HJNO Mar/Apr 2025

HEALTHCARE JOURNAL OF NEW ORLEANS I  MAR / APR 2025 37 creases to compete for employees but allowed for the growth of fringe benefits. Because of a labor shortage brought about by military service in the war, U.S. companies began to compete for laborers by offering health insur- ance as one of these fringe benefits. To say that the impact of these benefits was dramatic would be as big of an understatement as An- drew Witty saying the U.S. health system is not perfect. Enrollment in employer group health insurance plans went from 12 million in 1940 to 142 million by 1988. In fact, the growth of employment-based health insurance attracted other commercial insurers to the marketplace to compete with Blue Cross and Blue Shield plans for customers. These commercial insur- ers introduced a new dynamic based on that “fairness” and redistribution concept we dis- cussed previously. Rather than use community rating where everyone pays the same amount regardless of risk, they introduced the concept of experience rating where each customer paid according to risk. Experience rating is far less redistributive than community rating. Under experience rating, let’s revisit our pre- vious example of three health plan members with varying levels of risk: low, medium, and high. Again, for simplicity, let’s stick with our previous actuarial estimate that determined these three members would require $36,000 of care per year. However, in this case, the pre- mium for the low-risk member is now $500 per month, the medium-risk member is still $1000 per month, and the high-risk member is now $1500 per month. The sum of these premiums is still equal to the $36,000 needed to pay for the three members’ healthcare costs, but this time the lower-risk, healthier person is contrib- uting less than the higher-risk, sicklier member. In this case, experience rating came about as a strategy to increase market share for the commercial insurers against the Blue Cross and Blue Shield plans who were still using com- munity rating. The strategy worked. In 1945, commercial insurers had about half as many members as the Blues plans — 10 million to 19 million — but within a decade, they had greatly exceeded the Blues in growth of new members and now were insuring more people than the Blues — 54 million to 51 million. Furthermore, these commercial insurers were preferentially seeking growth of younger, healthier members who were less expensive and consumed fewer healthcare-related costs. The high-risk groups would preferentially choose the Blues plans because the premiums were far less expensive than the commercial insurers, but these mem- bers were much more expensive in terms of how much healthcare they consumed. In order for the Blues plans to be able to pay the higher health-related costs of these sicker members, they had to keep raising premiums, which only accelerated the flight of younger, healthier people to the experience-rated premiums of the commercial insurers. Had the Blues plans not abandoned community rating in favor of experience rating, they would have eventu- ally entered into the so-called “death spiral,” whereby they would have continued to grow a disproportionate number of high-risk, high- ly expensive members without the healthier members to normalize the risk and ultimately would have gone out of business completely. Employment-based health insurance contin- ued to grow rapidly through the 1950s, help- ing working people and their families afford healthcare services. However, by then, two groups in society received little to no benefit: the poor and the elderly. The poor were typi- cally either unemployed or employed in a job without the fringe benefit of health insurance. But the group that was hit hardest by the trend toward experience rating was the elderly. Once they had retired and were no longer receiving the benefits of employer-sponsored health insurance, few were able to afford the highly priced premiums that came about for them as a result of experience rating. Now, I’m no biblical scholar, but even a cursory review of various biblical passages admonishes us to care for the poor and less fortunate among us. Proverbs 14:31 states, “Whoever oppresses the poor shows contempt for their Maker, but whoever is kind to the needy honors God.” And the Gospel of Matthew 24:40 tells us, “The King will reply, ‘Truly I tell you, whatever you did for one of the least of these brothers and sisters of mine, you did for me.’” Apparently, there were some elected government lead- ers in the late 1950s and early 1960s who took those passages to heart and decided that the free market of health insurance had managed to fail some of the less fortunate members of our society. And many older individuals who had spent decades in the workplace as pro- ductive members of society were now unable to afford health insurance as they entered into their retirement years. Deliberations about these societal problems ultimately led to the passage of the Social Security Amendments Act of 1965, creating tax-financed government health insurance for the first time in our country. These programs, Medicare and Medicaid, were designed to improve access to healthcare for vulnerable populations, with Medicare focus- “In contrast to many other economically developed nations, health insurance in the U.S. began in the private marketplace as a means for hospitals and physicians to procure payment for services rendered, rather than arising from a societal construct that was intended to serve the collective good.”