As a brief introduction I will let my readers know that this is the first of five posts that will be aimed at analyzing the current issue of Healthcare. These posts are primarily for my own pleasure, for the purpose of elucidation and crystallizing my own opinions. Informing anyone who reads this is only a secondary consequence.
Anytime a person gets sick or infected it is important to diagnose—before a remedial process can begin— what the sickness is, and how it came into existence. It is no surprise that the same is true when analyzing the problem of our current healthcare system. Therefore, the first and initial procedure in this investigation is to discover how our nation got into a Healthcare catastrophe in the first place:
However, today this step is being seriously evaded.
It is ironic that today, millions of citizens are rioting at town-hall meetings and at tea-party’s all clamoring that they don’t want Washington bureaucrats intervening in their health care—without realizing just how much the bureaucrats already interfere.
Today, everyone seems to have a different take on how to solve America’s healthcare problem. But notice that every solution offered involves some elaborate new system of government controls. Different proposals include a “public option,” mandatory insurance for individuals, government-supported health-care exchanges, government-sponsored “efficacy research,” government-supported co-ops, and as many other ways of dictating consumer and producer behavior as can fit in a 1,000-page bill.
However more regulation will not fix our Healthcare problems.Currently, everyone has failed to see that the reason our healthcare system does not work is because The U.S. government has had its hands in every aspect of the system for decades—regulating and dictating everything from the insurance we receive to the drugs available to us.
With the vast amount of already existing regulation showing its true colors-of failure--More government controls, we are told, are necessary to solve problems such as skyrocketing health-insurance prices, lack of competition among insurance companies, the inability of workers to keep their insurance policy when switching jobs, etc.
Really?If more controls are necessary to stimulate good business, Then why do giants of the computer industry like Google, Microsoft and Apple compete vigorously without a “public option”? Why do we have such plentiful, affordable food without a government “food insurance mandate”? Why does laser eye-surgery, which is not covered by Medicare or government insurance laws, get better and cheaper all the time, while the price of health services the government is most involved in, skyrockets?
The answer is that these other markets are (comparatively) left free--while health care has been manipulated by government “solutions” for decades. Thus, our healthcare discussion should focus, not on how government controls can solve our problems, but on how government controls have caused our problems:
First consider the general phenomenon of skyrocketing prices for health insurance. The ways in which the government drives up prices are essentially endless, but here are a few. [By Alex Epstein, ARI]
• State insurance-mandates force companies and individuals to buy policies covering all sorts of expensive treatments they wouldn’t otherwise buy coverage for: chiropractic care, psychiatric care, prenatal care. Every such “benefit” means higher costs. Those who would prefer just to purchase insurance against medical catastrophe and pay for everything else out of pocket are prohibited from doing so.
• More broadly, since the 1940s, on the idea that health care is a “right” (I’ll focus more in this issue in Part III of this series) that others must provide, the government has made Americans collectively responsible for each other’s health care, whether through collectivized employer plans or through Medicare; thus, on average, “every time an American spends a dollar on physicians' services,” explains health economist John Goodman, “only 10 cents is paid out of pocket; the remainder is paid by a third party.”
People consuming medical services on other people’s dime consume a lot more. Prices are further driven up by numerous restrictions on the supply of medical professionals, such as protectionist licensing laws that prevent doctor’s assistants, nurse practitioners, nurses, and paramedics from competing with doctors on services they are well qualified to perform (fixing minor bone breaks, diagnosing the flu, etc.).
When supply is artificially limited, and demand artificially increases, prices explode. (Any system promising “universal care” experiences this--the much-vaunted “affordable” European system just deals with it by severe rationing.)
In addition Here are four major governmental healthcare problems, brought up by Jeff Scialabba, a writer for the “Voices for Reason”, an affiliate with the Ayn Rand Institute, and the Ayn Rand Center for Individual rights. [Note: these next four points are not my own]
1. To begin, let’s take a look at one of the prominent features of our health care system: employer-sponsored health insurance. Businesses large and small struggle with the cost of providing health insurance for their employees. Employees begrudge a lack of options and volatility in coverage caused by employers looking for cheaper plans. People everywhere fear losing their job—or alternatively, feel trapped in jobs they dislike—for fear of losing coverage. So why do we have employer-sponsored health insurance? Employers don’t pay for our car or homeowner’s insurance, so why does over 60 percent of the population—including over 90 percent of the privately-insured under age 65—rely on their employer for health insurance? Essentially, it is because the U.S. government has incentivized and forced that outcome for more than sixty years.
Employer sponsored healthcare is a phenomenon that was institutionalized beginning with the Stabilization Act of 1942. This bill, which remained in effect throughout World War II, gave the government enormous control over the economy and imposed sweeping wage and price freezes across the U.S. Although it forbade wage increases, the law did not prohibit the expansion of employee benefits, and businesses began to offer health benefits as a means of attracting and retaining employees. In a country with a workforce depleted from the war, offering health benefits was a way of circumventing the wage freeze to gain a competitive advantage in the battle for scarce labor.
A further incentive for employers to provide health benefits came in the form of a 1943 tax court ruling, later codified in the Internal Revenue Code in 1954. This ruling stated that insurance premiums made by employers on behalf of employees were not taxable, meaning it was now economically advantageous for businesses to offer tax-exempt health benefits in place of taxable wages. Such an exemption, however, was not—and never has been—extended to individuals purchasing health insurance on their own. Thus through tax policy, the U.S. government created not only a strong incentive for employers to offer health insurance as a benefit, but also a strong incentive for individuals to seek insurance through their employer.
These tax incentives, perhaps more than any other government intervention, have ensured that employer-sponsored insurance has become the fixture of the U.S. health care system that it is today. But they alone are not the whole story. Where these incentives are not enough to induce a business to offer health benefits, legislation often forces businesses to provide them. Such legislation includes federal laws such as the Taft-Hartley Labor Relations Act of 1947, which requires businesses to negotiate with unions for health benefits, and state laws such as those in Massachusetts, where businesses are fined unless they provide coverage for their employees.
2. Another important feature of health insurance in the United States that has been fueled by government intervention is the fact that it is almost always comprehensive.
Contrary to other kinds of insurance, which typically cover only catastrophic expenses, our health plans cover routine care such as annual check-ups. Homeowners insurance covers fire damage but not your monthly electricity bill, car insurance protects us against the cost of an accident, not an oil change. Yet health insurance pays for our physicals and basic tests. How come?
In the 1930s, the United States was mired in the Great Depression and the health insurance market was still in its infancy. Out of fear of bills going unpaid, hospitals and doctors formed their own insurance companies. These companies, which would later become Blue Cross and Blue Shield, offered pre-paid plans that provided comprehensive coverage of services provided by any hospital or doctor within the network. The U.S. government laid the groundwork for this comprehensive model to become the U.S. standard by granting non-profit status to the Blues, which exempted them from taxes and insurance regulations. In the emerging health insurance industry, this made the Blues’ model of comprehensive insurance profitable and gave them a huge advantage over other insurers, who were compelled to offer, at great expense, the same kind of comprehensive insurance package to remain competitive. Unsurprisingly, the Blues experienced explosive growth, covering 59 percent of the insured by 1945. The government further served to entrench the comprehensive model as the U.S. standard when it established Medicare and Medicaid in the 1960s, and adopted it as their basic mechanism.
Thus, thanks primarily to government interference, about 95 percent of the insured population in America—roughly 240 million people—is covered by comprehensive health insurance provided by a third party. While there is nothing inherently wrong with comprehensive or third party-provided insurance (provided the third-party isn’t the government and provided these features are voluntarily offered and voluntarily chosen), the fact that this form of insurance has come to dominate the insurance market through government intervention is a major cause of our current health care crisis.
3. A big source of the problems currently plaguing our health care system is the fact that most of us—as consumers of medical services—are completely cut off from any concern with (and often from knowledge of) their prices. All we ask, typically, is: “Is it covered?” As I discussed in points 1 and 2, government intervention has led to a system where 95 percent of the insured population in America—some 240 million people—have comprehensive health insurance provided by a third party (either their employer or the government).
With insurance covering all kinds of medical services and the premiums paid by someone else, Americans have little financial incentive to curtail doctors’ visits for minor ailments, to question whether a test is worth its cost, or to seek out cost-effective care. Before we buy virtually anything else, we ask ourselves whether it is worth its price and whether there might be a better deal elsewhere. When we go to the doctor, we don’t even see the price until it shows up on the invoice—with all but a small co-pay or deductible (relative to the total bill) paid by the insurer. History has shown that this system increases demand for health care, encourages wasteful consumption and ultimately increases costs for third-party insurers.
The results of this model are plainly evident today. Medicare and Medicaid cost hundreds of billions of dollars each year and are projected to consume ever-greater swaths of the federal budget in the decades to come. In the private sector, where businesses provide health insurance to 158 million Americans, premium increases force employers to cut staff, reduce wages or drop health benefits altogether. Businesses locked into labor contracts risk bankruptcy. Laid-off workers struggle to purchase health insurance on their own, as they must now replace the untaxed health benefits they received through their job by purchasing individual insurance on their own that is not tax-deductible and—thanks to 70 years of the government’s favoring third-party insurance at the expense of individual insurance—more expensive and more limited in coverage than employer plans.
Supporters of the proposed reforms believe these problems can only be solved by expanding government’s role in health care. But this argument ignores the role that government already plays in ensuring the dominance of third-party, comprehensive insurance in United States. Moreover, as we’ll see in part 4, it ignores that government expansion has been tried time and again as a solution to perceived problems in the health care system—and time and again those efforts have only made things worse.
4. We see that many of the problems in our health care system are the result of the dominance of third-party comprehensive insurance—a dominance which has arisen from decades of government interventions favoring this kind of insurance. But as these interventions are not new, neither are the problems we are presently facing. On the contrary, our government has been attempting to solve our health care problems for as long as it has been creating them—and time and again these “solutions” have left our health care system worse off.
In recent decades, for instance, state governments have increasingly looked at insurance mandates as a means of expanding coverage to groups that have difficulty obtaining it. Broadly, mandates are requirements—backed by government force—that insurers cover specific medical expenses (e.g., chiropractors, treatment for lyme disease) or patient populations (e.g., continuing coverage for laid-off employees). Mandates are an extremely myopic political tool: they force insurers into a money-losing endeavor, who respond by increasing insurance premiums or decreasing coverage in another area—creating another problem for politicians to solve by passing more mandates.
Unfortunately, mandates have proven irresistible to politicians, who disingenuously portray themselves as righteous crusaders for the cause of a suffering group (who just happens to have a strong lobby), while blaming the lack of coverage on “greedy” insurance companies, one of their favorite political whipping-boys. With the detrimental effects of mandates hidden from view, a veritable mandate armada has descended upon the health insurance industry. The number of state mandates has steadily increased from 7 in 1965 to more than 2,100 today. Some states have imposed such an onerous slew of mandates that hordes of insurers have packed up and left the state, as for example, in Kentucky, Maine and Washington.
Among the hardest hit by mandates are the young and healthy who are either unemployed or in a job that does not provide health benefits. This is a low-income group that would benefit most from insurance that provided coverage only for catastrophic events and carried a high deductible and a low premium. In large part because of mandates, however, this type of insurance is virtually nonexistent. These individuals must purchase high-priced insurance that covers medical services which will likely never be used, or go uninsured, as many do.
We now face the perverted end result of mandates and other interventions having priced so many out of the market for health insurance: the idea that an “individual mandate” must be imposed to force the uninsured to buy government-chosen insurance regardless of what they judge to be in their best interest. And one of the biggest supporters of the individual mandate is the insurance companies. While this may seem ironic, this sort of thing is, as Ayn Rand observed, the routine order of business when government intervenes in the economy:
When government controls are introduced into a free economy, they create economic dislocations, hardships, and problems which, if the controls are not repealed, necessitate still further controls, which necessitate still further controls, etc. Thus a chain reaction is set up: the victimized groups seek redress by imposing controls on the profiteering groups, who retaliate in the same manner, on an ever widening scale.” (“The Cold Civil War, in The Ayn Rand Column)
This is just a fraction of the story of how government has mangled the market for health care--a story any honest discussion of health care needs to study and learn from.
