, Heritage writer
Insurance visionary? These two words don’t often go together.
Harold Albert Hatch was the exception: He was an insurance agent who had a bright idea that helped change the course of American health care. He did this when he suggested an unorthodox reimbursement approach to a young physician, Sidney Garfield, sometime in 1934 — prepayment.
This novel approach to industrial health insurance kept Dr. Garfield’s practice afloat, and survives as one of the fundamental components of the Kaiser Permanente health plan. It inverts the conventional model of medical economics, favoring prevention over treatment.
Prepayment for health care was not a completely new concept — the Ross-Loos Medical Group adopted it in 1929 to cover 12,000 employees and their families in the City of Los Angeles’ Department of Water and Power. But the practice for on-the-job care was novel.
Dr. Garfield and his partner Dr. Gene Morris ran a clinic in Southern California’s remote Mojave Desert for the workers on the Colorado River Aqueduct Project. It was standard industrial medical care, which was voluntary for California employers beginning in 1911 (and mandatory in 1914) to keep employees healthy and on the job. Industrial Indemnity was the largest insurer on that project.
The process was straightforward: A worker gets hurt on the job, sees the doctor, and the doctor gets insurance reimbursement. Workers’ compensation insurance worked — until it didn’t.
The issue for Dr. Garfield was that insurance companies challenged full reimbursement for bills and were slow to pay those they accepted. Dr. Garfield also handled medical care not covered by the insurance, and the workers couldn’t afford to pay much.
Confronted with the lag in reimbursement for care, Dr. Garfield was at risk of losing his practice, and the workers were at risk of losing the local health care they liked. Dr. Morris packed his medical bag and left.
Here’s how Hatch came in to help. Industrial Indemnity Exchange began when several major contractors (including Henry J. Kaiser and Warren Bechtel) banded together to self-insure their industrial health care in 1921. By the end of 1942, Industrial Indemnity would grow to be California’s second-largest writer of compensation insurance. Henry Kaiser’s right-hand man, Alonzo B. Ordway, was tasked with running it, and in 1934, they hired Hatch as underwriter and policy strategist. Hatch had been an engineer who as a child had been partially physically impaired by tuberculosis of the bone.
Hatch befriended Dr. Garfield, and proposed the novel insurance idea — paying 17.5 percent of its workers’ compensation premium back to Dr. Garfield to care for job-related injuries. That was 5 cents a day guaranteed income from each worker. Dr. Garfield accepted. The two men then completed the prepayment equation by adding a voluntary nonindustrial health plan for the workers for another 5 cents a day.
With Dr. Garfield’s practice financially viable, he hired more physicians and built temporary hospitals along the aqueduct’s route. When the construction project ended, Hatch and Ordway recommended Dr. Garfield as the perfect candidate to care for workers at the Grand Coulee Dam in Washington. There, from 1938-1940, Dr. Garfield expanded his model to include a prepaid plan for worker families as well.
Hatch continued to consult with Kaiser and Dr. Garfield until 1948, when he founded the Argonaut Insurance company, which by the time of his death in 1962 was the second largest writer of workers’ compensation insurance in California.
Thank you, Harold Hatch, for your pioneering role in the evolution of health care insurance.
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