Thomasson on Murray, _Origins of American Health Insurance: A History of Industrial Sickness Funds_

[eh.net-review at eh.net]

Published by EH.NET (February 2008)

John E. Murray, _Origins of American Health Insurance: A History of 
Industrial Sickness Funds_. New Haven: Yale University Press, 2007. 
xiv + 313 pp. $40 (hardcover), ISBN: 978-0-300-12091-2.

Reviewed for EH.NET by Melissa A. Thomasson, Department of Economics, 
Miami University.


The first serious attempt at promoting compulsory, 
government-sponsored health insurance coverage came during the 
Progressive Era. Progressives, led by the American Association for 
Labor Legislation (AALL) suggested that the existing system was 
inadequate and subjected workers unnecessarily to risks to their 
financial and physical health. Much like today, insurance reformers 
in the Progressive Era argued that one spell of bad health could lead 
to the financial ruin of most American workers. Unlike today, their 
chief concerns were less related to the high cost of medical care, 
but rather to the fact that sick workers who were absent from work 
did not earn income and did not have enough savings to protect 
themselves against such an event. Reformers tended to brush aside 
existing insurance plans (offered by establishment funds, fraternal 
organizations, unions, and commercial insurance companies) as 
inadequate, incompetent and subject to adverse selection and moral 
hazard. Until now, this view has not been challenged. The generally 
accepted story surrounding the failure of Progressive health 
insurance reforms in the 1910s centers on the defeat of the movement 
by well-organized interest groups: insurance companies, druggists, 
and physicians. This explanation, while undoubtedly part of the 
story, has always seemed incomplete. If the claims of Progressives 
about the need for a better system of insurance were true, why did 
the populace not rally around their cause?

In John Murray's the _Origins of American Health Insurance_, we 
finally get an answer. In great detail and with a nice amount of 
evidence, Murray shows that workers did not push for reform because 
they saw no real need to replace the existing system. Murray 
demonstrates that the existing system of insurance was not 
underutilized, overly expensive, nor poorly run. One note of caution: 
the book is entitled _Origins of American Health Insurance_, but what 
we think of as "health" insurance bears little resemblance to the 
kind of insurance Progressives had in mind. Most insurance plans at 
the time provided little protection against actual medical expenses, 
but instead acted more like contemporary disability policies; 
primarily insuring workers against lost income due to illness 
(although some plans did offer small provisions for medical care). 
These plans were not true "health" insurance plans in the modern 
sense of the word, and were often referred to as "sickness" insurance 
plans. Murray's contribution is really a history of these sickness 
insurance plans -- notably the establishment sickness funds offered 
by employers and those offered by unions.

Nevertheless, for readers interested in why the first proposals for 
compulsory health insurance failed, Murray's book is a must-read. He 
takes on the allegations of Progressives and later historians who 
argue that these plans were inadequate and poorly run, and offers 
substantial evidence to the contrary. In careful detail, he shows 
that the AALL's proposed plan would have actually been more expensive 
than the options available to most workers, and that contrary to the 
claims of Progressives, workers did seem to be able to save for times 
of sickness.

The book is divided into three parts. In the first part, Murray 
describes sickness funds and the political economy of sickness 
(health) insurance in detail, and compares the U.S. system (and 
Progressive proposals) with various European systems.

In the second part of the book, Murray first examines the rise and 
operation of sickness funds: why the funds were created, the growth 
and geographic variation of the plans, evidence about how many 
workers were covered and the scope of plan benefits. Data presented 
are clear and thought-provoking, and demonstrate that these plans did 
cover a sizeable proportion of the population, contrary to the claims 
of Progressive reformers. Chapter 7, in particular, is an important 
contribution. In this chapter, Murray examines the decision to save 
against unforeseen expenses versus to buy insurance. Endogeneity 
usually makes this a sticky problem to examine empirically; however, 
Murray uses an excellent instrument to resolve the endogeneity issue. 
He uses weeks of work missed for a reason other than sickness to 
instrument for weeks of work missed due to sickness. The variable 
should be correlated with savings (because a non-working employee is 
not earning income), but is not correlated with sickness. Murray 
specifies the model and looks at saving over the life cycle and shows 
that younger workers opted not to purchase insurance. When workers 
married and had families, they tended to purchase insurance, having 
not yet had time to accumulate sufficient savings. The oldest workers 
opted not to purchase insurance and relied on savings instead.

In part three of the book, Murray examines the reasons sickness funds 
declined over time. He first shows that the Depression was not 
responsible for the decline in funds over time, probably because 
employers may have decided which workers to lay off based upon their 
health. So what did lead to the decline in funds over time? According 
to Murray, it was advances in actuarial science that commercial firms 
adopted while sickness funds did not, thus giving the commercial 
firms an advantage. While this undoubtedly played a role, the chapter 
does not go quite far enough in discussing the intricacies between 
growth in medical technology (perhaps resulting in better health), 
the coupling of actual health insurance and employment and the 
resulting ability of firms to offer competitive health insurance, and 
the commercial offering of sickness plans. Murray can offer up these 
details and more in his next book. In the meantime, this book is very 
useful for anyone seeking to understand the nature of American health 
(and sickness) insurance before the 1930s, and the political economy 
of health insurance in general.


Melissa A. Thomasson's recent publications include "Racial 
Differences in Health Insurance Coverage and Medical Expenditures: An 
Historical Perspective," _Social Science History_ (2006) and "Early 
Evidence of an Adverse Selection Death Spiral?" _Explorations in 
Economic History_ (2004).

Copyright (c) 2008 by EH.Net. All rights reserved. This work may be 
copied for non-profit educational uses if proper credit is given to 
the author and the list. For other permission, please contact the 
EH.Net Administrator (administrator at eh.net; Telephone: 513-529-2229). 
Published by EH.Net (February 2008). All EH.Net reviews are archived 
at http://www.eh.net/BookReview.