The Doctors’ Lounge
Where scalpels meet systems — and physicians say what they really think.
Co-hosted by Anish Koka, MD & Anthony DiGiorgio, DO. Candid talks on healthcare policy, reform, physician autonomy & patient care.
The Doctors’ Lounge
From Babylon to Baylor: How Insurance Went Off the Rails
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The Doctor's Lounge
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Anish and Dr. DiGiorgio trace the history of insurance from ancient Babylonian bottomery contracts through Egyptian workers' guilds, Greek risk-pooling societies, Lloyd's of London, and the birth of actuarial science — then walk forward into the Great Fire of London, the 1929 Baylor hospital plan, Henry Kaiser's vertically integrated care, the World War II wage-freeze tax subsidy that chained health coverage to employment, Medicare in 1965, and the ACA in 2010. Along the way they unpack why the insurance model breaks down when applied to events with a 100% chance of happening (like primary care visits), why government-imposed price controls force low-risk payers to subsidize high-risk ones, the role of reinsurance and moral hazard in disaster-prone regions, and how the cultural argument against socializing risk has been quietly losing ground in the West since the Great Depression.
Chapter markers
00:00 Cold open — blizzard vs. backyard burgers
01:45 Why physicians need to understand insurance
02:11 Babylon, bottomery contracts, and the Code of Hammurabi
05:29 The birth of actuarial science
07:16 When insurance stops making sense (the 100% problem)
07:42 Egyptian guilds and Greek risk-pooling societies
09:40 Lloyd's of London and the coffee-house origins of underwriting
10:44 Actuarial tables meet societal mores — pricing risk by sex
13:16 What happens when the government caps what insurers can charge
16:18 The Great Fire of London and the rise of fire brigades
17:42 Reinsurance, FEMA, and Thomas Sowell on flood-zone moral hazard
21:36 The 1929 Baylor plan and the seed of Blue Cross
24:24 Henry Kaiser's vertically integrated healthcare
25:34 World War II wage freezes and the tax subsidy that chained insurance to employment
30:51 How Medicare and the ACA redefined "insurance" to mean prepaid care
33:04 Bismarck's 1880s gambit — socializing to prevent socialism
34:04 Why the argument against socialized risk keeps losing
36:23 Hayek, Friedman, and why socialism keeps coming back
36:49 Britain, the NHS, and Bevan "stuffing their mouths with gold"
Co-Host handles
@anish_koka and @drdigiorgio
Show handle
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🔗 Connect with the Hosts:
Anish Koka: Well, Dr. DeGiorgio, welcome back. We were talking right before we started about ⁓ the difference in weather between where I am right now. We're in the ⁓ of a blizzard, so if the electricity out, we'll know why.
Anthony DiGiorgio: Yep, and I just grilled hamburgers on my deck. ⁓
Anish Koka: Yes. So, you know, joke never gets old. ⁓ know, I to say their advantage is living in the People's Republic of California. So I applaud you, comrade, ⁓ for efforts today. know, we're going to have a Dr. Georgia is going tell us a little bit about the history of ⁓ insurance. interested to have this conversation because we talk so much about health insurance.
Anthony DiGiorgio: Yeah.
Anish Koka: you it doesn't, it ⁓ was obvious to me ⁓ for long time why I need to know anything about insurance. And, you partly the arrogance of being a physician ⁓ is that think you know enough about things, but ⁓ the answer ⁓ when it to things, even within specialty, it's hard to know everything about everything, So you can imagine. attempting to think or process that goes into having, you know, somewhat of a deep knowledge of something else. But, ⁓ know, my regret is that I didn't even know ⁓ I didn't know enough about so many different things. ⁓ so the of these the topic these conversations ⁓ is, is hopefully give, ⁓ you know, viewers, ⁓ know, some context about this. we can at least have somewhat of an educated conversation.
Anthony DiGiorgio: Likewise.
Anish Koka: when talking to folks. you had sent me a podcast link that was super interesting. It got into not just health insurance, but just the history of insurance in general. how far back does insurance as a concept started when?
Anthony DiGiorgio: I started looking into this largely because I wanted to figure out why our insurance system was so messed up and that of course I had to do a history lesson to go back and figure out what is the modern you can't you can't figure out the modern health insurance landscape without going back and kind of seeing how it evolved into that. It also doesn't hurt that I'm a huge history buff and so I enjoyed it. Part of it came from that podcast I sent you and part of it came for research for claim denied to back and see how insurance evolved but insurance goes back to ancient times So in Babylon they had these things called bottomery contracts and so ⁓ merchant ⁓ they were funding a trade voyage could actually borrow money for that the bottomery contract ⁓ would have a provision if the ⁓ Ship sank or some other ⁓ natural disaster befell the expedition ⁓ the loan was forgiven. basically, you know early risk return. And so that would obviously be priced into the loan, right? If there's a chance, if you're the person lending money, if there's a chance your money may not be repaid, you're probably going to charge a bit of a premium on that. But that was essentially paying for insurance, that premium would pay on that loan.
Anish Koka: So this was actually in the code of Hammurabi, as you were saying. That was fascinating. So in this particular case, the person giving the loan to purchase whatever goods. So there's some merchant who wants to ship something. And so the banker or whatever, I guess before there were banks, was just somebody with a lot of money said, OK, I will front you this.
Anthony DiGiorgio: Right.
Anish Koka: And the kind of issue with ⁓ whole process was that somebody not want to do that because if you, you the that ⁓ you pay loan back is of course ⁓ you sell product and you make some money on that and then you pay back the loan with, I assume, some interest to the person who gave you the loan. Now, ⁓ why would you do if there was some risk of of the ships ending up in the bottom of the sea. it's interesting to me that it a party that was kind of ⁓ dealing with insurance, the risk that. ⁓ It was actually folks that were giving out the loan that were insuring it. And so you can see how important it was for giving the loans because it because, you know, folks that have that are sitting on a of money and want that money to work for them. And if ⁓ are a lot of people that don't want to participate the trade because, you know, some percentage of ships are going, ⁓ going, you belly up or belly down or what not, ending up in the bottom of the ocean, ⁓ then would they do that? So it's fascinating that that someone bright was like, you know what? I'm going loan you the money. And of course, ⁓ when they not just going to cover the risk without covering without you charging some premium on top of that cover to cover that so that's interesting how do you think how do you think they I mean this is like like mean I figured like in order to do that they'd have to have some idea about what are the chances that the ships will down I mean how do they do that I wonder right
Anthony DiGiorgio: and Hence, actuarial sciences were born.
Anish Koka: Right, right, right, right. So well before the actual Sansa run, were just, mean, all of the risk was basically and feel. I wonder if like the, ⁓ wonder if, ⁓ guarantee you ⁓ folks that were doing, giving loans must've had some ⁓ hand selecting the crew and the boats and stuff, right? Because they're not just going to be like, hey, did Giorgio, you've sailed twice and you twice across Lake Geneva.
Anthony DiGiorgio: Right, yeah.
Anish Koka: I know this is your maiden voyage across the Atlantic and here you go.
Anthony DiGiorgio: Yeah, I built this thing to scale in my bathtub. So now please fund my voyage. And I think that that really was the birth of the actuarial science, right? So the actuaries are the ones who price risk and price of insurance is essentially the price of the event happening times its frequency. So if it's a million dollar risk and it has a 0.1 % chance of happening per year, then the yearly cost to ensure it will be million dollars times 0.1%.
Anish Koka: Yeah.
Anthony DiGiorgio: Plus a little overhead, know, in modern times to cover the overhead of the insurance company. that's it. That is the price of insurance. And you can see as we get into eventually into health care, you start trying to use an insurance model for things that have a 100 % chance of happening like a primary care visit. It doesn't really make sense to use the insurance model because then you are essentially just paying for the cost of the thing you're insuring. ⁓
Anish Koka: Right, right, no, exactly right. ⁓
Anthony DiGiorgio: But anyway, that's of the modern, modern after Babylon, fast forward a little bit to Egypt and Greek and Rome. In Egypt, had workers guilds that would have these communal funds that would essentially pay for burial costs, food rationing if the worker became ill, or if the worker died, support for widows. And this was the first time you really saw collectivization of risk or risk pooling, which is... where, you know, everyone will contribute a little bit to pool the risk. ⁓ so you spread the risk out, over multiple people. And so you can cover the cost of if that thing were to happen a little better. and so Egypt, you know, these workers guilds in Egypt, and then, in, in Greece, they had these things called Erroni or Thessoni. And please, I'm sure somebody will correct me for those butchering pronunciations, but there are also voluntary associations, where you could sign up and, and they would essentially. ⁓ you would pay a fee and if you're as a member, became ill or impoverished, or even needed medical care, that, that ⁓ collective pay for it. And so really the first forms of true risk pooling were these Egyptian and Greek, societies that formed up, you again, you know, to quote Adam Smith and, know, invisible hand, from the bottom up sort of had these things arise naturally.
Anish Koka: The ⁓ it's really interesting that, you know, again, no government involvement. These are just local groups that are coming, coming together being like, hey, this is is kind of a smart way to do that. And the number of examples this are just incredible. And you know, goes to that point about, you know, ⁓ let the market meaning the market will come up with with certain solutions. You know, I was reading that even in Genoa, you know, ⁓ Florence and whatnot, you you would move from that what was outlined in the Hammurabi code to having separate different merchants insuring writing individual contracts to cover someone else's shipping. And again, all just gut and feel kind of stuff. I actually didn't know the history of Lloyds of London either. Did you come across that in your? Lloyds of London is one
Anthony DiGiorgio: No, no I didn't. I would love to.
Anish Koka: one of the biggest insurers. I should have probably looked up the numbers before doing this, but they're one of the largest insurers. They're one of the largest reinsurance companies right now. They are the insurance for insurance companies. And so in the 1680s, Edward Lloyd ran a coffee house in London ⁓ it was a coffee house. ⁓ was like ⁓ of the original Starbucks. Worship merchants, ⁓ and willing to kind of underwrite risk would gather to do deals. That is what involved into Lloyd of ⁓ London's, which ⁓ to this day is such important part of the insurance market. key innovation there was syndication where multiple underwriters would ⁓ each take some share risk and sign their under the terms, which is where kind of comes from. ⁓ then, yeah, the actuarial that came ⁓ after,
Anthony DiGiorgio: ⁓ I love it.
Anish Koka: you finally had math and science being applied to it and you know these actual tables of insurance that you know it's that that that of course is super interesting right because you start to butt up science starts butt up against societal mores or morals if you will right if you So because when you start to dice up the population, you find out that different populations are very different in terms of their risk profiles, ⁓ so.
Anthony DiGiorgio: that's why nobody would insure me ⁓ ⁓ a ship across the Atlantic because that's a high risk. ⁓
Anish Koka: Right, exactly, exactly right. Yeah, and that seems like, yeah, of course, that seems totally okay, that's, then there's certainly, there's certain, you know, immutable characteristics of folks. So if you are male, right, you're much higher risk of dying at a gauge. And when you're male, even now, even after many, years of post suffrage and women entering the workplace and stuff, men are still higher worth than are. ⁓ than our women. terms of insurance policies and how much it costs to insure ⁓ ⁓ ⁓ right? so as so yeah, so, ⁓ you know, insurance. Or say car insurance for, I don't know why I'm making it complicated, car insurance for young men, you know, should be more expensive because young men end up in more car accidents than young women do. And then, and that, ⁓ think because we live in a ⁓ that is okay with charging men more, nobody an eye at that. It's like, all right, these ⁓ darn men that are running around in their convertibles doing all kinds of things. you know, women, because they deliver babies much higher, ⁓ know, they're always going to be higher cost from that standpoint, you know, so is okay to ⁓ for insurance? Right. So is it, should we charge? Right. No, typically, typically not. Unless you deliver a bit. No, no. ⁓ Yeah. ⁓ of ⁓ but, yeah, but you know, society would ⁓ lose their if we charged women. ⁓
Anthony DiGiorgio: For health insurance, yeah. That's usually not covered under car insurance, typically, delivering babies.
Anish Koka: more than we charged men, right, for health insurance? you think? ⁓
Anthony DiGiorgio: Yeah. And an interesting, because the actuarial numbers are pretty accurate. And ⁓ a insurance company or one of these collective are paying more in claims than they're taking in in premiums, they're not going to be around, right? It's simple math. ⁓ If they out of money, they're not going to be able to pay claims. so if you...
Anish Koka: Right. Right. Right.
Anthony DiGiorgio: allow them to do their actuarial to actually collect premiums based on what their actuaries decide so they can keep their company afloat and their company will stay afloat. If they are not allowed to do that, they have to charge people who would otherwise be cheaper to ensure more to offset the inability to charge people who are more expensive to ensure more.
Anish Koka: Exactly. And that's why this is so important. that's why like if we you know, it should take some of the emotion out of things if it's like, look, this is it's a numbers game, right. And so somebody has to pay you if you want to ⁓ everyone somebody is going to have to pay differently if ⁓ ⁓ individuals, if want everyone to pay around the same amount. So if you want men and women, for instance, in this example, to pay the same amount.
Anthony DiGiorgio: Right.
Anish Koka: you know, health insurance, say to help to ensure a ⁓ to 30 year old ⁓ whether it be men or women, if you want to pay the same, ⁓ either the men are going to pay more to subsidize the lower risk women, correct? ⁓ or federal government is going to step in and subsidize it, which which means all of us are kind of paying and subsidizing that. ⁓
Anthony DiGiorgio: Or I mean, just if we could stick on our Lloyds of London example, if you you walk into coffee shop and Lloyds and try to get a contract to ensure your ship and you have no proof that you've ever sailed a voyage before or that you even have a functioning ship, they're going to charge you more to ensure that. And if they aren't allowed to, then that and they still have to offer you a policy, then that means everyone else they ensure is going to pay more than they otherwise would. And so go ahead. ⁓
Anish Koka: Yeah. Right. you. Yeah, exactly right. Exactly right. That was a great example. So you use the point we're trying to try to make here is is that if you start with the insurance market because of what you think is fair and equitable, et cetera, you actually end up with a system ⁓ is less fair. ⁓ unfair. ⁓
Anthony DiGiorgio: Right. Yeah, because if I I walk in there and get it, you know, the lois de l'un of the guys look at me and say your ship has a 98 % chance of sinking. So we're going to charge you, you basically point nine eight of whatever the cost of this, the sunk ship and then the government says you can't do that. Then everyone else says, hey, I get a low rate because I've proven that I'm a good sailor and I have a good ship that I'm reliable. Now I have to pay more to cover this Yahoo who has no the first thing about sailing. ⁓ So it
Anish Koka: Yeah.
Anthony DiGiorgio: It doesn't work well when the government starts trying to mess with what people are allowed to charge in insurance. And that's where health insurance really came in around World War II, birth of the Baylor Plan. And go ahead.
Anish Koka: Before you get there, I thought, ⁓ of a ⁓ an example of how, you know, societies involved through the ⁓ making government do things, right? The great fire of London in 1666, you know, destroyed 13,000 houses, right? When once that happened, that catalyzed, you know, the development of ⁓ fire ⁓ And a guy named Nicholas Barbon was one of the first folks that came out with the fire insurance company. This was in 1681. And so the early fire insurers actually maintained their own private brigades. And they'd only put out fires in buildings that displayed their company's fire mark on the facade. you can imagine, I mean, that presents all sorts of problems. Right, Anthony? you know, of course, I there was like, it was bound to not be something that ⁓ was to work because of course, fire spreads from ⁓ one to the next. and so you up with cities kind of stepping in and saying, okay, ⁓ we're putting end to private fire insurance companies and private fire brigades. And we're gonna, we're gonna socialize this and ⁓ we are pay all of us are gonna pay together for ⁓ one fire that will put out a fire everywhere. ⁓
Anthony DiGiorgio: And that I think that that's important to bring in that concept of reinsurance because it was something I just learned about a few years ago and that the insurance companies have insurance. Right. So if you know, there's there's numerous instances of this where you can look at like the mass fires or ⁓ Katrina, 9-11, you know, any of these these mass disasters, the Palisades fire, right, where the insurance company essentially is not going to be able to pay that claim.
Anish Koka: Right.
Anthony DiGiorgio: Or if they if were able to price this mass event into it, nobody would be able to afford the insurance. And so you have reinsurances and essentially that's largely what the government's function as right like FEMA is a type of reinsurance.
Anish Koka: Right.
Anthony DiGiorgio: for these big mass casualty events. that's, think, if we're talking about a role for government, I think that that's one that I'm okay with, is the government saying, we will be your reinsurance, especially if you wanna talk about something like healthcare or even homeowners insurance, will be your reinsurance to help keep the rates acceptable. Now, if you read someone like Thomas Sowell, he would disagree and say that we should not have the government be reinsurance because it... that's, think, if we're talking about a role for government, I think that that's one that I'm okay with, is the government saying, we will be your reinsurance, especially if you wanna talk about something like healthcare or even ⁓ homeowners insurance, we will be reinsurance to keep the rates acceptable. Now, if you read someone like Thomas Sowell, he would disagree and say that we should not have the government be reinsurance because it... unfairly mitigates the risk for people who would otherwise not take that risk like building a house in a flood zone. Because now if the government's going to be your insurance agency, your insurance is low. But if you actually had to price that in an actuarially fair manner, that would never be an affordable decision to put your house in a flood zone. So you're essentially offloading that risk on to taxpayers. unfairly mitigates the risk for people who would otherwise not take that risk like building a house in a flood zone. Because now if the government's going to be your insurance agency, your insurance is low. But if you actually had to price that in an actuarially fair manner, that would never be an affordable decision to put your house in a flood zone. So you're essentially offloading that risk on to taxpayers.
Anish Koka: Exactly, exactly. Exactly, exactly. Yeah, and that's exactly why I think should very, very, careful about how one extraordinarily small so, yeah, I don't know you know, if you want to build your house on the side of a cliff where avalanches happen every five years. Like, you know, it's one of these things like I have a right to build and build a house on the side of an avalanche. It's like, okay, fine, build a house on the side of an avalanche and I hope you survive but then you want insurance to rebuild it there. I don't ⁓
Anthony DiGiorgio: Yeah.
Anish Koka: You know, it's hard of course, but then it's like, well, know, New Orleans, New Orleans is, you know, below the below sea level, right? And like, well, what exactly are you going to do? Just have everyone. Yeah. Yeah. So.
Anthony DiGiorgio: Abandoned the city or yeah, or it northern California with wildfires, right you I think they're there Good ⁓
Anish Koka: Right. But I think. Sorry, if you don't, but then, there's got to be other solutions. you like, you're not going to abandon North Carolina, you're not going to abandon Orleans. And it's like, okay, like what are the mechanisms to prevent these things to make it a one in a thousand year event versus a one in a hundred year event? And if you don't do that, then, then you never kind of, well, I don't know if that's quite true, though, though, though California seems to be struggling with the, with wildfire. I don't know. don't know. Maybe is it not possible to make these much, much rarer events than they, ⁓ than are ⁓ perhaps but ⁓ it So again, the hand of government in terms of just allowing you to rebuild, rebuild, rebuild, is taking ⁓ some important of which ⁓ should be in by individuals when they're thinking about what to do and where to go.
Anthony DiGiorgio: And then you do have, if it's a private insurance company, they get to set some terms. And if it's the government, they get to set some terms also. So there's some discussion of, in California, if the state government is going to be a reinsurer, can they then control what you can grow outside your house? What sort of plants you can have? Or how close your garden can get to your house? And these are actual discussions saying that if you are socializing that cost, then...
Anish Koka: Right, right.
Anthony DiGiorgio: Essentially, you can socialize the decision of what kind of flowers you can plant in your flower bed ⁓ or how close the trees can get to your roof line. So brings up some tricky problems. But anyway, we have digressed and gotten away from the ⁓ timeline.
Anish Koka: Right. Right. Yeah, yeah, we have. absolutely. yes, yes. Sorry. So go back to heaven. So I'm sorry. It's my fault totally. I just thought it was such an interesting tangent. the first insurance, one of the first insurance models you were going to talk about was, you know, Baylor Hospital.
Anthony DiGiorgio: Right. Yeah. So Baylor, it was the teachers at Baylor, they decided to pull risk and this was actually, I don't have that written down. It was in, I believe it was in the forties. You should look that up. Well, you look it up while I say it. Yeah. So they, pulled risk and it was essentially, I think it was like $6 a year per member and it covered a certain number of hospital days. So they had an arrangement with the local hospital.
Anish Koka: When was this, warrior? I'll look it up. Go ahead, keep talking. Yeah, yeah, yeah.
Anthony DiGiorgio: And so if anyone needed hospitalization, these hospitals were relatively new phenomenon, right? They were finally getting to the point. This was post-World War I. You had things like anesthesia and antibiotics for the first time. So you could have surgery be a safe option for care. so hospitals started cropping up, but it was a little expensive. And so one of the first hospital insurance plans was this Baylor plan.
Anish Koka: This is 1929-1930.
Anthony DiGiorgio: There we go. So post World War one, you really had all these new techniques.
Anish Koka: So what was the incentive, did you say, to come up with this plan? the nurses coming together? ⁓
Anthony DiGiorgio: It was the, ⁓ I believe it was Baylor teachers came together and it was the fact that that ⁓ was now a new thing that was relatively safe ⁓ people to have insurance for that. So it covered a certain number of hospital days per year. And again, was a risk pooling, ⁓ a voluntary pooling association.
Anish Koka: Yeah, it's interesting. There's two, I think there's a few different perspectives on why it is that that came to be one of the perspective, one of the one of the that may have spurred it. Some people believe is that Baylor hospital itself, because they were going through the depression, had ⁓ far hospitalizations and they saw their receipts drop, right? And they were like, wait, how do we make money even if the ⁓ hospital has, know, has empty beds? And so one the ways to do this was ⁓ to create this plan that is like, like, ⁓ you we will cover this many places if you know this many beds or whatever, you know, regardless of whether you're insured or not. So, yeah.
Anthony DiGiorgio: Yeah, was essentially a win-win and that morphed into Blue Cross. So that was essentially the birth of Blue Cross.
Anish Koka: Right. Okay. All right. So then, so what, that was in 1920, 1930s, you know, spurred by the great depression, you know, hospitals were losing money and they came up with this plan to try to, you know, the numbers are of course insane, right? It was like gross receipts dropped from $236 per patient to $59 per patient. It's like, man, that's some.
Anthony DiGiorgio: Yeah. you had these were all kind of from the emerged naturally. had like Henry J. Kaiser, who created his own vertically integrated health care system to keep his workers healthy. Right. He was an industrial magnate. And so he wanted his workers to be healthy. So he made his own health care corporation, which is now ⁓ more of his legacy than than actual industrial work. ⁓ And there are other employer groups, ⁓ the Public Workers.
Anish Koka: Right.
Anthony DiGiorgio: together their own collective. And again, these all emerged naturally. There was no government intervention. This all came about and they were all voluntary. Everything was transparent. And, you it really was still only for emergencies, right? Nobody was ensuring, again, going back to this concept that if you ensure something has 100 % risk of happening, it's not economically ⁓ efficient to so. And ⁓ they realized the Baylor teacher group wasn't going to pay for your primary care. because why does it make sense to pool everyone's risk for something that people are doing anyway? It's it's not economically efficient. So it was only for emergencies and then came World War II.
Anish Koka: Yes, please tell. So what happened around World War II?
Anthony DiGiorgio: So the government said, you can't give your employers employees wage increases anymore. They were trying to fight inflation. ⁓ most of the workforce was overseas fighting ⁓ ⁓ government didn't want inflation for the remaining workers. so ⁓ were frozen. And order to in order get entice employees to stay or to give them rewards, employers started offering health insurance as a benefit. And it was tax exempt for the employer and taxes exempt for the employee. So was essentially double subsidized if you give them a raise, the employer plays employee, ⁓ it plays payroll tax and the employee pays income tax, but this is double tax free. So it was even ⁓ more a benefit than a straight pay raise. And that how insurance really got tied to employment. It was this heavy subsidization that once that got kind of written into law and into everyone's expectations, there was no going back because you can never start taxing that now without people being furious. And ever since then, ⁓ we now had our health insurance locked to our employment.
Anish Koka: Was that initial insurance plans that came up through ⁓ ⁓ plans? ⁓ they ⁓ only plans?
Anthony DiGiorgio: Everything. mean, like you look at what Kaiser offered, right? So he offered primary care for his employees. It was through his company. He hired the doctor. He built the clinic space. But it was, again, was whatever, know, thousand different things because people were allowing this to emerge naturally.
Anish Koka: All right, that's, yeah. So this massively, you this massive explosion of health insurance, everyone offering ⁓ health ⁓ And this is very, very good for insurance companies. it good for individuals ⁓ as well ⁓ this came ⁓
Anthony DiGiorgio: It was certainly good for doctors and hospitals, right? If you are having this big tax-subsidied influx of capital into healthcare, it's going to create a boom for doctors and hospitals as well. employees obviously liked it. So I think people felt good about it. There's clearly no data on whether or not this improved anything because the counterfactual is a healthcare system that never had this happen and you could never prove that one way or another.
Anish Koka: You know, as societies become wealthier, of course, you know, they're going to focus more on health, right? And, you know, perhaps it's not an accident that, you know, the tremendous boom in medical innovation that kind of happened. mean, you know, 1920s to the 1980s, I mean, that represented kind of Innovation in medicine that was pretty pretty remarkable. You're talking about ⁓ bypass surgery, you know You know heart lung bypass, I mean, this is pretty impressive stuff that that have ECMO anyway, it pretty impressive stuff that happened I mean, is that necessarily a bad thing that you had, you had, ⁓ know, you had a system that sent many dollars to, ⁓ to It seems like finally you had an economy society that so wealthy that it could, it could do that. And that kind of, ⁓ you know, maybe was people push back, say maybe, maybe Dr. Georgia, wasn't such a bad thing. ⁓
Anthony DiGiorgio: Yeah, think it I don't think it necessarily was but again, we'll never really know that that counterfactual right? think that's one of things I learned a lot again from reading Sowell is that you don't know, you know, you don't know what you didn't get in terms of other innovations or other economic growth, right over those years if you're shuttling these dollars into healthcare instead of whatever else it could have been. Who knows what innovations we would have had. So I think you'll never be able to prove that counterfactual one way or another. What do you think?
Anish Koka: Right. Yeah, I know I think I am. think that I think the same thing probably would have happened just in the private markets. think I think a lot of people will dismiss that as just hand waving speculation, which of course they can. but, you know, again, I think if you look at the pace of innovation pre-Medicare post-Medicare. I mean, I think you had a tremendous amount of innovation that happened in the 1950s. Yeah, the cloud, the blue baby, you know, the congenital heart, blue babies that were born. mean, where, you know, there was, there was just, ⁓ was just a massive, know, when you have these robust, huge, economies that are just throwing off lots of dollars, ⁓ you yeah, people are going to, you know, fund their hospital. People are going to ⁓ attach a of value to health and, and, ⁓ and, and going to I think less, waste ⁓ when you have. ⁓ individuals of in charge of those dollars versus the government which is basically paying everything you know because you know someone said okay this is what I'm doing ⁓ so so yeah I know I think yeah ⁓ we'll know but but I clearly you know we've had so ⁓ we've had you know the ⁓ explosion in of health insurance and and you know that big ⁓ flaw in of insurance moving from like, like, when so when, when did it really happen that health insurance went from because culturally, it feels like that, right? Culturally, it feels like even from when I was, you know, when I was, you know, when I was a kid, that health insurance should cover your regular doctor's visit. You know, that change happened, happened with what do you think?
Anthony DiGiorgio: I think it was largely with Medicare, right? Because so immediately post-World War II, you had the UK, the birth of the NHS. And was the first time I said, you know, from cradle grave, the NHS, the government's going to cover your healthcare. And, you know, fellow Anglosphere country doing that, I think really affected the US mindset. Amazingly, ⁓ the US, know, that off ⁓ until 1965 when LBJ Goldwater. Um, and you know, saw that as a mandate to go forward with Medicare, but really Medicare was the first, uh, big government foray into healthcare. There was sure that tax subsidy, but, uh, the government wasn't running a healthcare plan until Medicare came along. And I think that was, that was when that culturally shifted Medicare covered primary care visits, right? Uh, and Medicaid covered primary care visits. And then you, you know, fast forward to 2010 and you have the affordable care act.
Anish Koka: Right.
Anthony DiGiorgio: mandating that preventative care, contraception, obstetrical care, all these non-emergency standard preventative care services should be covered by an insurance model. And I think ⁓ kind of ⁓ the final nail in the coffin that yes, we're going to societally look at this as not so much insuring, I think it's more ⁓ to say socializing the costs of all those things, which of course makes it less efficient and more expensive.
Anish Koka: Yeah, the fascinating example from recent history is Audubon Bismarck in Germany, who in the 1880s, this is 19th century, actually created a number national ⁓ social insurance plans. he didn't do because he was a socialist. ⁓ He did it. ⁓ did it exactly ⁓ he was trying to the whole country from becoming socialist. ⁓
Anthony DiGiorgio: Right.
Anish Koka: So there's some, know, it's the hard part here is constantly trying to battle against demand induced in the population ⁓ by ⁓ for rights, ⁓ right? I that's a very powerful impulse. ⁓ And I we've lost that battle in the sphere ⁓ or not we, I say,
Anthony DiGiorgio: No, think that's right. It's a good point.
Anish Koka: Yeah, argument against, I was trying to elucidate who was making the argument, one versus the other. The argument against socialism fundamentally has been lost over and over and over again in the West since World War II. Yeah, I even since before World War II, starting with the Great Depression. these cataclysms, yeah, right, with Volshukliks, of course, yes. And I think, you know,
Anthony DiGiorgio: Starting with the Bolsheviks.
Anish Koka: That isn't the history that I grew up with. history I grew up with was like the victory of individualism, capitalism and rugged liberty, rugged individualism. And ⁓ is a ⁓ country and Britain is ⁓ capitalist country as well. ⁓ when you really start looking into the of these things, you realize that, my goodness, we have really been ⁓ backsliding we've lost these public over and over to the two folks that want to socialize kind all of risks. question really becomes does one ⁓ win that debate the sphere to try to kind of move the needle back? And I don't know if it not be possible. Certainly in the 19th century, Ottawa and Bismarck was like, you know, the whole we're going to get we're going to get to socialism unless I can introduce some national programs, which kind of cover the cost of things to kind of keep the population placated. Of course, what what happened in Germany may not be the may not be the greatest example of, you know, of what there is to do. But but yeah, I think we all have to be certainly a lot more educated about the history of this. so that we can kind of understand where the mistakes were made and kind of have a better conversation about this. Otherwise, you know, we're just producing, know, ⁓ and armies of ⁓ healthcare professionals and doctors ⁓ just have a slogan that says, healthcare is right and we want healthcare, right? It's like, ⁓ that exactly the problem. ⁓ So only gonna make things worse if you keep, ⁓ you know, sloganeering about like this. Well, Dr. Georgie, yeah. Yeah.
Anthony DiGiorgio: I think that was I was just gonna say I think that was kind of like Friedman and Hayek even said that you keep having to defeat socialism because it sounds so good just have the government provide everything for you, right? It really is enticing that argument goes back to know, French Revolution, know, even pre that the real socialist and it has been defeated again and again and again and it keeps cropping up because it is it's an enticing argument. I think it totally makes sense.
Anish Koka: Yeah. Well, Britain, Britain appears to have lost. don't think I don't think ⁓ I mean, I yeah, I think incredible to me that Britain, you know, the birthplace of in many ways, you the ⁓ least the second era of enlightenment or ⁓ whatnot, that they, you know, physicians one woke up as ⁓ all employees of state who needed permission, dispensation ⁓ work ⁓ ⁓ the state, I Aneurin Bevan should do mini episode on that whole thing. Aneurin who was kind of the father of the NHS, famously said, in order to get the doctors agree, I stuffed their mouth with gold, which by stuffing their mouth with gold meant I... ⁓ I allowed them to practice on the private side, know, in evenings and on weekends, they could practice and take money from the nation. so, so yeah, I, you know, we stand, know, it's certainly concerning that where we are and where we're going and will we defeat socialism again? I hope we do.
Anthony DiGiorgio: Mm-hmm. Well, I think it's self defeats, Because it is essentially unsustainable and you always end up going the way of Venezuela or Cuba or the USSR.
Anish Koka: Right. All right. Right, right, right. right, so well, this is ⁓ Thank you. Amateur historian, Dr. Giorgio. ⁓ was a rundown of ⁓ ⁓ impressive. I like it. ⁓ right. ⁓ so much, Anthony. ⁓
Anthony DiGiorgio: Amateur actuary. Yes, professional at nothing. Thank you.
Anthony DiGiorgio: Yep, and I just grilled hamburgers on my deck. ⁓
Anish Koka: Yes. So, you know, joke never gets old. ⁓ know, I to say their advantage is living in the People's Republic of California. So I applaud you, comrade, ⁓ for efforts today. know, we're going to have a Dr. Georgia is going tell us a little bit about the history of ⁓ insurance. interested to have this conversation because we talk so much about health insurance.
Anthony DiGiorgio: Yeah.
Anish Koka: you it doesn't, it ⁓ was obvious to me ⁓ for long time why I need to know anything about insurance. And, you partly the arrogance of being a physician ⁓ is that think you know enough about things, but ⁓ the answer ⁓ when it to things, even within specialty, it's hard to know everything about everything, So you can imagine. attempting to think or process that goes into having, you know, somewhat of a deep knowledge of something else. But, ⁓ know, my regret is that I didn't even know ⁓ I didn't know enough about so many different things. ⁓ so the of these the topic these conversations ⁓ is, is hopefully give, ⁓ you know, viewers, ⁓ know, some context about this. we can at least have somewhat of an educated conversation.
Anthony DiGiorgio: Likewise.
Anish Koka: when talking to folks. you had sent me a podcast link that was super interesting. It got into not just health insurance, but just the history of insurance in general. how far back does insurance as a concept started when?
Anthony DiGiorgio: I started looking into this largely because I wanted to figure out why our insurance system was so messed up and that of course I had to do a history lesson to go back and figure out what is the modern you can't you can't figure out the modern health insurance landscape without going back and kind of seeing how it evolved into that. It also doesn't hurt that I'm a huge history buff and so I enjoyed it. Part of it came from that podcast I sent you and part of it came for research for claim denied to back and see how insurance evolved but insurance goes back to ancient times So in Babylon they had these things called bottomery contracts and so ⁓ merchant ⁓ they were funding a trade voyage could actually borrow money for that the bottomery contract ⁓ would have a provision if the ⁓ Ship sank or some other ⁓ natural disaster befell the expedition ⁓ the loan was forgiven. basically, you know early risk return. And so that would obviously be priced into the loan, right? If there's a chance, if you're the person lending money, if there's a chance your money may not be repaid, you're probably going to charge a bit of a premium on that. But that was essentially paying for insurance, that premium would pay on that loan.
Anish Koka: So this was actually in the code of Hammurabi, as you were saying. That was fascinating. So in this particular case, the person giving the loan to purchase whatever goods. So there's some merchant who wants to ship something. And so the banker or whatever, I guess before there were banks, was just somebody with a lot of money said, OK, I will front you this.
Anthony DiGiorgio: Right.
Anish Koka: And the kind of issue with ⁓ whole process was that somebody not want to do that because if you, you the that ⁓ you pay loan back is of course ⁓ you sell product and you make some money on that and then you pay back the loan with, I assume, some interest to the person who gave you the loan. Now, ⁓ why would you do if there was some risk of of the ships ending up in the bottom of the sea. it's interesting to me that it a party that was kind of ⁓ dealing with insurance, the risk that. ⁓ It was actually folks that were giving out the loan that were insuring it. And so you can see how important it was for giving the loans because it because, you know, folks that have that are sitting on a of money and want that money to work for them. And if ⁓ are a lot of people that don't want to participate the trade because, you know, some percentage of ships are going, ⁓ going, you belly up or belly down or what not, ending up in the bottom of the ocean, ⁓ then would they do that? So it's fascinating that that someone bright was like, you know what? I'm going loan you the money. And of course, ⁓ when they not just going to cover the risk without covering without you charging some premium on top of that cover to cover that so that's interesting how do you think how do you think they I mean this is like like mean I figured like in order to do that they'd have to have some idea about what are the chances that the ships will down I mean how do they do that I wonder right
Anthony DiGiorgio: and Hence, actuarial sciences were born.
Anish Koka: Right, right, right, right. So well before the actual Sansa run, were just, mean, all of the risk was basically and feel. I wonder if like the, ⁓ wonder if, ⁓ guarantee you ⁓ folks that were doing, giving loans must've had some ⁓ hand selecting the crew and the boats and stuff, right? Because they're not just going to be like, hey, did Giorgio, you've sailed twice and you twice across Lake Geneva.
Anthony DiGiorgio: Right, yeah.
Anish Koka: I know this is your maiden voyage across the Atlantic and here you go.
Anthony DiGiorgio: Yeah, I built this thing to scale in my bathtub. So now please fund my voyage. And I think that that really was the birth of the actuarial science, right? So the actuaries are the ones who price risk and price of insurance is essentially the price of the event happening times its frequency. So if it's a million dollar risk and it has a 0.1 % chance of happening per year, then the yearly cost to ensure it will be million dollars times 0.1%.
Anish Koka: Yeah.
Anthony DiGiorgio: Plus a little overhead, know, in modern times to cover the overhead of the insurance company. that's it. That is the price of insurance. And you can see as we get into eventually into health care, you start trying to use an insurance model for things that have a 100 % chance of happening like a primary care visit. It doesn't really make sense to use the insurance model because then you are essentially just paying for the cost of the thing you're insuring. ⁓
Anish Koka: Right, right, no, exactly right. ⁓
Anthony DiGiorgio: But anyway, that's of the modern, modern after Babylon, fast forward a little bit to Egypt and Greek and Rome. In Egypt, had workers guilds that would have these communal funds that would essentially pay for burial costs, food rationing if the worker became ill, or if the worker died, support for widows. And this was the first time you really saw collectivization of risk or risk pooling, which is... where, you know, everyone will contribute a little bit to pool the risk. ⁓ so you spread the risk out, over multiple people. And so you can cover the cost of if that thing were to happen a little better. and so Egypt, you know, these workers guilds in Egypt, and then, in, in Greece, they had these things called Erroni or Thessoni. And please, I'm sure somebody will correct me for those butchering pronunciations, but there are also voluntary associations, where you could sign up and, and they would essentially. ⁓ you would pay a fee and if you're as a member, became ill or impoverished, or even needed medical care, that, that ⁓ collective pay for it. And so really the first forms of true risk pooling were these Egyptian and Greek, societies that formed up, you again, you know, to quote Adam Smith and, know, invisible hand, from the bottom up sort of had these things arise naturally.
Anish Koka: The ⁓ it's really interesting that, you know, again, no government involvement. These are just local groups that are coming, coming together being like, hey, this is is kind of a smart way to do that. And the number of examples this are just incredible. And you know, goes to that point about, you know, ⁓ let the market meaning the market will come up with with certain solutions. You know, I was reading that even in Genoa, you know, ⁓ Florence and whatnot, you you would move from that what was outlined in the Hammurabi code to having separate different merchants insuring writing individual contracts to cover someone else's shipping. And again, all just gut and feel kind of stuff. I actually didn't know the history of Lloyds of London either. Did you come across that in your? Lloyds of London is one
Anthony DiGiorgio: No, no I didn't. I would love to.
Anish Koka: one of the biggest insurers. I should have probably looked up the numbers before doing this, but they're one of the largest insurers. They're one of the largest reinsurance companies right now. They are the insurance for insurance companies. And so in the 1680s, Edward Lloyd ran a coffee house in London ⁓ it was a coffee house. ⁓ was like ⁓ of the original Starbucks. Worship merchants, ⁓ and willing to kind of underwrite risk would gather to do deals. That is what involved into Lloyd of ⁓ London's, which ⁓ to this day is such important part of the insurance market. key innovation there was syndication where multiple underwriters would ⁓ each take some share risk and sign their under the terms, which is where kind of comes from. ⁓ then, yeah, the actuarial that came ⁓ after,
Anthony DiGiorgio: ⁓ I love it.
Anish Koka: you finally had math and science being applied to it and you know these actual tables of insurance that you know it's that that that of course is super interesting right because you start to butt up science starts butt up against societal mores or morals if you will right if you So because when you start to dice up the population, you find out that different populations are very different in terms of their risk profiles, ⁓ so.
Anthony DiGiorgio: that's why nobody would insure me ⁓ ⁓ a ship across the Atlantic because that's a high risk. ⁓
Anish Koka: Right, exactly, exactly right. Yeah, and that seems like, yeah, of course, that seems totally okay, that's, then there's certainly, there's certain, you know, immutable characteristics of folks. So if you are male, right, you're much higher risk of dying at a gauge. And when you're male, even now, even after many, years of post suffrage and women entering the workplace and stuff, men are still higher worth than are. ⁓ than our women. terms of insurance policies and how much it costs to insure ⁓ ⁓ ⁓ right? so as so yeah, so, ⁓ you know, insurance. Or say car insurance for, I don't know why I'm making it complicated, car insurance for young men, you know, should be more expensive because young men end up in more car accidents than young women do. And then, and that, ⁓ think because we live in a ⁓ that is okay with charging men more, nobody an eye at that. It's like, all right, these ⁓ darn men that are running around in their convertibles doing all kinds of things. you know, women, because they deliver babies much higher, ⁓ know, they're always going to be higher cost from that standpoint, you know, so is okay to ⁓ for insurance? Right. So is it, should we charge? Right. No, typically, typically not. Unless you deliver a bit. No, no. ⁓ Yeah. ⁓ of ⁓ but, yeah, but you know, society would ⁓ lose their if we charged women. ⁓
Anthony DiGiorgio: For health insurance, yeah. That's usually not covered under car insurance, typically, delivering babies.
Anish Koka: more than we charged men, right, for health insurance? you think? ⁓
Anthony DiGiorgio: Yeah. And an interesting, because the actuarial numbers are pretty accurate. And ⁓ a insurance company or one of these collective are paying more in claims than they're taking in in premiums, they're not going to be around, right? It's simple math. ⁓ If they out of money, they're not going to be able to pay claims. so if you...
Anish Koka: Right. Right. Right.
Anthony DiGiorgio: allow them to do their actuarial to actually collect premiums based on what their actuaries decide so they can keep their company afloat and their company will stay afloat. If they are not allowed to do that, they have to charge people who would otherwise be cheaper to ensure more to offset the inability to charge people who are more expensive to ensure more.
Anish Koka: Exactly. And that's why this is so important. that's why like if we you know, it should take some of the emotion out of things if it's like, look, this is it's a numbers game, right. And so somebody has to pay you if you want to ⁓ everyone somebody is going to have to pay differently if ⁓ ⁓ individuals, if want everyone to pay around the same amount. So if you want men and women, for instance, in this example, to pay the same amount.
Anthony DiGiorgio: Right.
Anish Koka: you know, health insurance, say to help to ensure a ⁓ to 30 year old ⁓ whether it be men or women, if you want to pay the same, ⁓ either the men are going to pay more to subsidize the lower risk women, correct? ⁓ or federal government is going to step in and subsidize it, which which means all of us are kind of paying and subsidizing that. ⁓
Anthony DiGiorgio: Or I mean, just if we could stick on our Lloyds of London example, if you you walk into coffee shop and Lloyds and try to get a contract to ensure your ship and you have no proof that you've ever sailed a voyage before or that you even have a functioning ship, they're going to charge you more to ensure that. And if they aren't allowed to, then that and they still have to offer you a policy, then that means everyone else they ensure is going to pay more than they otherwise would. And so go ahead. ⁓
Anish Koka: Yeah. Right. you. Yeah, exactly right. Exactly right. That was a great example. So you use the point we're trying to try to make here is is that if you start with the insurance market because of what you think is fair and equitable, et cetera, you actually end up with a system ⁓ is less fair. ⁓ unfair. ⁓
Anthony DiGiorgio: Right. Yeah, because if I I walk in there and get it, you know, the lois de l'un of the guys look at me and say your ship has a 98 % chance of sinking. So we're going to charge you, you basically point nine eight of whatever the cost of this, the sunk ship and then the government says you can't do that. Then everyone else says, hey, I get a low rate because I've proven that I'm a good sailor and I have a good ship that I'm reliable. Now I have to pay more to cover this Yahoo who has no the first thing about sailing. ⁓ So it
Anish Koka: Yeah.
Anthony DiGiorgio: It doesn't work well when the government starts trying to mess with what people are allowed to charge in insurance. And that's where health insurance really came in around World War II, birth of the Baylor Plan. And go ahead.
Anish Koka: Before you get there, I thought, ⁓ of a ⁓ an example of how, you know, societies involved through the ⁓ making government do things, right? The great fire of London in 1666, you know, destroyed 13,000 houses, right? When once that happened, that catalyzed, you know, the development of ⁓ fire ⁓ And a guy named Nicholas Barbon was one of the first folks that came out with the fire insurance company. This was in 1681. And so the early fire insurers actually maintained their own private brigades. And they'd only put out fires in buildings that displayed their company's fire mark on the facade. you can imagine, I mean, that presents all sorts of problems. Right, Anthony? you know, of course, I there was like, it was bound to not be something that ⁓ was to work because of course, fire spreads from ⁓ one to the next. and so you up with cities kind of stepping in and saying, okay, ⁓ we're putting end to private fire insurance companies and private fire brigades. And we're gonna, we're gonna socialize this and ⁓ we are pay all of us are gonna pay together for ⁓ one fire that will put out a fire everywhere. ⁓
Anthony DiGiorgio: And that I think that that's important to bring in that concept of reinsurance because it was something I just learned about a few years ago and that the insurance companies have insurance. Right. So if you know, there's there's numerous instances of this where you can look at like the mass fires or ⁓ Katrina, 9-11, you know, any of these these mass disasters, the Palisades fire, right, where the insurance company essentially is not going to be able to pay that claim.
Anish Koka: Right.
Anthony DiGiorgio: Or if they if were able to price this mass event into it, nobody would be able to afford the insurance. And so you have reinsurances and essentially that's largely what the government's function as right like FEMA is a type of reinsurance.
Anish Koka: Right.
Anthony DiGiorgio: for these big mass casualty events. that's, think, if we're talking about a role for government, I think that that's one that I'm okay with, is the government saying, we will be your reinsurance, especially if you wanna talk about something like healthcare or even homeowners insurance, will be your reinsurance to help keep the rates acceptable. Now, if you read someone like Thomas Sowell, he would disagree and say that we should not have the government be reinsurance because it... that's, think, if we're talking about a role for government, I think that that's one that I'm okay with, is the government saying, we will be your reinsurance, especially if you wanna talk about something like healthcare or even ⁓ homeowners insurance, we will be reinsurance to keep the rates acceptable. Now, if you read someone like Thomas Sowell, he would disagree and say that we should not have the government be reinsurance because it... unfairly mitigates the risk for people who would otherwise not take that risk like building a house in a flood zone. Because now if the government's going to be your insurance agency, your insurance is low. But if you actually had to price that in an actuarially fair manner, that would never be an affordable decision to put your house in a flood zone. So you're essentially offloading that risk on to taxpayers. unfairly mitigates the risk for people who would otherwise not take that risk like building a house in a flood zone. Because now if the government's going to be your insurance agency, your insurance is low. But if you actually had to price that in an actuarially fair manner, that would never be an affordable decision to put your house in a flood zone. So you're essentially offloading that risk on to taxpayers.
Anish Koka: Exactly, exactly. Exactly, exactly. Yeah, and that's exactly why I think should very, very, careful about how one extraordinarily small so, yeah, I don't know you know, if you want to build your house on the side of a cliff where avalanches happen every five years. Like, you know, it's one of these things like I have a right to build and build a house on the side of an avalanche. It's like, okay, fine, build a house on the side of an avalanche and I hope you survive but then you want insurance to rebuild it there. I don't ⁓
Anthony DiGiorgio: Yeah.
Anish Koka: You know, it's hard of course, but then it's like, well, know, New Orleans, New Orleans is, you know, below the below sea level, right? And like, well, what exactly are you going to do? Just have everyone. Yeah. Yeah. So.
Anthony DiGiorgio: Abandoned the city or yeah, or it northern California with wildfires, right you I think they're there Good ⁓
Anish Koka: Right. But I think. Sorry, if you don't, but then, there's got to be other solutions. you like, you're not going to abandon North Carolina, you're not going to abandon Orleans. And it's like, okay, like what are the mechanisms to prevent these things to make it a one in a thousand year event versus a one in a hundred year event? And if you don't do that, then, then you never kind of, well, I don't know if that's quite true, though, though, though California seems to be struggling with the, with wildfire. I don't know. don't know. Maybe is it not possible to make these much, much rarer events than they, ⁓ than are ⁓ perhaps but ⁓ it So again, the hand of government in terms of just allowing you to rebuild, rebuild, rebuild, is taking ⁓ some important of which ⁓ should be in by individuals when they're thinking about what to do and where to go.
Anthony DiGiorgio: And then you do have, if it's a private insurance company, they get to set some terms. And if it's the government, they get to set some terms also. So there's some discussion of, in California, if the state government is going to be a reinsurer, can they then control what you can grow outside your house? What sort of plants you can have? Or how close your garden can get to your house? And these are actual discussions saying that if you are socializing that cost, then...
Anish Koka: Right, right.
Anthony DiGiorgio: Essentially, you can socialize the decision of what kind of flowers you can plant in your flower bed ⁓ or how close the trees can get to your roof line. So brings up some tricky problems. But anyway, we have digressed and gotten away from the ⁓ timeline.
Anish Koka: Right. Right. Yeah, yeah, we have. absolutely. yes, yes. Sorry. So go back to heaven. So I'm sorry. It's my fault totally. I just thought it was such an interesting tangent. the first insurance, one of the first insurance models you were going to talk about was, you know, Baylor Hospital.
Anthony DiGiorgio: Right. Yeah. So Baylor, it was the teachers at Baylor, they decided to pull risk and this was actually, I don't have that written down. It was in, I believe it was in the forties. You should look that up. Well, you look it up while I say it. Yeah. So they, pulled risk and it was essentially, I think it was like $6 a year per member and it covered a certain number of hospital days. So they had an arrangement with the local hospital.
Anish Koka: When was this, warrior? I'll look it up. Go ahead, keep talking. Yeah, yeah, yeah.
Anthony DiGiorgio: And so if anyone needed hospitalization, these hospitals were relatively new phenomenon, right? They were finally getting to the point. This was post-World War I. You had things like anesthesia and antibiotics for the first time. So you could have surgery be a safe option for care. so hospitals started cropping up, but it was a little expensive. And so one of the first hospital insurance plans was this Baylor plan.
Anish Koka: This is 1929-1930.
Anthony DiGiorgio: There we go. So post World War one, you really had all these new techniques.
Anish Koka: So what was the incentive, did you say, to come up with this plan? the nurses coming together? ⁓
Anthony DiGiorgio: It was the, ⁓ I believe it was Baylor teachers came together and it was the fact that that ⁓ was now a new thing that was relatively safe ⁓ people to have insurance for that. So it covered a certain number of hospital days per year. And again, was a risk pooling, ⁓ a voluntary pooling association.
Anish Koka: Yeah, it's interesting. There's two, I think there's a few different perspectives on why it is that that came to be one of the perspective, one of the one of the that may have spurred it. Some people believe is that Baylor hospital itself, because they were going through the depression, had ⁓ far hospitalizations and they saw their receipts drop, right? And they were like, wait, how do we make money even if the ⁓ hospital has, know, has empty beds? And so one the ways to do this was ⁓ to create this plan that is like, like, ⁓ you we will cover this many places if you know this many beds or whatever, you know, regardless of whether you're insured or not. So, yeah.
Anthony DiGiorgio: Yeah, was essentially a win-win and that morphed into Blue Cross. So that was essentially the birth of Blue Cross.
Anish Koka: Right. Okay. All right. So then, so what, that was in 1920, 1930s, you know, spurred by the great depression, you know, hospitals were losing money and they came up with this plan to try to, you know, the numbers are of course insane, right? It was like gross receipts dropped from $236 per patient to $59 per patient. It's like, man, that's some.
Anthony DiGiorgio: Yeah. you had these were all kind of from the emerged naturally. had like Henry J. Kaiser, who created his own vertically integrated health care system to keep his workers healthy. Right. He was an industrial magnate. And so he wanted his workers to be healthy. So he made his own health care corporation, which is now ⁓ more of his legacy than than actual industrial work. ⁓ And there are other employer groups, ⁓ the Public Workers.
Anish Koka: Right.
Anthony DiGiorgio: together their own collective. And again, these all emerged naturally. There was no government intervention. This all came about and they were all voluntary. Everything was transparent. And, you it really was still only for emergencies, right? Nobody was ensuring, again, going back to this concept that if you ensure something has 100 % risk of happening, it's not economically ⁓ efficient to so. And ⁓ they realized the Baylor teacher group wasn't going to pay for your primary care. because why does it make sense to pool everyone's risk for something that people are doing anyway? It's it's not economically efficient. So it was only for emergencies and then came World War II.
Anish Koka: Yes, please tell. So what happened around World War II?
Anthony DiGiorgio: So the government said, you can't give your employers employees wage increases anymore. They were trying to fight inflation. ⁓ most of the workforce was overseas fighting ⁓ ⁓ government didn't want inflation for the remaining workers. so ⁓ were frozen. And order to in order get entice employees to stay or to give them rewards, employers started offering health insurance as a benefit. And it was tax exempt for the employer and taxes exempt for the employee. So was essentially double subsidized if you give them a raise, the employer plays employee, ⁓ it plays payroll tax and the employee pays income tax, but this is double tax free. So it was even ⁓ more a benefit than a straight pay raise. And that how insurance really got tied to employment. It was this heavy subsidization that once that got kind of written into law and into everyone's expectations, there was no going back because you can never start taxing that now without people being furious. And ever since then, ⁓ we now had our health insurance locked to our employment.
Anish Koka: Was that initial insurance plans that came up through ⁓ ⁓ plans? ⁓ they ⁓ only plans?
Anthony DiGiorgio: Everything. mean, like you look at what Kaiser offered, right? So he offered primary care for his employees. It was through his company. He hired the doctor. He built the clinic space. But it was, again, was whatever, know, thousand different things because people were allowing this to emerge naturally.
Anish Koka: All right, that's, yeah. So this massively, you this massive explosion of health insurance, everyone offering ⁓ health ⁓ And this is very, very good for insurance companies. it good for individuals ⁓ as well ⁓ this came ⁓
Anthony DiGiorgio: It was certainly good for doctors and hospitals, right? If you are having this big tax-subsidied influx of capital into healthcare, it's going to create a boom for doctors and hospitals as well. employees obviously liked it. So I think people felt good about it. There's clearly no data on whether or not this improved anything because the counterfactual is a healthcare system that never had this happen and you could never prove that one way or another.
Anish Koka: You know, as societies become wealthier, of course, you know, they're going to focus more on health, right? And, you know, perhaps it's not an accident that, you know, the tremendous boom in medical innovation that kind of happened. mean, you know, 1920s to the 1980s, I mean, that represented kind of Innovation in medicine that was pretty pretty remarkable. You're talking about ⁓ bypass surgery, you know You know heart lung bypass, I mean, this is pretty impressive stuff that that have ECMO anyway, it pretty impressive stuff that happened I mean, is that necessarily a bad thing that you had, you had, ⁓ know, you had a system that sent many dollars to, ⁓ to It seems like finally you had an economy society that so wealthy that it could, it could do that. And that kind of, ⁓ you know, maybe was people push back, say maybe, maybe Dr. Georgia, wasn't such a bad thing. ⁓
Anthony DiGiorgio: Yeah, think it I don't think it necessarily was but again, we'll never really know that that counterfactual right? think that's one of things I learned a lot again from reading Sowell is that you don't know, you know, you don't know what you didn't get in terms of other innovations or other economic growth, right over those years if you're shuttling these dollars into healthcare instead of whatever else it could have been. Who knows what innovations we would have had. So I think you'll never be able to prove that counterfactual one way or another. What do you think?
Anish Koka: Right. Yeah, I know I think I am. think that I think the same thing probably would have happened just in the private markets. think I think a lot of people will dismiss that as just hand waving speculation, which of course they can. but, you know, again, I think if you look at the pace of innovation pre-Medicare post-Medicare. I mean, I think you had a tremendous amount of innovation that happened in the 1950s. Yeah, the cloud, the blue baby, you know, the congenital heart, blue babies that were born. mean, where, you know, there was, there was just, ⁓ was just a massive, know, when you have these robust, huge, economies that are just throwing off lots of dollars, ⁓ you yeah, people are going to, you know, fund their hospital. People are going to ⁓ attach a of value to health and, and, ⁓ and, and going to I think less, waste ⁓ when you have. ⁓ individuals of in charge of those dollars versus the government which is basically paying everything you know because you know someone said okay this is what I'm doing ⁓ so so yeah I know I think yeah ⁓ we'll know but but I clearly you know we've had so ⁓ we've had you know the ⁓ explosion in of health insurance and and you know that big ⁓ flaw in of insurance moving from like, like, when so when, when did it really happen that health insurance went from because culturally, it feels like that, right? Culturally, it feels like even from when I was, you know, when I was, you know, when I was a kid, that health insurance should cover your regular doctor's visit. You know, that change happened, happened with what do you think?
Anthony DiGiorgio: I think it was largely with Medicare, right? Because so immediately post-World War II, you had the UK, the birth of the NHS. And was the first time I said, you know, from cradle grave, the NHS, the government's going to cover your healthcare. And, you know, fellow Anglosphere country doing that, I think really affected the US mindset. Amazingly, ⁓ the US, know, that off ⁓ until 1965 when LBJ Goldwater. Um, and you know, saw that as a mandate to go forward with Medicare, but really Medicare was the first, uh, big government foray into healthcare. There was sure that tax subsidy, but, uh, the government wasn't running a healthcare plan until Medicare came along. And I think that was, that was when that culturally shifted Medicare covered primary care visits, right? Uh, and Medicaid covered primary care visits. And then you, you know, fast forward to 2010 and you have the affordable care act.
Anish Koka: Right.
Anthony DiGiorgio: mandating that preventative care, contraception, obstetrical care, all these non-emergency standard preventative care services should be covered by an insurance model. And I think ⁓ kind of ⁓ the final nail in the coffin that yes, we're going to societally look at this as not so much insuring, I think it's more ⁓ to say socializing the costs of all those things, which of course makes it less efficient and more expensive.
Anish Koka: Yeah, the fascinating example from recent history is Audubon Bismarck in Germany, who in the 1880s, this is 19th century, actually created a number national ⁓ social insurance plans. he didn't do because he was a socialist. ⁓ He did it. ⁓ did it exactly ⁓ he was trying to the whole country from becoming socialist. ⁓
Anthony DiGiorgio: Right.
Anish Koka: So there's some, know, it's the hard part here is constantly trying to battle against demand induced in the population ⁓ by ⁓ for rights, ⁓ right? I that's a very powerful impulse. ⁓ And I we've lost that battle in the sphere ⁓ or not we, I say,
Anthony DiGiorgio: No, think that's right. It's a good point.
Anish Koka: Yeah, argument against, I was trying to elucidate who was making the argument, one versus the other. The argument against socialism fundamentally has been lost over and over and over again in the West since World War II. Yeah, I even since before World War II, starting with the Great Depression. these cataclysms, yeah, right, with Volshukliks, of course, yes. And I think, you know,
Anthony DiGiorgio: Starting with the Bolsheviks.
Anish Koka: That isn't the history that I grew up with. history I grew up with was like the victory of individualism, capitalism and rugged liberty, rugged individualism. And ⁓ is a ⁓ country and Britain is ⁓ capitalist country as well. ⁓ when you really start looking into the of these things, you realize that, my goodness, we have really been ⁓ backsliding we've lost these public over and over to the two folks that want to socialize kind all of risks. question really becomes does one ⁓ win that debate the sphere to try to kind of move the needle back? And I don't know if it not be possible. Certainly in the 19th century, Ottawa and Bismarck was like, you know, the whole we're going to get we're going to get to socialism unless I can introduce some national programs, which kind of cover the cost of things to kind of keep the population placated. Of course, what what happened in Germany may not be the may not be the greatest example of, you know, of what there is to do. But but yeah, I think we all have to be certainly a lot more educated about the history of this. so that we can kind of understand where the mistakes were made and kind of have a better conversation about this. Otherwise, you know, we're just producing, know, ⁓ and armies of ⁓ healthcare professionals and doctors ⁓ just have a slogan that says, healthcare is right and we want healthcare, right? It's like, ⁓ that exactly the problem. ⁓ So only gonna make things worse if you keep, ⁓ you know, sloganeering about like this. Well, Dr. Georgie, yeah. Yeah.
Anthony DiGiorgio: I think that was I was just gonna say I think that was kind of like Friedman and Hayek even said that you keep having to defeat socialism because it sounds so good just have the government provide everything for you, right? It really is enticing that argument goes back to know, French Revolution, know, even pre that the real socialist and it has been defeated again and again and again and it keeps cropping up because it is it's an enticing argument. I think it totally makes sense.
Anish Koka: Yeah. Well, Britain, Britain appears to have lost. don't think I don't think ⁓ I mean, I yeah, I think incredible to me that Britain, you know, the birthplace of in many ways, you the ⁓ least the second era of enlightenment or ⁓ whatnot, that they, you know, physicians one woke up as ⁓ all employees of state who needed permission, dispensation ⁓ work ⁓ ⁓ the state, I Aneurin Bevan should do mini episode on that whole thing. Aneurin who was kind of the father of the NHS, famously said, in order to get the doctors agree, I stuffed their mouth with gold, which by stuffing their mouth with gold meant I... ⁓ I allowed them to practice on the private side, know, in evenings and on weekends, they could practice and take money from the nation. so, so yeah, I, you know, we stand, know, it's certainly concerning that where we are and where we're going and will we defeat socialism again? I hope we do.
Anthony DiGiorgio: Mm-hmm. Well, I think it's self defeats, Because it is essentially unsustainable and you always end up going the way of Venezuela or Cuba or the USSR.
Anish Koka: Right. All right. Right, right, right. right, so well, this is ⁓ Thank you. Amateur historian, Dr. Giorgio. ⁓ was a rundown of ⁓ ⁓ impressive. I like it. ⁓ right. ⁓ so much, Anthony. ⁓
Anthony DiGiorgio: Amateur actuary. Yes, professional at nothing. Thank you.