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Affluent Christian Investor | November 21, 2017

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Mutual Aid Societies – Fraternal Organizations in the United States

Print from 1870 portraying George Washington as Master of a Freemason Lodge.

The concept of fraternal aid was quickly adopted in the American colonies, starting with the Freemasons, which organized a lodge in Boston in 1733 [i] and spread to other coastal cities, according to David Beito in “From Mutual Aid to the Welfare State.” The Freemasons tended to be comprised of the upper crust of American society and included such luminaries as George Washington, John Hancock, and Paul Revere. After the revolution they broadened their membership to include artisans and skilled craftsmen. Unlike other emerging fraternals, the Freemasons remained decentralized and focused more on charity than mutual aid. Freemasonry was not strictly a white phenomenon. The African Grand Lodge of Massachusetts was founded in 1791, and by 1840 there were black Freemason lodges in New York, Pennsylvania, Maryland, and the District of Columbia.

Through the 1700s, American mutual aid groups tended to be local, one-lodge affairs, based on kinship of ethnicity, location, occupation, or religion. But they tended to be a mixture of economic classes, including merchants, tradesmen, and laborers.

Larger, “affiliated” orders began to be imported from Britain in the early 1800s. One of the first was a Baltimore lodge of the Manchester (England) Unity of Oddfellows in 1819. The Oddfellows grew into other communities and broke off from the English order in 1842 to form the Independent Order of Odd Fellows (IOOF). [ii] Other imports included the Foresters, Rechabites, and the Druids. [iii] They all tended to draw members from all economic classes and often had skilled workers in leadership.

As they became more organized, the societies tended to regularize the benefits of membership. Rather than giving out aid on an as-needed basis, the Odd Fellows had a defined stipend of $3.00 to $6.00 per week for members who were sick, for example. They were insistent that this was not charity but a benefit that was a right of membership.

The IOOF grew from 3,000 members in 1830 to 465,000 in 1877, and dispensed $69 million in benefits during this time. But the formal monetary benefits were not the most important advantage of membership. As important were the ability to connect to a community when relocating for work, and the personal assistance members gave to one another during times of hardship.

 

The Common Devotion to Virtue

Like their British counterparts, the American fraternals emphasized the value of virtue, including thrift, sobriety, civility, self-reliance, and honesty. This was true whether the organization was made up of native-born American men, women, immigrants, or African-Americans. David Beito takes an in-depth look at five such organizations, the all-black Independent Order of St. Luke and the United Order of True Reformers, the white male Loyal Order of Moose, the all-female Ladies of the Maccabees, and the male/female Security Benefit Association. [iv]

He finds that while each had different memberships and different activities, all shared the same underlying value system that may be summed up in this statement from the SBA –

“Its prime object is to promote the brotherhood of man, teach fidelity to home and loved ones, loyalty to country and respect of law. To establish a system for the care of widows and orphans, the aged and disabled, and enable every worthy member to protect himself from the ills of life and make substantial provision through co-operation with our members, for those who are nearest and dearest.” [v]

The orders tended to be non-sectarian, at least in the early days, and were strictly non-partisan politically. That didn’t mean they shied away from social movements such as temperance and women’s suffrage. The leaders of the Ladies of the Maccabees were also prominent leaders of feminism in the Nineteenth Century. [vi]  But they also encouraged their members in entrepreneurialism and learning financial and managerial skills.

In fact, most of the fraternal societies were extremely entrepreneurial. These five orders alone established orphanages, hospitals, banks, retail stores, old-age homes, schools, and newspapers. This was especially true for the black orders which felt their members were not well served by white businesses, but Beito also devotes an entire chapter to Mooseheart, a boarding school for the children of deceased Moose members. Opened in 1913, enrollment exceeded 1,000 children by 1921. [vii]

 

Life Insurance and Medical Benefits

But by far, the main activity of the fraternal societies was the offering of life insurance. This was a natural outgrowth of the initial offering of death and funeral benefits that enabled members to avoid the humiliation of a pauper’s funeral. [viii] Life insurance was initially offered by the Ancient Order of United Workmen (AOUW) in 1868. Beito notes that AOUW originally offered it as an incidental benefit of membership. It guaranteed a death benefit of $1,000 (later raised to $2,000) paid for with a $1.00 per capita assessment. It was so popular that membership in the organization rose to 450,000 by 1902 [ix]

This was quickly copied by many other orders until, “By 1908 the 200 leading societies had paid well over $1 billion in death benefits.” Beito quotes from a 1910 article in Everybody’s Magazine that fraternals had become “an enormous army (made up of) the middle-class workman, the salaried clerk, the farmer, the artisan, the country merchant, and the laborer.” Beito reports that fraternal life insurance societies had 1.3 million members in 1890, and grew to 8.5 million by 1910, making for a substantial majority of the total membership in fraternal societies of 13 million. When combined with the membership in local lodges not included in the above numbers, Beito “conservatively estimates” that “one-third of all adult males over age nineteen were members in 1910.” [x]

Importantly, the value of life insurance was shared by all ethnic groups. A survey in Chicago in 1919 found that 93.8 percent of “wage-earning” black families owned a policy, as did 88.9 percent of Bohemians, 88.5 percent of Poles, 88.4 percent of Irish, and 85.2 percent of native whites. Not all of this was provided by fraternal societies. Commercial life insurance companies had jumped into the business, and at least two commercial companies, Prudential and Metropolitan, had evolved from fraternals. [xi]

Those fraternal societies that did not follow the life insurance model tended to expand their sickness funds into medical benefits. They were particularly drawn to “lodge practice” medicine in which a local lodge would hire a physician (or several) to care for their members. Typically, each member paid $2.00 per year and the lodge doctor would be their source of primary care. If they became seriously ill, they might engage a specialist on a fee-for-service basis. In some cases this fee covered only the lodge member, in others it included family members. In some cases medications and minor surgery was covered, in others it was not. [xii]

The benefit proved extremely popular and grew exponentially in just a few years after the turn of the century. The King County Medical Society (Seattle) estimated 15,000 people were covered in that area in 1906, compared to “only a few hundred” in 1899. Surveys in Pennsylvania found the numbers doubled from 1908 to 1912.  Just three societies (Moose, Eagles, and Foresters) employed “several thousand doctors to look after the medical needs of a half-million members” in 1910. [xiii]

 

PUSH BACK FROM ORGANIZED MEDICINE

Unfortunately, this movement ran smack dab into a concentrated push by organized medicine to improve its fortunes by increasing its professionalism and reducing its numbers, thereby raising their income.

Around the turn of the century, the American Medical Association (AMA) began a drive to increase the professional reputations ­­ and incomes ­­ of its members. In 1901 it reorganized from a direct membership association into a confederation of state medical societies, which were in turn confederations of county societies. Any physician who wanted to belong to the county society automatically became a dues paying member of the state society, and hence, a member of the AMA.

Physicians were motivated to join their county societies in part because the local societies agreed to defend member physicians from malpractice litigation and often could influence hospital privilege policies. The AMA’s efforts were astoundingly successful. In 1900 it represented only 8,000 of the 110,000 physicians practicing medicine in the United States. By 1910, it represented half the profession. [xiv]

This new power enabled the AMA to aggressively strengthen professional licensing laws at the state level. It also began to take control of medical education by requiring standards of accreditation for medical schools, as recommended by the landmark Flexner Report in 1910. [xv]  These standards were built into state accreditation laws.

These efforts were remarkably successful. In a single generation, from 1900 to 1925, the number of medical schools was cut in half, as were the number of medical students. The impact on minorities and women was even more profound. African­American medical schools shrunk from seven to two, and women and Jews were largely excluded from medical education. [xvi] Most of the schools that survived were affiliated with hospitals and universities, and medical education became inseparable from hospital based clinical training and research oriented universities. [xvii]

The newly powerful voices of organized medicine went to work to end the practice of lodge medicine. They objected to the idea that common workmen could be their bosses and that competing for lodge contracts on an annual basis depressed their incomes. They decided to drum out lodge physicians from the profession. They were not subtle. The Pennsylvania Medical Journal editorialized in 1904 that, “the ‘club doctor’ must be shut out of the profession.” [xviii] Beito writes –

“No opprobrium was off limits in depiction of the lodge doctor. He was a ‘scab’ who broke ranks with professional solidarity, an incompetent ‘quack’ spewed out by a low-grade diploma mill, and most unforgivably, a ‘huckster’ bent on commercializing the noble art of medicine.” [xix]

County medical societies were especially active in punishing such physicians, labeling them as unethical, depriving them of membership, boycotting them, and often getting hospitals to deny admitting privileges.

Some fraternal societies challenged the restrictions as illegal restraint of trade, but this was in the midst of the Progressive Era, which was committed to a society in which a well-educated elite was entrusted to manage the affairs of the populace. Judges, being part of that elite, were unsympathetic to the pleadings of uneducated workers. [xx]

 

Insurance Industry Push Back

So, as in England, American physicians did what they could to terminate one the primary benefits of fraternal society membership, low cost medical services.  Also as in England, the commercial insurance industry, having awoken to the market potential of life insurance, attacked the other primary benefit, low cost life insurance. It’s easy to see why the commercial insurance companies were alarmed. Beito writes –

“Societies attracted millions of Americans and posed stiff competition to the old-line (commercial) companies. A direct comparison of fraternal and old-line rates shows why. In 1896 the median annual assessment paid by members of the twenty-nine leading fraternal orders was just over $10 per $1,000 of insurance. An annual premium for a leading old-line policy of the same value, by contrast, was about $20 for a man at age twenty-five and $48 at age fifty.” [xxi]

Here is an early example of “crony capitalism” or corporate rent seeking. If a company is having trouble competing in the market, it goes to the legislature and gets them to use the force of government to hurt their competitors.  This was true not only for commercial insurers versus fraternal societies, but for some of the older established fraternals versus the newer start-ups.

Some of the older societies were beginning to have problems paying benefits as their membership aged. They had to impose additional assessments on existing members, and they began to use aged-based rating rather than equal premiums for all their members. They began to push for state-level regulations in 1900 through what was known as the Force Bill. This bill exempted older societies but mandated that newer societies use age-based rating. It was adopted by seven states before the effort fizzled out. [xxii]

On the federal side, Senator John Dryden (R, NJ), who was also the founder and president of the Prudential Insurance Company, introduced legislation in 1904 that would have disallowed fraternal societies from using the U.S. Mail. The bill didn’t go anywhere but it served as a warning shot about future efforts. [xxiii]

As the societies began to look more like insurance companies with age rating and accumulated reserves, the state insurance commissioners began to push for oversight of their activities. There was initial resistance, but increasing numbers of the fraternal societies decided it was better to have a seat at the table (to borrow from recent Obamacare negotiations) and help shape the new requirements than to fight it outright. By 1919 what was known as the New York Conference Law, which standardized the regulation of fraternal organizations including the rates and benefits and placed them under the control of state insurance commissioners, had been adopted in forty states. [xxiv]

At the same time there was a sustained campaign to enact Workman’s Compensation laws across the country. This campaign was strongly supported by employers who wanted protection from liability for workplace injuries, and to better manage and predict the expense of industrial accidents. The first law requiring companies to provide workers’ compensation was passed in 1902, and by 1921 all but six states had enacted similar legislation. [xxv] This, too, was a blow to fraternal societies, which had been cooperatively offering benefits to sick and injured workers for many years.

 

[i] David T. Beito, From Mutual Aid to the Welfare State, University of North Carolina Press, Chapel Hill, NC, 2000. P. 5

[ii] Ibid. P. 9

[iii] Ibid. P. 10

[iv] Ibid. P. 27+

[v] Ibid. P. 28

[vi] Ibid. P. 31+

[vii] Ibid. Chapter 4, P. 63+

[viii] Ibid. P. 26

[ix] Ibid. P. 12

[x] Ibid. P. 15

[xi] Ibid. P. 25

[xii] Ibid. Chapter 6 P. 109+

[xiii] Ibid. P. 111

[xiv] Paul Starr, The Social Transformation of American Medicine, Basic Books, Inc. New York, 1982. P. 240

[xv] Terree P. Wasley, What Has Government Done to Our Health Care? Cato Institute, Washington, D.C. 1992. P 42-43

[xvi] John C. Goodman, The Regulation of Medical Care: Is the Price Too High? Cato Institute Public Policy Monograph #3, San Francisco, CA, 1980. Pp. 9-14.

[xvii] Starr, op. cit. 126

[xviii] Beito, op. cit. 105

[xix] Ibid. 116

[xx] Ibid. 127

[xxi] Ibid. 131-132

[xxii] Ibid. 137-139

[xxiii] Ibid. 139

[xxiv] Ibid. 141-142

[xxv] Starr, op. cit. 109-110

 

Greg Scandlen
Greg Scandlen has over 30 years experience in health care financing. He is an advocate of patient empowerment, consumer choice, and increased competition. As founder of the Council for Affordable Health Insurance in 1991 and Consumers for Health Care Choices in 2004, he helped get Health Savings Accounts enacted and implemented. He is now retired and living in Waynesboro, PA where he is active in his church and local politics.

 

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