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Reimbursement Of Healthcare, The History And Politics

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Author:    Jeff Thompson (Senior Developer)


Throughout history, healthcare has been directly related to community life: sanitation, water, food quality, communicable disease, provision of medical care, relief of disability and destitution…all are very closely related.  The protection and promotion of the health and welfare of its citizens is one of the most important functions of the modern state. This function embodies political, economic, social, and ethical considerations.

It is important to know how these concerns developed, and how they relate to the individual.  It also becomes essential to understand how legislation affects and directs healthcare provision in this country. For these answers, we explore the history of community and its health problems. How we ‘act’ is often related to our past, we need a sense of continuity and a knowledge of the past and how it brought the present into being.

History of Healthcare Policy

Concern for the health of individuals and the community has characterized human existence from as far back as can be studied. In ancient Greek times, only the privileged class enjoyed personal cleanliness and sanitation. The classical Roman era developed a community health and social medicine perspective, thus the development of public aqueducts and reservoirs for the provision of pure water and the establishment of sewage systems. The decline of the Greco-Roman civilization led to a decay of urban culture and the disintegration of community health.

During the Middle Ages, the poor sanitary conditions and residential crowding led to an increased prevalence of communicable diseases, such as cholera and smallpox.  Religious convents and monasteries established the first hospitals. The Renaissance period brought recognition of human worth and dignity.  Although public health measures remained rudimentary, the Elizabethan Poor Law was established as this period ended. This became a significant milestone in the development of healthcare policy and the government’s responsibility to the masses.

In America’s early years, as in Europe at that time, care of the sick was informal and usually provided by female members of the family. As the early settler’s transitioned to the new world, they maintained their growing ideals of social welfare and county or township government became responsible for care of all dependent residents.

After the American Revolution, the threat of disease, especially yellow fever, brought public support for establishing government-sponsored boards of health. This support received a significant boost by the Shattuck Report. His report led to an interest in communicable disease control, along with the attention to environmental hazards already being addressed by the earlier boards of health.

As the Industrial Revolution led to increased urbanization and the growth of the immigrant population in the U.S., the crowded cities began to increase public health efforts to fend off communicable disease like typhus, tuberculosis, and smallpox. Many of these efforts became difficult to continue as World War I and the Depression’s effects on the economy became realized. The Social Security Act of 1935 was enacted as an attempt to overcome the national setbacks of the Depression.

The social changes subsequent to the war years led to increased needs for services related to emotional problems: alcoholism, and accidents. The changes in medical technology led to changes in screening and treatment of infections, specifically antibiotics. The increasingly aging population, due to the expanding life expectancy and improving housing conditions, led to a rise in the concept of chronic illness and the implied needs thereof.

The emerging civil rights movement of the 1960’s and 70’s led to a shift in direction for public health, from charitable obligation to political commitment. And the onset of Medicare policy guaranteed healthcare to all people over the age of 65.  Thus, during the 1980’s and 1990’s rising healthcare costs created a major concern for public and private insurers. This led to the development of capitation and prospective payment mechanisms (Diagnostic Related Groups - DRG) for the acute care settings and all settings began to take cost containment seriously. The managed care movement grew significantly through the 80’s and 90’s.

The debate about healthcare in the 90’s focused on central issues of cost, access, and quality. The concept of universal health insurance was embraced at the federal level in the U.S., but neither individuals nor employers have become willing to pay for this level of service. This leads us to current challenges of meeting the healthcare needs of an increasingly diverse and aging population. Knowledge of how one can ‘influence’ the policy makers is an essential concept, as nurses (no matter the setting) educate many individuals daily, and passing this knowledge along has significant and necessary social implications.   

Significant Policy to Date

Elizabethan Poor Law of 1601: England, guaranteed medical care for poor, blind, and ‘lame’ individuals.  This minimal care was supported by the local government and administered by the parish offices; it sought as much to regulate the poor as to provide care during illnesses.

Chadwick Report of 1832:  Led to the Poor Law Amendment Act in 1834.  This provided for paid government officials to design regulations for administration of the law.  This was to ensure centralization, uniformity, and efficiency.    

Shattuck Report 1850: Most famous of the early public health reports, conducted in Massachusetts by Lemuel Shattuck. The report recommended a state board of health be established.

Workmen’s Compensation 1917: United States Supreme Court upheld the constitutionality of compensation legislation. Accidents and occupational diseases were now to be covered by the employer. 

Social Security Act of 1935: Attempted to overcome the national setbacks of the Depression.  This act provided funding for health protection and promotion through education and employment of public health nurses. It also provided money to assist states and counties in the establishment and maintenance of adequate health services, as well as monies for research and investigation of disease.

Public Health Service Act of 1944: Act established a mechanism for oversight of construction and surveyance of Healthcare facilities. It also led to the development of the Center for Disease Control and Prevention and the FDA.

Medicare – 1965: Congress amended the Social Security Act to include health insurance benefits for the elderly (Medicare) and the poor (Medicaid).

OSHA 1970: Made healthcare of the worker a public concern. 

ADA 1990: Guaranteed equal access and opportunity to the disabled.

FMLA 1993: Guarantees 12 weeks employment leave in a 12 month period for the birth of a baby, adoption, or illness of a family member. It also protects the employee’s benefits while on leave.

The following table provides a brief outline of the correlation between the concerns of civilization and the ‘policy’ of healthcare over the course of European and American history. This outline is based on a historical perspective on public health developed by George Rosen (1993), who felt strongly that public health includes broad environmental measures and should not be restricted to the prevention of specific diseases. His text emphasizes the moral, political, and social perspectives necessary as a knowledge base for consideration on effecting legislation.



Health Care Focus

Health Care Delivery

 How Paid

Important Policy


1000 BC – 500 AD

Colonization (expansion of  territory) 

Aristocracy vs. Occupational (miners)

  • Settlement sites (soil, air, water)
  • Hygiene  
  • Priests
  • Physicians
  • (craftsmen)
  • Itinerant  municipal
  • Salary by town to appointed physician
  • Fees accepted, free care expected
  • Users paid     (Imperial court, Gladiatorial schools)


Middle Ages

500 AD – 1500 AD

Barbarian vs. Christian

‘Fortified Walls’ (market place)

  • Crowded rural  (water, sanitation, public food)
  • Hygiene
  • Quarantine
  • ‘Divine Causation’
  • Church (parish) physician/cleric
  • Lay physician guild
  • Hospitals developed by church; Nursing by monks & nuns
  • Church provided for physician/cleric
  • Salary by town/lord
  • Guild code for fees             


Renaissance, Mercantilism

1500 AD – 1750 AD

New middle class

  • Commerce, industry
  • Printing (start of practical base of knowledge)

Population growth, Infant mortality

  • ’Recording’& ‘scientific theory’

Still local focus

‘Police” mentality medical police    administered public health  ‘ordinances’

Welfare of society

hospitals pass to control of government

  • Salary by town

Elizabethan Poor Law 1601


Enlightenment & Revolution

1750 – 1830

Change to ‘intellectual leadership’ (1st Encyclopedia)

‘World of children’

‘Public Opinion’ developed by enlightened individuals

International outlook develops

‘Social good’

Statistics = probability

Health related to socio-economic environment

Voluntary hospitals (developed by private citizens)

Municipal/church hospitals

New vaccines & inoculations







1830 – 1875



 (need pool)


(complex machines)

‘Poor relief’ seen as obstacle



(urban filth, transportation)

Cholera – pandemic

Scarlet Fever

Sanitation reform

Occupational health

‘Regulation’ of community

Health inspectors

  • physician on board of health


International health


Local government


Chadwick Report 1832

Bacterial Era & Aftermath

1875 – 1950

Great Depression (25% unemployed)

Pressure on government to assist poor


‘Carrier Theory’ developed

Communicable disease

State Dept of Public Health (communicable disease, maternal/child health)

Public health laboratories

School health

Social insurance

Local legislation

Worker’s-mutual benefit funds

National health


Worker’s comp 1911

Social Security Act 1935 (Federal program)

Public Health Service Act 1944

1950 – Present

National Wealth

Aging population

Disappearing middle class


Rural/inner city

Antibiotic resistance





Private insurance

Government insurance

Government assistance

Health service programs


Medicare 1965

OSHA 1970

ADA 1990

FMLA 1993

Public Policy Process

Politics – ‘Public Interest’ vs. ‘Self Interest’

Simply speaking, well meaning legislators act according to what they believe is in the ‘public interest’. On the flip side however, the legislators’ motive is ‘self-interest,’ job security and their own political support. These motives will clash (Feldstein, 1996).

The supporters who can most help the legislator keep his/her job will get the most support. For the better part of the 20th century, the ‘squeaky wheels’ have been the aged and the healthcare providers (specifically physicians and hospitals). Demographics and their significance will be discussed a bit later.

The legislature is huge, so committees are formed, and then sub-committees.  Legislators self-elect to the committees of their choice (essentially those of most interest to their constituency) and voter-trading can occur.

Legislative Branch – making the laws

Federal legislation becomes law in Congress.


House of Representatives


2 year terms

6 year terms

*435 members

100 members

number is fixed

2 from each State


* The United States Census is conducted every 10 years.  Congressional districts are adjusted accordingly. The districts in the West and the South have been on the increase and the Northeast’s number of representatives has been on the decline.

Ideas for laws are usually generated in response to an event or a constituent suggestion that something needs to to change. Bills are introduced into either the house or senate, sometimes to both. A Bill is given a number with the prefix of HR or S, and sent to the appropriate committee. This would be the committee with most relevance to the given subject or matter.

In the Congressional Committee, bills are introduced, hearings are held, and initial voting occurs. This basically simple process can take months, and sometimes years, from introduction of the Bill to initial vote.

Bills can be sent from committee to subcommittee as determined by committee chair. Subcommittees take on lives of their own, chairs are selected and permanent staff is assembled. The subcommittee will hold hearings, taking testimony from supporters and opponents. A report is issued that will be favorable or unfavorable, or may amend/change or rewrite the bill. The committee usually accepts the recommendation of the subcommittee. The ‘dance of legislation’ is influenced by: partisan politics, lobbying of interest groups, and public opinion.



Puts on calendar for floor action

Goes through ‘Rules of Committee’ which decides when it will be heard

No time limit on debate…

Each member gets 5 minutes to speak on bill

Senator may ‘filibuster’ (marathon Speech for hours, difficult to end)

Vote held

Vote held



The votes are influenced by: party loyalty, interest groups, a call from the President, constituents, fellow legislators, etc. The bill is then sent to the President for ‘final’ action, his/her signature. The President may also veto the bill; this then can be overridden by a 2/3 vote of both the house and senate. 

Executive Branch – enforcing the law

  • President (The first 5 positions are usually filled with friends and people owed favors…)
  • The White House Office
  • National Security Council
  • Council of Economic Advisors
  • Office of Management and Budget
    • Cabinet – head of each department is called ‘secretary’, more likely appointed due to expertise and reputation…advises the President.

The cabinet department is a very large administrative unit in the ‘federal bureaucracy’. The Department of Health and Human Services is the cabinet department most significant to healthcare policy implementation. Regulations written here are published in the Federal Register.

Demographics – defining the ‘squeaky wheels’

Public supporters with the most influence on the legislators are generally defined by the demographic trends at the time. National trending for consideration as we enter the 21st century:

  • Increasing ‘school-aged’ population
  • Increasing number of people in their late-30’s to late-50’s (baby boom of 1945-64 continues to concentrate the population growth within the age group they reach…they are 30% of the overall population)
  • Elderly – especially ‘older-elder’ over age 85
    • The first members of the baby boom will turn 65 in 2011; the elderly population will continue to grow through the 2030’s and by 2030, the nation’s elderly population will be greater than 20% of the total, it is now 13%. Of the current elderly – 8% of those between 65 and 69 need assistance with activities of daily living (ADLs), and 45% of those over 85 need ADL assistance.
  • The % of ‘households’ is decreasing – from 81% in 1970 to 71% by the late 90s.
  • The population is shifting to the West and the South. The 6 fastest growing states are Nevada, Arizona, Utah, Colorado, Idaho, and Georgia. The Northeast is the slowest growing area of the U.S. and only New Hampshire had any measurable growth in the 1990’s.
  • Most people have some health insurance – 84.6%
    • Young adults are the highest uninsured group, with 1/3 of those between the ages of 18 and 24 being uninsured.

The average citizen can effect legislation by attending hearings (sometimes brought to the local arena) or calling/writing the appropriate senator or congress person.

Types of Healthcare Reimbursement

Government Health Insurance

There are 2 forms of government health insurance: Medicare, which is federally run, and Workers’ Compensation, which is delegated to the states for administration.

The first significant form was developed in 1965 with the passage of Medicare under the Social Security Act. Medicare is a contributory program, paid into during the ‘work’ years. Private insurance companies contract with the government to provide healthcare services. Medicare expenditures are approximately 60% of the federal spending on healthcare.

Government Health Assistance

Medicaid, which is a state-administered federal program, was created by the same act that created Medicare. It provides noncontributory health assistance for people unable to meet their health expenses and who fall within specific economic guidelines. Federal and state funds pay for Medicaid. States receive an average of 57% of their Medicaid costs from the federal government. Federal law does not mandate that a state operate a Medicaid program, but all 50 states do. Medicaid generally provides extensive coverage: inpatient, outpatient, home care, and long-term care.

There are some other health service programs funded by the U.S. government: these are provided to Veterans, Military personnel, Federal employees, and American Indians on reservations.

Reimbursement Models

Typical Healthcare Market

Employer Provided Health Insurance



Medicare Parts A and B


Private Health Insurance

Blue Cross-Blue Shield was essentially the first private health insurance program, it was established in 1939. In 1940, less than 10% of the civilian population was covered. By 1992, 74% were covered. Americans are generally insured as part of their employee work benefits. Blue Cross-Blue Shield is still one of the most common insurers; there are also commercial insurance companies, self-insurance, Health Maintenance Organizations (HMO), and Preferred Provider organizations (PPO).

Private Health Assistance

These are voluntary, and generally of a non-profit nature. Some include the American Cancer Association, American Diabetes Association, American Heart Association, Lion’s Club, Knights of Columbus, etc.

The majority of American hospitals operate on a voluntary, nonprofit basis. There are also some privately funded health services programs, often part of benefits packages in the work setting, such as employee health clinics. 

Reimbursement Issues

Although the U.S. healthcare system can take credit for improving the life span of most Americans through advances in medical technology, science, and pharmaceuticals, the system is also plagued with issues related to cost, access, and quality of care. These issues are at the center of debate today. 

In 1997, nearly 14% of the gross national product (GNP) was the cost of healthcare. At this point, President Clinton enacted the Balanced Budget Act, which led to many changes in government spending and healthcare. Most government insured programs shifted from fee-for-service payment basis to capitated and prospective payment processes of some sort. This concept had proven fairly successful for the HMOs and PPOs in the public sector. Federal projections still forecast healthcare expenditures will increase by more than 7% annually through 2007, at which point the costs will be double those of 1997 (Stanhope & Lancaster, 2000).

Increased costs have led to access issues. The rate of uninsured people is currently rising. Young adults (ages 18 to 24) are more likely than other age groups to be uninsured, approximately 30% of the entire uninsured population in 2002. Public health funding has been significantly cut, thus clinics in rural areas and heavily populated urban areas have been reduced. This leads many uninsured people to use the emergency rooms for care, thus shifting costs in the system, as the hospitals must raise costs to the insured in order to compensate.

Quality of care is the next concern for the U.S. Many feel that controlling costs has been accomplished at the expense of quality (Stanhope & Lancaster, 2000). This has led to a set of standard performance measures for the managed care sector. Medicare and Medicaid are rapidly moving toward similar quality mechanisms.

The failure of the sweeping healthcare reimbursement reform in the 1990’s opened the door to the market-driven growth of managed care. It was thought that this movement would lead to elimination of waste and redundancy, a greater focus on health promotion and disease prevention, more attention to chronic illness, and a focus on accountability of providers, practitioners, and payers. Unfortunately, this has been less than successful, mainly due to the focus of the payers and providers on the ‘bottom-line’ and profit making (Stanhope& Lancaster, 2000).  


The balance of interest within society and healthcare will continue to shift. Focus on examining quality relative to cost of care delivery is the contemporary focus for all.  Nurses need to be aware of their cost to the system and public and identify aspects of care where cost savings can be safely achieved.  Nurses must also effect change by providing leadership in developing new models of care delivery that provide effective, high-quality care. And, as much as possible, nurses need to be aware of current policy development and the interventions they can implement to affect that. 

Who are your local Representatives and Senators, how can you call or write him/her?  Do you know the proposed bills currently in process for comment or study? The following web sites can help you find these people, tell you how to contact him/her, and also update you on currently pending legislation and bills. and



Feldstein, Paul J. (1996). The politics of health legislation: An economic perspective.  Chicago: Health Administration Press. 

Jacobs, Philip (1996). The economics of health and medical care.  Gaithersburg, MD: Aspen Publishers, Inc.

Rosen, George (1993). A history of public health.  Baltimore: The John Hopkins University Press 

Stanhope, Marcia and Lancaster, Jeanette  (2000).  Community & public health nursing.  St. Louis: Mosby, Inc.