Blue Cross – The Health Care Blog

How Did We End Up with a Broken Health Insurance System?

Jan 31, 2025

By LEONARD D’ AVOLIO

The murder of UnitedHealthcare CEO Brian Thompson has drawn attention to Americans’ frustration with the for profit healthcare insurance industry. Change is possible but less likely if people don’t understand how we got here, the real issues, and how they might be fixed.

Health insurance wasn’t always run by big for profit corporations

According to Elizabeth Rosenthal’s book, An American Sickness (a must read), it all started in the 1920s when the Vice President of Baylor University Medical Center discovered that they were carrying a large number of unpaid bills. The goal wasn’t to make money. It was to keep sick people from going bankrupt while helping keep the lights on at not-for-profit hospitals.

Baylor launched “Blue Cross” as a not-for-profit and it offered one-size-fits-all coverage, one-size-fits-all pricing, and all were welcome. By 1939, Blue Cross grew to 3 million subscribers and health insurance might have stayed this way if it wasn’t for two important innovations that would change healthcare and insurance as we know it.

Before the late 1930s, there wasn’t a heck of a lot we could do for sick people. That all changed with two innovations: 1) the ventilator and 2) the first intravenous anesthetic. The ability to put people to sleep and keep them breathing opened the door to a whole array of new surgical and intensive care interventions. More interventions meant more lives saved. It also meant longer hospital stays, more expensive equipment and care. Insurance would have to evolve to keep up with medical innovation.

We probably could have solved that problem with direct-to-consumer private insurance (like car or life insurance). But World War 2 introduced a creative workaround to a labor shortage that gave employers an outsized role in determining our health.

Health insurance tied to employment

During World War 2, the National War Labor Board froze salaries and companies faced labor shortages. Employers figured out they could attract employees by offering health insurance. The government encourages this by giving a tax break to employers on health insurance spending.

The number of Americans with health insurance skyrockets. Between 1940 and 1955, this number increased from 10% to over 60%, with the not-for-profit Blue Cross dominating. It’s hard to believe nowadays, but at the time, an insurance company was one of the most beloved brands in America.

Holier Than Thou Doctors

Oct 3, 2016• 51

BY JIM PURCELL

flying cadeucii I can recall it like yesterday. It was 2004, and I had become the CEO of Blue Cross & Blue Shield of Rhode Island. I was in the middle of my annual physical with my long-standing primary care physician, Dr. Richard Reiter (true). Dick Reiter is my age and is an old school doc. He caught my cancer before it got too serious, and had been yelling at me about things like cholesterol, stress, and exercise for years.

During a lull in the exam, I turned to him and asked, “Dick, I’m the CEO of Blue Cross. What do I need to know?” He paused, looking down. Then his cheek started to twitch. I actually saw him lose his temper for the first time in 25 plus years. “Jim, you want straight? What the bleep are you doing to us? A monkey can do a colonoscopy and yet they make four times what we primary care doctors make. What you are doing is a disgrace.” He was some pissed!!

I then had lunch with Dr. Al Puerini, a highly regarded PCP of 30 years with a full practice. I asked him how much he netted before taxes, and when he told me, I was appalled. He made some aside about it not being about the money, but it IS in part about the money. He also told me about how difficult it was to recruit new PCPs in RI.

Those two encounters started me down my path of alarm about the future of primary care. Rhode Island is a small (40×30 mile, one million population) microcosm of the country. While we have our accents and quirks, and people still think we’re overrun by the mafia, we’re not all that much different. Just wicked smaller. Our PCP population was aging and shrinking rapidly. The best and brightest from Brown Med School and others of its ilk were decidedly not swarming into primary care. Practices could not recruit new members. We were, and still are, in a crisis that is nation-wide.

And it didn’t stop with just the poor PCP reimbursement. PCPs cannot survive financially without untoward volume. This has all sorts of negative consequences. Moreover, on the totem pole of respect, PCPs do not seem to rank high for reasons that I simply cannot fathom. It seems that the more “miracle machines” a physician uses, the more respect he or she gets. While the poor PCP does what we in the billing world refer to as “E&M” (Evaluative and Maintenance). The look-you-in-the-eye, known-you-for-years sort of thing. In other words, taking basic tests and extrapolating health trajectories. Wading into gray areas. Knowing the patient and her family, and making informed prognoses. All difficult stuff. Not something that shows up on an LED screen. Ahhhh….judgment and perspective.