Was It Illegal to Profit from Healthcare Prior to the HMO Act of 1973?
For-Profit Health Care Existed Decades Before the HMO Act of 1973
The growth of employer-sponsored health insurance was instrumental to the development of the current for-profit healthcare insurance system in America, which arose largely as a result of federally mandated wage freezes that occurred during and after World War II. This progression was described in a history of American Healthcare by Elisabeth Rosenthal, abridged in a Spring 2017 issue of Stanford Medicine:
When the National War Labor Board froze salaries during and after World War II, companies facing severe labor shortages discovered that they could attract workers by offering health insurance instead. To encourage the trend, the federal government ruled that money paid for employees’ health benefits would not be taxed. This strategy was a win-win in the short term, but in the long term has had some very losing implications …
Within a decade, the model spread across the country. Three million people had signed up by 1939 and the concept had been given a name: Blue Cross Plans. The goal was not to make money, but to protect patient savings and keep hospitals — and the charitable religious groups that funded them — afloat. Blue Cross Plans were then not-for-profit.
As time wore on and medical science became both more advanced and more expensive, other organizations realized the existence of a market for plans tailored to younger and healthier people, and by 1951 both Aetna and Cigna were major players in offering major medical coverage in a for-profit model:
For-profit insurance companies moved in, unencumbered by the Blues’ charitable mission. They accepted only younger, healthier patients on whom they could make a profit. They charged different rates, depending on factors like age, as they had long done with life insurance. And they produced different types of policies, for different amounts of money, which provided different levels of protection.
Aetna and Cigna were both offering major medical coverage by 1951. With aggressive marketing and closer ties to business than to health care, these for-profit plans slowly gained market share through the 1970s and 1980s. It was difficult for the Blues to compete. From a market perspective, the poor Blues still had to worry about their mission of “providing high-quality, affordable health care for all.”
In 1994, after state directors rebelled, the Blues’ board relented and allowed member plans to become for-profit insurers. Their primary motivation was not to charge patients more, but to gain access to the stock market to raise some quick cash to erase deficits. This was the final nail in the coffin of old-fashioned noble-minded health insurance.
It is inaccurate to say that “before 1973 it was illegal in the US to profit off of health care,” as Aetna and Cigna had been profiting from health care for over 20 years before that.