How Did We Get Here?

From early prepaid medicine to wartime perks to the modern budget killer.

If you are a business owner, HR director, or CFO wondering why health insurance costs so much, or why it keeps getting worse, you are not alone. But to understand how to fix it, you first need to understand how we got here. Here is the story they do not teach in HR seminars.

The first people to get benefits through their employers were when Baylor University Hospital struck a deal with the Dallas Independent School District to provide up to 21 days of hospital care to teachers who paid fifty cents per month for the benefit. That prepaid model evolved into what we know today as Blue Cross Blue Shield.

Employer-paid benefits accelerated during World War II. Wage controls prevented companies from offering higher salaries to attract talent, so employers got creative and began to offer health insurance as a fringe benefit. It was a legal workaround that quickly became an expectation.

The government liked it too. In 1943, the IRS ruled that health benefits were tax-free to employees and tax-deductible to employers. This fueled massive adoption.

From the 1950s through the 1980s, employers and unions competed on benefits. Plans became more generous, covering everything from maternity to mental health. Typically there were no deductibles or copays, with low cost to employees.

But behind the scenes, something else was happening. The cost of care was exploding.

In the 1990s and 2000s, employers were faced with costs increasing at a rate double that of inflation. Brokers figured out that they could bid the business and get companies to change by transferring risk to employees. This allowed them to come in with a price to the employer that was lower than the last renewal, or at least just a minor increase.

PPO networks were introduced to "control" costs. They added layers of opaque pricing and middlemen. Pharmacy benefit managers negotiated deals with drug manufacturers and promised employers lower-cost medications. Again, another layer of cost with more opaque pricing was added. Employees were now paying more but getting less.

Today, the average family plan costs over $22,000 per year, with employees footing nearly $6,000 of that. In addition, there are huge deductibles and surprise bills for treatment out of network. Employers are squeezed, employees are frustrated, and nobody understands what anything costs until it is too late.

Unless you change the structure of how care is paid for, it is just a shell game. In my book Total Benefit Control, I lay out the template for change.

The system is not broken by accident. But it can be fixed on purpose. In future issues, I will share what I believe to be the solutions.

Glen Riensche, CLU, RHU, REBC, LUTCF 402-202-2550 [email protected]