.2 billion; of this, slightly less than 1 billion, or 31 per cent, was spent for insurance coverage . Insurance benefits covered only 23 per cent or consumers' total expenditures for physicians' services in 1954 according to Table XXXVIII Data included in Table XXXVIII indicat that consumers' total expenditures for health insurance was 3,150 million in 1955. or this, hospital insurance 187 accounted for 64 per cent, and virtually all of the remaining 36 per cent was for insurance coverage of physicians' services. Insurance coverage of expenditures for other medical goods and services was insignificant. A study of the figures for 1954 i ndicates little change in the relati ve importance of hospital to other forms of health insurance during the years 1954-55. Per Capita Costs and Coverage Aggregate consumer expenditures for medical care increased $722 million during the years 1954-55 according to Table XX.XIX. The rel tive increase in total expendi tures as about 7 per cent. On per capita basis consumer expenditures for medical to 69.00 during the ears 1954-55 ncreased or an rom 5.85 ncrease of 5 per cent as shown in Table • Per capita expenditures for health increased from 17.33 n 1 54 to 19.41 ng to Table XX.XIX . The relat ve ncre nsurance n 1955 ccord e as 12 per cent or more than t ice the rte of increase in per c pita expenditures for all medical care. Per c pita nsurance benefits ncreased from 13.70 to 15. 63 durin the period 1954 -55 . Here the relative ncrease s more than 14 per cent . Per capita net costs of health i nsurance 4rncludes net costs of insur nee. TABLE XXXIX . PER CAPITA EXPENDITURES FOR MEDICAL CA.RE, PER CENT INCREASE IN EXPENDITURES FOR MEDICAL CARE AND HEALTH INSURANCE, 1954-55 • ~ 13 i I s ::s 0 d I ,.. ,-f = ~ 8 ~ .... ,-f ~ ..... !i IS tr\ 0 tr\ a s.. tr\ ~~ ., ~ ~ ~,!i~ ., . 0 p..,-t Jl.,-4 "' s..,... .... t) r-4 ,... ~ as ~ CIS I r-4 0 0 I 0 s.. r-ti ,-f ... ~~ 8,-t ~ ... ... H .g r4'-' e '2 ~ ., e ii. ..-4 ,... ii.. ~ Total edioal oare bill 6.9'/o tt,5.85 9.00 Direct payments by oonaumers 328 31 48.53 49.59 Insurance benefits 357 16 13.70 15.63 Costs of purchasing health insurance 37 6.4 3.63 3.78 Hospital service 341 10.a 21.13 22.a3 Direot payments by consumers 90 5.6 10.03 10.39 Inaurano benetita 237 16.4 9.06 10.35 Cost of purchasing ho pital iDSu. ra:oce l4 4.3 2.CXI, 2.09 Phy ioians' . ervices 178 5.3 20.22 20.93 Direot payments by consumer 37 1.7 ]4.01 13.96 Insurance benefits 120 16.3 4.63 5.2a Cost of purchasing inauranoe for physioiana 1 ervioes 23 9.1 1.5a 1.69 11 other items 201 5.2 24.50 25.24 188 1::1 .... ~ • ::s ~o 1! ~ Lt\ o IS~ .µ ,-f "M ..-4 I -~ 0 0 ,... ... ,.. £ 8. 4.a( 2.2 l.4.1 4.1 8.o 3.6 ]4.2 2.5 3.5 o.4 14.o 7.0 3.1 Source: Agnes • Brewster. "Private Expenditures for Medical Care and the Growth in Voluntary Health Insuranoe Protection. 1954-55." United States ocial Security Administration. Division of Program Researoh. Note No. 53, November 6. 1956. Published in Public Health Economics. Vol. 14, No. 2, February 1957, P• l()lj. 189 increased 4 per cent from 1954 to 1955, as indicated by Table XXXIX. Most of the increase in insurance coverage of medical costs evidently was in the form of hospital insurance. As indicated in Table XXXIX, hospital benefits increased $237 million during the years 1954 55. The relative increase was more than 16 per cent. On a per capita basis the increase in hospital insurance benefits was from $9.06 in 1954 to $10.35 in 1955 or a relative increase of 14 per cent. At the same time total expendi tures for hospital insurance increased 6 per cenL-from $11.10 in 1954 to $12.44 in 1955. Insurance benefits covering physicians' services increased by 16 per cent in the years 1954-55, according to Table XXXIX. Per capita expenditures for insurance coverage of physicians' services increased from $6.21 in 1954 to $6 .97 in 1955. During the same period of time insurance benefits covering physicians' services increased from $4 .63 in 1954 to $5.28 in 1955. The relative increase in insurance benefits cover ing physicians' services was nearly the same as that increase covering the costs or hospital care as indicated in Table XXXIX. However the total costs of hospital insurance increased by $251 million during the years 1954-55 while total costs of insurance covering 190 physicians' services increased by $143 million. Table XL emphasizes the relative importance or insurance costs and coverage from the standpoint of consumer expenditures for medical care. Per capita expenditures for medical care equaled $69.00 in 1955. Of this, $49.68, or 72 per cent, was spent directly for medical care. Indirect expenditures through the medium of health insurance amounted to $19.32 per capita, or 28 per cent of total per capita expenditures for medical care. More than 9 per cent of per capita expenditures for hospital care was for the overhead costs of insurance. The overhead costs of insurance was equivalent to 8 per cent of per capita expenditures for physicians' services. Insurance coverage of other per capita medical charges was insignificant, as indicated in Tables XXXVIII, XXXIX and especially XL. Family Medical Costs and Covera e As indicated by the survey or medical costs and insurance coverage by Odin W. Anderson 5 mor than 9 out of ever 10 fa.m111e incurred some medical charges during the survey year ending July, 1953. Data concerning this survey are included in Table XLI. Less than one-fourth ::Odin W. Anderson, National Fam~ly Surve of Medical Costs and Voluntari Health Insurance. Preliminary Report (New York: Health nformation Foundation, 1954), n.b. p 48. frhe survey was conducted by the National Opinion Research Center, University of ChicagoJ TABLE XL PER CAPITA EXPENDITURES FOR MEDICAL CARE IN THE UNITED STATES, BY TYPE OF EXPENDITURE, NET COSTS OF HEALTH INSURANCE, EXTENT OF HEALTH INSURANCE BENEFITS -- 1955 191 Amount Per cent Total expenditures for medical care A.mount from direct consumer payments Amount through insurance Insurance benefits Net costs of insurance Hospital care Net costs of hospital insurance Physicians' services Net costs of medical and surgical insurance Dentists• services All other $69.00 1~ 49.68 72 19.32 28 15.52 22.5 3.ao 5.5 20.74 2.09 22.83 19.24 1.69 20.93 6.27 1a.73 Source I Agnes • Brewster, "Pri n.te Expenditures for edioa.l Care and the Growth in Voluntary Health Insurance Protection, 1954-55," United States Social Security Administration, Division of Program Research, Bote Bo. 53, November 6, 1956. Published in Public Health Economics, Vol. 14, No. 2, February 1957, P• 103. TABLE XLI RECEIPT OF VOLUNTARY HEALTH INSURANCE BENEFITS TO COVER GROSS MEDICAL CHARGES -- JOLY 1952-JULY 1953 192 Number or families Per cent of families Total Total incurring gross charges No insurance benefits received Some insurance benefits received Per cent covered Under 20'fo 20 - 3~ 4o - 59'/o 60 - 79% 80 - 99'fo Per cent covered unkno n dian per cent of' ros s charges covered by insurance : 32 per cent 2.809 2.582 1.960 602 172 170 121 60 44 35 lOO'fo lOO'fa 77 23 lOO'fa 29 28 20 10 1 6 Souroea Odin • Anderson. tional Family {~ of dioal Coats and Voluntarr Health Inaura110e. Prellmlm.ry Report ffYorka Health Informat on Foundation, 1954). P• 47. 193 of the families incurring some medical charges received any health insurance benefits; approximately 77 per cent of the families reported receiving no health insurance benefits. Of the 2,809 families included in the Anderson survey only 602 families reported r ceiving any health insurance benefits during the year ending in July, 1953. The median per cent of medical charges covered by insurance as 32 per cent for those families r ceiving insurance benefits as indicated in Table XLI. Only 13 per cent of those familie receiving health insurance benefits repor ed insurance benefits covering more than 60 per cent or their oss premium charg s. One o th reason for hat appear to be a low lev 1 o in urance cov a e illus rated in Table XL is that at present health insurance does not generally cover e pendi ur s for r gular edical car dru dental char ew and xpendi tures for edical appliances. Th nclusion of thes various char es in the co parison 1th insurance coverage tends to conve an 1 r ssion of an nadequate or lo level of in urance coverage of cal car. By d1st1ngu1shin bet een ar ou types of h alth insuranc ~ a clearer understanding may be gained as to th extent and "qualiu" of insurance coverage. For example, 1n Table XLII a comparison is made between hospital charges incurred and hospital insurance benefits received by families included in the Anderson survey. Note that approximately one-fourth of the 2,809 families incurred some hospital charges during the year ending 1n July, 1953. More than 60 per cent of these families incurring hospital charges received some hospital insurance benefits. Of the 442 families incurring hospital charges and receiving some hospital insurance benefits, more than three-fifths received insurance benefits in excess of 80 per cent of their total hospital charges. The median per cent of hospital charges covered by hospital insurance a 89 per cent, according to Table XLII. However the comparison between insurance benefits received and charges incurred does not give a complete picture of the extent of insurance coverage. For the number receiving hospital insurance benefits is not the equivalent of the number having some form of hospital insurance. Presumably some of those families incurring hospital charges and having some form of hospital in uranc did not receive insurance benefits. Such data not given in the Anderson study. or the 2,809 families surveyed in the Anderson study 14 per cent, or 386 families incurred some gross TABLE XLII RECEIPT OF HOSPITAL INSURANCE BENEFITS TO COVER GROSS HOSPITAL CHARGES, JULY 1952-JULY 1953 195 Number of families Per cent of families Total Humber of families not incurring ho pital charges Humber of familie incurring hospital charges Ko hospital insurance benefits received Some hospital inauranoe benefits received Per cent of gros hospital charges covered Under 2~ 20 - 39'fo 4o - 59' 60 - 191/o 80'fo or more Per cent covered unknown dian per cent of gross hospital char s covered by hospital in urance = 89'! 2.ao9 loo% 2,086 74 723 26 10~ 281 100 39 16 61 100,( 8 2 27 6 ~ 10 91 21 263 59 1 2 Source, Odin • Merson, Natioml Fa.mill SurveL of Jledical Costs am Voluntarr Health Insurance, Preliminary Report C WY0rk1 Health Intormat on Foundation. i954). P• 48. 196 surgical charges during the year ending in July, 1953. or these, little more than half received some form of surgical insurance benefits. As indicated in Table XLIII the median per cent of gross surgical charges covered by insurance was 75 per cent. This applied only to those 201 families incurring some gross surgical charges and receiving some insurance benefits. Nearly half or these families had four-fifths or more or their surgical bill covered by insurance. Judging from the results of the Anderson survey hospital and surgical insurance is comprehensive for a substantial portion of those insured families incurring some hospital and/or surgical charges. Room for expansion and improvement in insurance coverage is evident with respect to the variety of procedures covered as well as to the numbers having comprehensive coverage. Costs and Coverage in California The average urban family expenditure for medical care in 1950 was $197, according to the Wharton School Study.6 or this $33.50 was spent for health 1nsurance.7 6united States Bureau of Labor Statistics Study of Consumer ex~nditures Incomes and Savings; Statistical Tables Urban U.S. -- 1950. Tabulated by the United States Bureau of Labor Statistics for the Wharton School or Finance and Commerce, University of Pennsylvania. Volume VIII "Summarr. of Family Expenditures for Medical Care and Personal Care' (Philadelphia: University or Pennsylvania Press, 1956) p. 3. cf. supra, Table XXV, p. 156. 7Idem TABLE XLIII RECEIPT OF HOSPITAL, SURGICAL OR MEDICAL INSURANCE BENEFITS TO COVER GROSS SURGICAL CHARGts - JULY 1952 - JULY 1953 197 Number or families Per cent ot families Total Number of :families not incurring gross surgical charges Number of families incurring some gross surgical charges No insurance benefits received Some insurano benefits received Per cent of gros urgical charges covered Under 2(1/4 20 - 3~ 4o - 59,( 60 - 79'fa 80'fa or more Per cent covered un n Median per cent or gross surgical char s covered by insurance : 75 per cent 2,809 1~ 2.423 86 386 14 1~ 185 1 50 201 1 50 1 3 26 13 31 18 33 16 90 45 8 4 Source, Odin w. A:ader on, Na.tiona.l Famill Sur(l of Medical Coats a:ad Volu tf Health Insurance, Prelfiiilmry Report NffYork1 Health fnl'ormat on Foundation. 1954), P• 49. 198 Approximately 5 per cent of those urban families included in the 91 city sample had some form or health insurance.8 Families in the 7 California cities included in the 91 city sample spent substantially more for their medical care but allocated a smaller fraction of their medical care dollar to the purchase or health insurance, according to Table XLIV. Table XLIV indicates that slightly more than half of those California families included in the 91 city sample were covered by some form of health insurance. From the standpoint of numbers covered, a direct relationship 18 evident between the per cent or families having some form of health insurance and the size of the city surveyed. A similar pattern exists as to the average f&mily expenditure for health insurance. While 60 per cent or the families in the San Francisco-Oakland area had some form of health nsurance in the smaller cities such as Santa Cruz and Lodi, the per cent of families with some health insurance coverage was 32 and 39 per cent, respectively. During the year 1950 the average family in the 7 California cities spent $31 for health insurance. This was slightly more than the average for families in the Los Angeles area ($29) and somewhat less than in the 8rdem 199 TABLE XLIV FAMILY EXPENDITURES FOR MEDICAL CARE, EXPENDITURES FOR HEALTH INSURANCE, PER CENT OF FAMILY DISPOSABLE INCOME SPENT FOR MEDICAL CARE, PER CENT OF FAMILIES COVERED BY HEALTH INSURANCE -- SEVEN CALIFORNIA CIT~, 1950 Average Expenditures tort Per cent ota Families All Health Income spent with health medical insurance for medical insurance City care coverage care coverage Seven cities of California 231 31 5. 7/4 51% Bakersfi ld 24; 33 5.0 45 Lodi 201 22 5.2 39 Loa Angeles 241 29 5.a 51 San Francisco - C».kland 235 39 5.7 6o San Jose 197 23 5.4 45 Santa Cruz 215 28 6.8 32 Sources United States Bureau of Labor Statistics, Study or Consumer ~HJditures Inoome Dd Savinfi!!J Statistical Table • Urban U.S. -- o. Tabulated by the United States ureau or labor tati1tio1 tor the Wharton School of Finance and Commeroe, niversity or Pennsylvania. Volume VIII, "sUJDDll,ry of Family Expenditures for dical Care and Peraom.l Care" (Philadelphia.s University of Pennsylvania Presa, 19'56), Table 1-B, P• 3. or. supra P• , Table XXV. 200 San Francisco-Oakland area. The smaller cities (e.g., Lodi and Santa Cruz) showed average family expenditures for health insurance considerably lower than the averages for the 7 cities of California as a whole. The per cent of income spent for medical care in these cities, however, was more in Santa Cruz than for the 7 city average and somewhat less in Lodi than the statewide 7 city average. Income Levels and Insurance Coverage The extent of insurance coverage and the amount or income allocated for the purchase of health insurance coverage varies from region to region, bet een inco e levels and with different age brackets. Table XLV indicates that the per cent of families covered by health insurance increased in the Los Angeles area from 12 per cent for those families 1th incomes of less than 1,000 to 71 per cent for those families 1th incomes bet een $5 000-6,000. Above the 7,500 level n Los Angeles the portion or families covered tend d to ecline. At he same time, accordin to Table XLV, average family expendi tures for health insurance coverage increased substantially with increases in 1nco e. Those 1th incomes less than 1 000 spent on the average 3.00 per family for health insurance coverage her as those hoe incomes exceeded $10 000 spent $80 for health insurance coverage. Generally the amount spent for health insurance 201 TABLE XLV F. ILY EXPENDITURES FOR MEDICAL CARE, EXPENDITURES FOR HEALTH I SURANCE, PER CENT OF INCOME SPENT OR DICAL CARE, PER CENT OF FAMILIES ITH SOME HEALTH INSURANCE COVERAGE, BY INCOME LEVELS, FAMILIES IN LOS ANGELES AND SAN FRANCISCO-OAKIAND -- 1950 Aver ge expenditur for: Per cent of 1 Family Families All Health income spent covered medic 1 insurance for health by health Income Level car coverag insur nee insurance Lo An lea Under 1,000 148 3 26.6% 1 0 1,000 - 1,999 225 11 14.6 24 2,000 - 2,999 161 13 6.4 4o 3,000 - 3.999 197 29 5.6 56 ,ooo - 4,999 243 lt 5.4 59 5,000 - 5,999 262 4.8 71 ,ooo - 7,499 343 43 5.1 76 7.500 - 10,000 473 55 5.5 64 r 10,000 423 80 2.8 67 n a. i oo- 1 nd ruler 1,000 122 2 19. 9'fo ~ 1,000 - 1,999 84 15 5.3 34 2,000 - 2,999 174 24 6.9 58 .ooo - ,.999 239 41 6.7 67 ,000 - , 999 272 45 6.1 68 5,000 - 5,999 269 47 4.9 68 6,000 - 7,499 366 60 5.7 70 7,500 - 10,000 362 79 4.3 r 10 , 0 4o e4 2 7 re : Uni tat s of labor ts.ti tic , -...--.. er Inco ~---~~"'!!""; 1 Table ~....-.- __ - "P'WIII~~----. ted b of labor for on chool of Fi e and Commerce, Univ r ity of Pennsyl ni. Vol VIII, ~-u.u.Jftl//1/i_ry of ly -~-.-nditur for dical Care and Pero 1 Car '(Phil d lphias UniTer ity of Pennsylvania Pre , 1936), T ble 3• , P• 17. cf. upra PP• 167-8, T bl XXVIII and XXDC. 202 and the proportion or total medical care expenditures so allocated varied directly with income, as illustrated in Table XLV. For instance, those families in Los Angeles with incomes between $2,000-3,000 spent $13 for health insurance coverage. This was approximately 8 per cent of their total expenditures for medical care. Families whose incomes ranged from $6,000-7,500 spent $43 for health insurance coverage, or more than 12 per cent of their total medical care expenditures. Families whose incomes exceeded $10,000 allocated about 19 per cent of their total expenditures for medical care for health insurance coverage. A similar pattern may be noted from the examination of family expenditures by income levels in the San Francisco -Oakland area. The per cent of families covered by health insurance increased from 8 per cent of families with incomes of less than $1,000 to 94 per cent of f 111es whose incomes ranged between $7,500-10,000 . The proportion of families whose incomes exceeded $10,000 as slightly less than for those covered whose incomes were less than $10 000. Those families whose incomes ranged from $2,000- 3,000 spent $24 per family for health insurance coverage, according to Table XLV. This is equivalent to nearly 14 per cent of their total expenditures for medical care. 203 Families whose incomes ranged from $6,000-7,500 spent $60 for insurance coverage, or approximately 16 per cent of their total expenditures for medical care. If allowance is made for the fact that only a p0rtion of the total population included in the Los Angeles and San Francisco-Oakland samples were covered by health insurance, average family expenditure for health insurance by those families covered by some form of insurance may be discerned .9 For instance, families hose incomes ranged from 2,000-3 000 spent on the average 161 per family for medic 1 care. Thos families covered by health insurance spent approximately 30 per family for the net co ts of such coverage. In Los n eles famil es in the 4 000-5 000 inco e brae et spent an a erage of 2 3 for 11 medical c re in 1950. I sured milies in this income br cket spent 61 per a 1ly for health insurance.lo Insured f ilies in he 6 000-7,500 income bracket spent 57 per f ly for health insur nee covera e. A si ilar pattern ay be discerned 1th r spect to the San ncisco-Oa land fa ilies include in th s ple The typical n ure famil hoe income ran ed fro 2 000-3 000 spent approxi ately 1 for health insur nee 9The calculation of average family expenditures for health insurance is ade by dividing the average family expenditure for health insurance covera e by the per cent of families covered by health insurance. 10 et costs of insur nee. 204 coverage. Those insured families whose incomes ranged from $4 000-5,000 spent approximately $66 per family for health insurance coverage. And families with health insurance whose incomes ranged from $6 000-7,500 spent $86 per family for health insurance coverage. Note that the amount spent for health insurance coverage increases in direct relation to income levels. At the same time the amount of families covered by health insurance varies directly with income. Age Levels and Insurance Coverage Another i portant variable influencing the level of consumer expenditures for medical care, for health insurance, and the per cent of families covered by health insurance is age. In Table XLVI an analysis is made of expend tures for medical care and for health insurance by familie s according to age of family head. Note that for the 49 cities included in the sample for the United States, average family expenditures for medical care increased from 143 for those families whose family head was less than 25 years of age to a top level of $223 for those fa lies whose head was between 45 and 55 years of age. Thereafter the average expenditure for medical care declined with increases in age of family head. This relationship between age and level of average family expenditures for medical care may be noted also in TABI.B XLVI FUILY EXPENDITURES FOR M EDICAL CA.RE, EXPENDI'l'URES FOR HEALTH INSURANCE., PER CENT OF FAMIL~ COVERED BY HEALTH INSURANCE., BY AGE OF FAMILY HEAD, 49 REPRESENTATIVE CIT~ OF THE UNITED STATES, 4 CIT:rJS OF CAT.I FORNll, AND LOS AlltELES -- 1950 Anrage Family Expenditures Fors Per cent of Familie1 Medical Care Health Insurance Covered by Insurance q d ci ~.i:- t-4 B. .i:- 0 S- a..i:- 0 t-4 a. .s:- 0 .. ~ ,. .i:- 0 ..., .. ct'° ..., a ct'° .... • ct-'° ..,. 0 Cl ~o Cl ..,. 0 Cl ~~ ► ~o ~ .... ► ,:l,C"'l ..., ..,. ► ~o n of income spent for medical care is higher for families in California than for urban f mil1es in the United States as a whole. Income 1s a primary factor influe cing the level of consumer expenditures for medical care. Changes in techniques and in the organization of medical services have influenced the level of medical charges. Changes in th suppl of human and material resources engaged in the field of medicine have accompanied a sign ficant increase n medical costs and charges, and in the level of consumer p n itures for medical care. Exo enous factors have affected the costs of medical care. Inflationary pre sures, competing demands for medical resources and indirect subsidization or a portion of the costs of medical care for particular groups 279 have influenced the consumer's medical care bill. Substantial increases in the costs of and expenditures for medical care have accompanied a dramatic expansion in health insurance and prepayment methods or financing medical care. Still the extent of insurance or prepayment coverage or the consumer's medical bill is decidedly limited; less than one-fourth of consumer expenditures for medical care are directed through the medium or insurance and prepayment. Insurance and prepayment coverage varies widely with differences in the type or medical services. Nearly one-half of hospital charges are financed through insurance and prepayment. About one-third of the charges for physicians' and surgeons' services are covered by insurance or prep~yment; coverage of other forms or medical services is negligible. Those families with insurance or prepayment who incurred expenditures for hospital and/or surgical care had more than three-fourths of such expenses covered by insurance. Per capit expenditures for health insurance and prepayment are increasing relative to total expenditures for medical care. This is a reflection or the continued increase in the number of persons covered by insurance as well as in the scope or coverage. Still the scope of 280 health insurance coverage is limited largely to the expenses or hospital and surgical care. Expansion in the scope of coverage has taken place primarily in these two fields; coverage or other types of medical care awaits developments or the future. The incidence or illness and th~ level of medical charges are directly associated with the presence or insurance coverage. Significantly higher family expendi tures for medical care are evident in the presence of insurance coverage than in the absence or such coverage. Also, utilization rates for hospital and surgical services are considerably higher for insured families than for those without health insurance coverage. However available statistical evidence does not support the contention that the presence of insurance is the principal cause of increases in reported illness and in expenditures fo medical care. Other variables such as income, age and geographic location are also directly associated with the incidence of reported illness, the level of medical charges as well as with the pres n of insurance. In addition, the data concerned d not show differences in qualit of care received, differences in health status or other possible differences between the insured and non-insured groups. Hence the inflationary affect of health insurance is not easily discerned. 281 Insurance and prepayment plans vary with respect to their scope of coverage or the in,ured's medical costs. As previously stated, prepayment plans have an effective advantage over commercial insurance plans in their ability to limit the range or costs not covered by prepayment. For the most part prepayment plans emphasize coverage or physicians' and surgeons' services, plus ancillary services connected therewith. Except for the relatively large prepayment plans, such as those affiliated with the Kaiser Foundation, coverage of hospital services is not an integral part of prepayment plans. In this respect health insurance and prepayment plans provide complementary rather than competitive coverage. Prepayment plans have one other inherent advantage over insurance plans. While insurance tends to be associated with increases in total medical charges, pre payment holds promise of effecting a reduction in medical charges to the consumer. Offsetting characteristics are the limits to the patient's choice of physician and other medical services as well as the rather provincial character of the prepayment plans. Their geographical area of practical operations is decidedly limited. · A n insurance contract is two-party and does not directly involve particular suppliers of medical services; the geographical area of potential insurance coverage is , 282 considerably greater than in the case of prepayment. Insurance plans differ most fundamentally on the basis of whether the insurance is sold on a group or individual basis. Group plans generally provide broader coverage at lower premiums than that provided by individual insurance plans. In the latter case, overhead expense generally exceeds 50 per cent of gross premiums as compared to less than 20 per cent in the case of group plans. Wide variations in the scope and nature of medical expense coverage provided by insurance and prepayment do not imply corresponding differences in the value of such coverage from the standpoint of the consumer. Differences in individual and group health insurance plans are explained in part by the correspondingly wide range in actuarial characteristics. Group plans generally involve the employed population; hence the age composition of such groups would be more favorable with respect to health risks than for the general population. Persons antici pating illness or medication would be those most prone to seek individual insurance coverage. Other factors contribute to the wide difference in actuarial charac teristics evident between those covered by individual and group health insurance Current ends in insurance coverage pointtD 283 broadening in coverage and especially a simplification in the terms of the insurance contract. The deductible features of automobile insurance have been introduced successfully in the health insurance field. The deductible feature partly substitutes for the very detailed specifications and limitations of the more traditional health insurance contract. However major medical insurance suffers the obvious drawback of lacking effective control of medical costs. Major medical insurance is evolving through experimentation and still is too new to evaluate effectively. All forms of insurance and prepayment have a place in the role of financing the consumer's medical care bill. While some plans offer more in terms of coverage per premium dollar, the wide variation in the needs and characteristics of the population subject to insurance demands a variet of types of insurance, prepayment as well as other methods of fin~.ncing the consumer's medical care bill. II. CONCLUSI ONS The following conclusions have evolved from this study of the insurance and prepayment methods of financing medical care: 1. Health insurance 1s not a panacea to be used as 284 a means· of shifting all of the financial burdens of illness from the individual and to impersonal institutions. Insurance is but one of several mans of financing medical care, each of which has a definite place in the complex problem of financing the consumer's health needs. 2. Insurance is a risk-transfering and uncertainty reducing mechanism that is most effective in connection with potentially high-cost medical hazards of infrequent occurrence. The insurance mechanism is least effective in connection with relatively small medical costs of fairly regular o~currence. 3. From the standpoint of the consumer, the value of health insurance coverage is limited b the uncertain range of medical costs unmet by insurance coverage. To the extent that the financial contingencies of illness that have not been covered by insurance cannot be foreseen with a reasonable degree of accuracy, the insurance mechanism falls short of one of its fundamental objectives. 4. The health insurance contract cannot eliminate the financial uncertainties of illness without controlling medical costs. Where medical charges vary independently of insurance indemnity, the insured faces an unknown range of medical costs not covered by insurance. Bu the insurer cannot provide unlimited coverage. 5. Legal barriers restricting the insurer's 285 ability to limit medical costs through contractual agree- ments should be eliminated. However the power to limit medical costs through negotiation and contractual agree ment must not Jeopardize the quality and availability of medical services. 6. Legal distinctions between insurance and prepayment are of no practical value. Confusing and conflicting rules and regulations governing insurance and prepayment hamper their efficient operation. Much of the confusion could be eliminated by centralizing the regulatory and administrative control of health insurance and prepayment; at least the financial and promotional aspects of prepayment plans could be brought under the Jurisdiction of the Insurance Department. 7. The presence of health insurance coverage is associated with higher than average medical charges. Individuals and families with insurance spend consistantly more for their medical care than do those individuals and families without insurance protection. 8. The presence of health insurance coverage also is associated with higher utilization rates of medical services. A higher percentage of those with insurance report illnesses and receive medical care than do those without insurance protection. Surgical procedures among those with insurance are considerably higher per person 286 than in the case of those without benefit of insurance coverage. Similarly, hospital utilization rates are significantly higher for insured than for those without insurance. 9. While the presence of insurance coverage is strongly associated with higher than average medical charges and medical service utilization rates, other factors than insurance may account for this association. Levels of income and medical charges are definitely correlated; income levels and utilization rates show a close association. Other factors such as age, occupation and geographic location appear to be important influences on the costs and utilization of medical care. 10 . Medical costs and expenditures for medical care are significantly higher in California than for the nation as a whole. Although the development of insurance and prepayment plans in Cal fornia preceded their growth at the nation 1 level, no definite correlation can be established between the growth of insurance coverage in California and the relatively high costs of medical care in this st te. ther facto"•s such as i co e age, an population shifts partly ccount for the relatively high cost of medical care in the State of California. 11. n important and unmeasurable variable affecting the cost of medical care is the qualit of 287 services rendered. With hospit~l services the range and supply of ancil ~ -Y service v .ries directly with cost. Specialists' fees generally a~e 1gher for the same service than fees charged by general practitioners. Regional differences in medical care expenditures are partly explained by differences in quality of care. 12. Insurance coverage of medical costs varies with the type of medical service involved. Expenditures for hospital care are most generally covered by insurance; expenditures for regular medical care rarely are covered by insurance. Prepayment coverage, on the other hand, ls most generally related to the contingencies of regular medical care. 13. One important weakness of the insurance coverage of the costs of medical care is in connection with the complex nature of the insurance contract. In contrast with health insurance, 'ine pr nt' problems are not so evident in connection with prepayment plans. A possibility of at least partl overcoming the problem of intelligibilit of the insurance contract s found in the growth of majo edical nee. But the lack of experience with this t pe of coverage makes the task of evaluating major medical insurance somewhat premature. 14. nsurance coverage provided on a group basis generally gives broader covezage at lower premium-costs 288 than that available on an individual basis. The overhead expenses in connection with individual insurance amount to more than half of the gross premiums paid for such coverage. Overhead expe,.se in connection with group health insurance is substantially lower than for individual health insurence. 15. The inherent advantages of group vs. individual health insurance coverage point to the desirability of fostering the further growth of health insurance on a group basis. Further exploration of the possibilities of encouraging non-employer group coverage is warranted (e.g., community-wide groups customer groups, social groups). 16 . Health insurance and prepayment are still in the experimental stage. New types of coverag€ and different methods of insurancing against, or prepaying, the costs of med cal care bre being developed continually. Man of the shortcomings of insurance and/or prepayment coverage ma be mor or less automatically overcome thr ugh the evolution of these methods o financing medical care • BIBLIOGRAPHY A. BOOKS Ackerman," S.B. Insurance. Third edition. ?lew York: The Ronald Press Company, 1948. Binger, Carl. The Doctor's Job. New York: W.W. Norton and Company, Inc., 1945. Davis, Michael M. Medical Care for Tomorrow. New York: H~rper and Brothers, Publishers, 1955. Dodd, Paul A., and Edith F. Penrose. Economic Aspects of Medical Services, with Special Reference to Conditions in California. Washington, D.C.: GraphiCArts Press, 1939. Falk, Irving S., Margaret C. Klem and Nathan Sinai. The Incidence of Illness and the Receip and Costs of Medical Care Among Representative Families. Chicago: University of Chicago Press, 1933. , Rufus Rorem and Martha Ring. The Costs of Medical --C-ar-e. Chicago: University of Chicago Press,1933. Gagliardo, Domenico. American Social Insurance. New York: Harper and Brothers, Publishers, 1955. Goldmann, Franz. Voluntary Medical Care Insurance in the United States. New York: Columbia University Press, 1948. Hart, Albert G. AnticiP!ltions, Uncertainty, and Dynamic Planning. New York: ugust M. Kelly, Inc., 1951. LFirst published in 1940 by the University of Chicago PressJ Knight, Frank H. Risk, Uncertainty and Profit. Boston and New York: Houghton Mifflin Company, 1921. Kulp, C.A. Casualty Insurance; An Analysis of Policies, Companies and Rates. New York: The Ronald Press, 1942. - 290 McCahan,. Ds id (ed.). Accident and Sickness Insurance 195~. Published for the s. s. Huebner Foundation for Insu a e Education. Homewood, Illinois: Richard D. Irwin, I c., 1954. Mehr, Rober~ I., and Emerson Cammack. Principles of Insurance. Homewood, Illinois: Richard D. Irwin, Inc., 1955. Miller, Jerome S. Your Personal Insurance Guide. New York: Simon and Schuster, 1955. Peters, Clarence A. Free Medical Care. New York: The H. W. Wilson Company, 1946. Pfeffer, Irving. Insurance and Economic Theory. Published for the s. s. Huebner Foundation for Insurance Education. Homewood, Illinois: Richard D. Irwin, Inc., 1956. Prost, Dwaine W. Springfield: The Patient is the Unit of Practice. Charles C. Thomas, Publisher, 1939. Riegel, Robert and Jerome s. Miller. Insurance Principles and Pr ctices. Second edition. New York: Prentice Hall, Inc., 1947. Saunder, Lyle. Culteral Difference and Medical Care; the Case of the Spanish-Speaking _teople of the Southwest. New York: Russell Sage Foundation, 195~ - Serbein, Oscar N. Paying for Med cal Care in the United States. New York: The Columbia University Press, 1953. Sinai, Nath n, din . nd rson nd Melvin L. Dollar. Health nsurance in the United States . ew York: The Commonwealth Fund~l946. Southmayd, Henr Hosp1 als. J., and Geddes Smith . Small Community New York: The Commonwealth Fund, 1944. Stern, Bernhard J. merican Medical Practice in the Perspective of a Century. Ne Yor· : The Commonwealth Fund, 1945. The New York cadem Changing Order. 1947. of Medicine. Medicine in the ----- New York: The Commonwealth Fund, Weintraub, Sidney. Price Theo{Y• Publishing Corporation, 19 9. New York: 291 Pitman Willett, Allen H. The Economi~ Theo~x of Risk and Insurance. Published for the S. s. Huebnar Foundation for Insurance Education. Homewood, Illinois: Richard D. Irwin, Inc., 1951. L_First published in 1901 by the Columbia University Press. cf. Studies in History:, Economics and Public Law. New York: Columbia University Press, 190Q B. PUBLICATIONS OF THE GOVERNMENT, LEARNED SOCIETIES, AND OTHER ORGANIZATIONS American Hospital Association. Blue Cross Guide. Chicago: American Hospital Association, 1952. _ ___ , Committee on Insurance for Hospitals. Manual on Insurance for Ho~itals. Chicago: American Hospital Association, 1955 . . Hos ital Rate, 195!. Chicago: American Ho ital Association Igsif. Ame can ed cal Association, Council on edical Care. Volunta Pre a ent Medical Care Plans. Chicago: A rican ed cal Association 19 9. And r on O in . National amil Surve of Medical Costs Avn and Voluntar Health Insurance. Prelimlnar report. o k: Healt Information- Foundation, 1954 . . State Enablin Le islation for Non-Profit ~ H _ o_ ital and Medical Plans. choolor Public Health, Ann Ar or: Univer i Y or chigan Pres, 1944 . len H. Vol ___ Med cal Insurance in the United or T and Curr nt roblemS. New York: __ ,,__C~oo ve, Inc 19 3. Baisden, Heal Lo Richard N., Lee Bamberger and John Hutchinson. h Insurance. Institute of Industrial Relations, n eles: niversit of California at Los An eles Pr ss f_f.955.l Bohlin er Alfred J. 'Determining Fair and Reasonable Rates" Insurance Series. No. 107. American ana ement Association 1955. 292 Brewstt:r, Agnes W. "A Method of Measuring the Adequacy of Health Insurance Benefits." United States Social Security Administration, Division of Research and Statistics, July 19, 1955 and November 6, 1956. In Public Health Economics. Vol. 13, no. 1, January 1956, Vol. 14, no. 2, February 1957. Brookings Institution. Bibliograph~ on Health Economics and Related Material. 5 Parts. Washington, D.C.: Brookings Institution, 1956. Bureau of Research and Statistics, Social Security Board. "The State of the Nation's Health." Report to the Senate Committee on Education and Labor relating to the Bill (1606) to provide for a National Health Program. Nationa]. Heal~ Act S?_f_ ]:2~. Senate Comm! ttee Print No. 4. Published in Peters , Clarence . Free Medical Care. New York: The H. W. Wilson Company, 1940. California Department of Employment. "California Employment and Payrolls," Annual and uarterl Re rts, 1938-55. Sacramento: California State Printing Office, 1956 . California Department o Industrial R lations. Earnings and Hours b Industr, Los Angeles Metropolitan Area, 1940-48. 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San Francisco: California Medical Association, 19~0, 1950 and 1954. California Social Insurance Commission. Repor1 or the Social Insurance Commission or the State of California. Sacramento: California Stat6Printing Office, 1917. California State Chamber of Commerce. A Supvey of Voluntanr Health Insurance in California. San Francisco, 1954. Collins, s. D., et al. Sickness Experience in Selected Areas of theUnited States. Public Health Monograph No. 25. Public Health Service Publication No. 390, United States Departmen~ of Health, Education and Welfare. Washington, D.C.: U. s. Government Printing Office, 1955. Commission on Costs of Hospital Care. Hospital Care in the United States. Three Volumes. New York: The Commonwealth Fund, 1954. Committee on Labor and Public elfare, United States Senate. Health Insurance Plans in the United States. Washington, D.C.: U. s. Government Printing Office, 1951. Cunningham, Robert M. Jr. Meeting the Costs of Medical Care. Public Affairs Pamphlet No. 218. First edition. Washinton, D.C.: Public Affairs Press, March 1955. Department of Economics and Social Institut ons, Industrial Relations Section. Com n Sickness Benefit Plans for Wage Earners. Princeton, ew Jersey: Princeton University Press, 1936. Dickinson, Frank G., and Charles E. Bradley. "Comparisons of State Physician - Population Ratios for 1938 and 1949." Bulleti o. 78. merican Medic 1 oc1atio, Bureau of Medical Economic Research. Chica o: American Medical Association, 1950 . • "The Cost and Quality of Medical Care in the ---u-n-1ted States. Chicago: American Medical Association, Bulletin 66, 1948; Bulletin 72, 1949. 294 Dickinson, Frank G. "Medical Care Expenditures, Price and Quantity," 1930-1950. Bulletin 87. Chicago: American Medical Association, 1951. Health Insurance Council. The Extent of Voluntary Health Insurance Coverage in the United States. Chicago: Health Insurance Council, 1955. ____ • The Health Insurance ~tory. Chicago: Health Insurance Council, 1954. Hollingsworth, Helen, Helen L. Johnston and Anna Mae Baney. Health Programs pigest. Federal Security Agency, Public Health Service Publication No. 191. Washington, D.C.: U. s. Government Printing Office, 1952. ____ , Margaret C. Klem and Anna M. Baney. Medical Care and Costs in Relation to Family Income. Bureau Memorandum No. 51. Federal Security Agency, Social Security Administration, Bureau of Research and Statistics. Second edition. Washington, D.C.: U.S. Government Printing Office, 19~7. Hunt, G. Halsey and Marcus S. Goldstein. Medical Group Practice in the United States Fe eral Security Agency, Division of Public Health ethods, Public Health Service Publication No. 77. Washington, D.C.: U.S. Government Printin Office 1951. Huntington, Emil H. Costs of Medical Care; the Expenditure~ for Medical Care of 55 Families in the San Francisco ay Area, 1~47-48. Berkele : University of California ress 1951. Kidner, Frank L., and Philip Neff. ! Statistical Appendix to An Economic Surve of the Los Angeles Area. Los Angeles: The John andolph Haynes and I5ora Hanes Foundation, 1945. Klem, Margaret C., e en ollingsworth and Zelma A. Miser. Medical and Hospital Services Provided Under PrepaYlJ!ent Arrangement~ --Tri nit~ Hospital, Little Rock, Arkansas, 1941-42. Federal Security Agency, Social Security Administration, Bureau of Research and Statistics. Bureau Memorandum No. 69. Washington, D.C.: U. s. Government Printing Offi ce, 1948. 295 Klem, Margaret C., and Margaret F. McKiever. Management and Union Health and Medical Programs. Department of Health, Education and Welfare; Public Health Service, Division of Occupational Health. Washington, D.C.: U. s. Government Printing Office, 1953 . . Medical Care and Costs in California Families in ---R-e- lation to Economic Status. San Francisco: State Relief Administration of California, 1935. Metropolitan Life Insurance Company. Health Insurance. Monograph Three in a Series on Social Insurance, 1933. Miller, Herman P. Income of the American People. Published for the Social Science Research Council in cooperation with the United States Department of Commerce, Bureau of the Census. A Volume in the Census Monograph Series. New York: John Wiley and Sons, Inc. 1955. National Resources Committee. Consumer ~xpenditures in the United States. Washington, D.C.: U. s. Government Printing Office, 1939. ational Resources Planning Board. Family Expenditures in the United States; Statistical Tables and Appendixes. Waihin ton D.C.: U.S. Government Printing Office, 1941. 0 , Elizabeth . Footing the Hospital Bill. Public Aff irs Pamphlet No. 222 . Washington, D.C.: Public Affairs Press, 1955. Pink Louis H. The Sto~ of Blue Cross. Pamphlet No. 101. Elshington, D.C.: Press, 1945. Public Affairs Public Affairs Reed, Louis s. Blue Cross and Medical SerTice Plans. Public Health Service. Washington, D.C.: U.S. Government Printi~g Office, 1947. The President's Commission on the Health eeds of the Nation. Building America's Health. Five Volumes. ashington, D.C.: U. s. Government Printing Office, 1951 ~ United States Bureau of Labor Statistics. Average Retail Prices: Collection and Calculation Technigues and Problems. Bulletin No. 1182. Washington, D.C.: U. s. Government Printing Office, 1955. 296 United States Bureau of Labor Statistics. Diges~ of One Hundred Selected Heal· ,h Qnd Insurance Plans Under Collective Bargaining, 1§3!. Bulletin No. 1180. Washington, D.C.: U. s. Government Printing Office, 1955. --~-' Division of Prices and Cost of Living. Consumer Expenditures in J950. Washington, D.C.: U. s. Government Printing Office, 1951. --~-· ~nufacturing Employment_ , 1947-48-49. Washington, D.C.: U. s. Government PrintingOffice, n.d. 6951/. ____ • Study of Consumer Expenditures Incomes and Savings; Statistical Tables, Urban U. s. -- 1950. 19 Volumes. Tabulated by the United States .Bureau of Labor Statistics for the Wharton School or Finance and Commerce, The University or Pennsylvania. Philadelphia: University of Pennsylvania Press, 1956 -- . United States Department of Commerce, Bureau of the Census. National Income, 1954. Washington, D.C.: U.S. Government Printiiigoffice, 1954. ____ . Seventeenth Cen°us of the United States: 1950 Census. Vol. II. Washington, D.C.: U. s. Government Printing Office, 1952. - - ---- · Sixteenth Census of the United States~ 1940 . "Population, Families --=-Employment Status . Washington, D.C.: U.S. Government Printing Office, 1943 . . Statistical Abstract of the United States. --~w- a- shington, D.C.: U. S . Government Printing Office, 1956. United StateR Federal Security Agenc . Coun~ ~usiness Patterns. 1st uarter 1950 , Part I -II, Nos., 1-4, 1952. United States House of Representat i ve s Committee on Inter state and Foreign Commerce; Health Inquiry. 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Creator Kinney, Paul T. (author)

Core Title Financing medical care; a critical analysis of the insurance and prepayment methods of financing medical care, with particular reference to California

School College of Letters, Arts and Sciences

Degree Doctor of Philosophy

Degree Program Economics

Degree Conferral Date 1958-06

Publication Date 08/14/1957

Defense Date 08/14/1957

Publisher Los Angeles, California (original), University of Southern California (original), University of Southern California. Libraries (digital)

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Contributor Digitized from microfilm by the USC Digital Library in 2023 (provenance)

Advisor Phillips, Elmo Bryant (committee chair), Campbell, Robert W. (committee member), Elliott, John E. (committee member), Schultz, Robert E. (committee member), Trefftzs, Kenneth L. (committee member)

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