Was 1955 the Golden Age of Health Care Finance?

Billionaire Mark Cuban is far too young to be pining for The Good Ole’ Days of medicine. He views the ideal time for health care finance was in the mid-1950s, coincidently before Medicare, Medicaid and before most Americans had private health insurance.

When Cuban asked what healthcare should look like, his answer was intentionally retro. “Hypothetically, it should look like 1955,” he wrote. “Patients go to providers for care. Providers provide that care. Patients get a bill and if they can afford it, they pay that bill. That’s it.”

He got plenty of pushback for his comments, including the Myth of “Simple Healthcare.”

The 1950s was a simpler time in medicine. Mostly absent was the bureaucracy and overhead required nowadays when billing multiple insurance companies and government programs. Doctors mostly had one price, with perhaps a small discount for BlueCross. Most Americans paid their physician visits directly. This was about the time when Americans were beginning to acquire health coverage through work. Congress intentionally created an incentive for employers to offer coverage when it exempted employee health insurance from taxes. Health insurance was relatively cheap in 1955 because technology was primitive compared to now, and medical inflation was not yet a thing. 

In 1955 about 70% of workers covered by a collective bargaining agreement being offered employee health coverage. Americans paid $3.2 billion in premiums in 1955, representing only 29% of total medical spending. Private expenditures for medical care were a mere $11 billion in 1955, or about $69 per person. By contrast, out-of-pocket spending was $506 billion in 2023, or about $1,511 per person. Thus, it was a much simpler time in medicine not just in fewer complications with third party payment, but simpler in terms of less medical care and more paid directly.

Going back to 1950s and into the 1960s, Congress was trying to solve the problem that too many people could not afford medical care that required more than a simple physician visit. Few could afford a hospital stay. My grandfather had a heart attack around the mid-1950s before Medicare and the medical bills about bankrupted him. To policymakers, the solution to the problem was health insurance. Employers were encouraged through the tax code to provide employee health coverage. Later, in 1965 Congress passed Medicare and Medicaid. Policymakers did not anticipate the effects of divorcing consumers from the care they received and purchased indirectly. 

Cuban touches on a valid point, however:

In his view, everything else is secondary. “The ONLY question in healthcare should be ‘How should care for people who can’t afford to pay for their care be paid?'” he wrote. The rest, he suggested, is noise layered onto a transaction that used to be straightforward.

The Affordable Care Act was foisted on the American population, forcing costly regulations supported by more costly subsidies, to solve a minor problem. That problem: 1) how do you care for people unable to afford health coverage; 2) how do you provide access to care for people too unhealthy to qualify for health coverage. It was taken on faith that coverage was the same as care.

A retired physician once told me that what kept prices in check back in the day was the doctor had to sit across from their patient, look them in the eye when presenting the bill. It was not just peer pressure, however. When patients pay directly providers must compete for their business. Seventy years of third-party payment has so distorted incentives that simple fixes are unlikely to work. The challenge is to create a health care system that creates beneficial incentives that exist in competitive markets, while providing protection against catastrophic illnesses where patients have little discretion. A system of forced savings like Singapore uses (MediSave accounts for day-to-day spending and MediShield for catastrophic care) would be a good start. Low-income people could receive additional subsidies. Reference pricing could replicate competition even for services too expensive to pay out of pocket.

Read John Goodman explain more about Mark Cuban’s Health Plan at Forbes.