The beginning and end of health insurance in the United States

This study examines the changing nature of the finance of health care services in the U.S. The transformation from traditional indemnity health insurance to the more recent form of managed care is the specific focus. The study summarizes the traditional economic theory of insurance, offers an economic history of health insurance, and case studies of several corporations in the industry. The interpretation and conclusions arise from an integration of the theory, history, and behavior within the industry. Both a positive and a normative analysis of the health insurance industry are offered. I draw on the work of the economist, Thorstein Veblen, and that of business historian, Alfred D. Chandler. Two themes from each author are borrowed. From Veblen I consider the disjunction between the pecuniary and the industrial pursuits and the power of enduring habits of thought. From Chandler I borrow the method of the case study to analyze reorganization and cost structure within the industry. Annual reports of nine insurance and/or managed care companies, and data from surveys conducted by various trade magazines in the industry are used. For each company I analyze change in the following areas: (1) corporate structure, (2) enrollment, (3) revenue, (4) products, and (5) profitability. I also look at funding methods. The study reveals increased concentration in the industry with increased enrollment in managed care plans and larger proportions of revenue deriving from managed care plans. Net income, however, is not increasing and many of the companies are experiencing losses rather than increases in profitability. A majority of plans are now funded by employer companies, leaving insurance companies as administrators rather than insurers. The major conclusion is that the current method of finance for health care in the U.S. is no longer insurance and will not work for growing segments of the population. Continued attempts to contain costs using business principles can only worsen the situation at the patient level, if an "insurer of last resort" is not available.