Abstract
This paper analyzes the demand for both private and state-provided health insurance in a historical context. In the case of private health insurance, I show that both health insurance and medical care were of limited use and that the relationship between income and health insurance and income and medical care was relatively weak, suggesting that money could buy little in the way of improvements in medical care. These results implied that there should be very little demand for state-provided health insurance and indeed there was not. Although the persuasiveness of interest groups such as doctors and to a lesser extend trade unions did contribute to the defeat of state-provided health insurance matter, none of the variables could explain such a resounding defeat. Evidence from newspaper editorials, advertisements, and articles suggested that the absence of consumer demand for health insurance together with concerns over the cost of state-provided health insurance defeated the measure. My findings are in contrast to those of other researchers who have emphasized the role of a politically powerful medical profession and of World War I.
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Notes
- 1.
- 2.
By the 1930s, the coefficient of variation of illness had risen and medical expenditures become the big concern.
- 3.
- 4.
The average weekly wage of manufacturing workers was $14.97 (Inter-university Consortium for Political and Social Research 2005, Series 802–810).
- 5.
The use of lodge physicians varied widely. For example, in 1914 in North Adams, Massachusetts, 8000 persons out of a population of 22,000 were in the care of lodge physicians (Rosen 1977). The use of lodge physicians appears to have been more prevalent in Britain where perhaps as many as 60% of wage earners had access to lodge doctors (Naylor 1986).
- 6.
For more details on group life insurance see Hoffman (1917).
- 7.
There are also large numbers of workers from the same industry or firm close together in the sample.
- 8.
The numbers are the same for California alone.
- 9.
In the data only 10% of households reporting lodge expenditures also reported having health insurance. Similarly, only 10% reporting union expenditures also reported having health insurance.
- 10.
Ten cents was added to all incomes to avoid taking logarithms of zero. The use of dummy variable categories rather than the logarithm indicated that the probability of insurance rose with income but at a decreasing rate. Income was divided into its various components because health insurance made up for the husband’s lost earnings, but the results remain unchanged if all components of income are added together.
- 11.
Tests indicated that this was the best specification for age.
- 12.
Trying to add state fixed effects to the equation led to multicollinearity problems.
- 13.
The low elasticity with respect to husband’s earnings contrasts with Whaples and Buffum (1991), who find that among Michigan furniture workers in 1889 a 10% rise in wages increased the probability of purchasing sickness/accident insurance by about 10%. The sample used by Whaples and Buffum (1991) may have consisted of individuals less able insure through their families, since it contained unmarried individuals, a large proportion of immigrants, and a large fraction of urban households.
- 14.
There was no evidence that those living in smaller cities had less access to medical care. In fact, expenditures on medical care were somewhat greater in smaller cities.
- 15.
The sum of $1200 was above the average earnings of all wage earners.
- 16.
Hospital care was simply not a concern in the 1910s. As seen in Table 7.2 only a small share of all expenditures on medical care went to hospital care. County and private charity expenses were relatively small as well. Only 13% of all expenditures on medical care and health insurance in consumer income accounts went to hospital expenditures (calculated from Dewhurst and Associates (1955)).
- 17.
The Commission believed that by having workmen pay the entire cost of the cash benefit, malingering could be avoided.
- 18.
In its inclusion of fraternal societies, the California Social Insurance Commission’s plan more closely resembled the British rather than the German plan.
- 19.
The proposal of an enabling amendment should not be regarded as unusual. In California workers’ compensation was initially struck down by the courts and passed only by amending the California constitution.
- 20.
- 21.
Oddly enough, the issue of free riding never came up.
- 22.
There was a high variance in estimates of the cost of insurance. The AALL estimated that 4% of payroll would be needed to cover lost wages, medical aid, and maternity and funeral benefits. The Illinois Social Insurance Commission (1919) estimated that 7.5% of payroll would be needed to cover lost wages and medical care alone (Starr 1982).
- 23.
This was argued in one of the pamphlets sponsored by the California Research Society of Social Economics. In May of 1917 there was a full page advertisement in the annual edition of the San Francisco Chronicle paid for by the Insurance Federation of California in which it was stated that health insurance would become political graft so gigantic that the political party in power at the time health insurance was adopted could perpetuate itself (Viseltear 1969).
- 24.
- 25.
Druggist could point to the “floating six-pence” of the British health insurance act, whereby the physicians’ fund benefited from a reduction in the amount of drugs prescribed.
- 26.
By 1916 southern California was the stronghold of anti-Progressive sentiment. Progressive strength was strongest among San Francisco workers and the Catholic foreign-stock counties of the Bay Area (Rogin and Shover 1970).
- 27.
The problem then becomes one of interpreting past voting behavior. Peltzman (1984) finds that with increasingly better economic variables the impact of party affiliation declines and suggests that party affiliation reflects not ideology but economic self-interest. Poole and Rosenthal (1993) find that once an ideology measure has been used, the marginal explanatory power of the economic self-interest variables is minimal and hence argue that voting is best described by ideology.
- 28.
In contrast, during the 1916 Presidential election, voter turnout was 80%. The number of registered voters was obtained from California Registrar of Voters (1918).
- 29.
Skocpol (1992) has argued that the failure of the Progressive agenda can be traced to dissatisfaction with the federal pension program run for the benefit of Union Army veterans, but I was able to find no mention of the Union Army pension program in any of these debates. Supporters of state-provided health insurance cited the program that served WWI soldiers and which grew out of the Union Army pension program Ohio Health and Old Age Insurance Commission (1919).
- 30.
The San Francisco Examiner considered prohibition the only issue of the campaign. It was in favor.
- 31.
The outspending hypothesis has been advocated by Viseltear (1969). However, the anti-health insurance forces did have the benefit of newspaper editorials and may have already felt that they had public opinion on their side.
- 32.
Alternatively, Lindert (1994) argues that the United States lagged behind British social spending because the United States was younger, had a lower voter turnout, and was a country in which middle class incomes and sympathies were closer to the top.
- 33.
A “plunge in the dark” is how Florence Kelly, General Secretary of the Consumers’ League and official representative of women wage earners, described compulsory insurance (cited in Hoffman (1917)).
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Acknowledgements
I have benefited from the comments of Herbert Emery, Claudia Goldin, Matthew Kahn, Robert Margo, Peter Temin, and participants at the 1995 Cliometrics Conference and the 1995 NBER Health Care Summer Institute. I gratefully acknowledge the support of a NIA Aging Fellowship at the National Bureau of Economic Research in the 1995–1996 academic year.
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Costa, D.L. (2018). Demand for Private and State-Provided Health Insurance in the 1910s: Evidence from California. In: Hall, J., Witcher, M. (eds) Public Choice Analyses of American Economic History. Studies in Public Choice, vol 35. Springer, Cham. https://doi.org/10.1007/978-3-319-77592-0_7
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