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Health Care in America – a case study in government interference = oh, what a mess

Any federal intrusion in to the health care marketplace is unconstitutional. There is nothing in the Constitution that allows the federal government to regulate this industry. However, there have been over 80 years of government interference that have caused the mess we have today and it is important to understand where we went wrong. Once we do, we can figure out how to get it right. So here is a brief timeline of the history of America’s health care industry.
1932 – Blue Cross was established, AMA & AHA lobbied for their exemption from normal insurance regulations and taxes = Blue Cross advantage in the marketplace = unfair competition¹

Established “cost-plus” and 3^rd party reimbursement procedure = “reasonable and customary” versus actual cost = inflationary health care costs

1942 – WWII wage and price controls led to employer paid health insurance to increase compensation²

IRS ruled health insurance “legitimate cost of doing business” and not taxable income for the employee = institutionalized employer-provided health care

1948 – National Labor Relations Board (NLRB) – health benefits to be a subject of collective bargaining continued employer-provided health care

Employer-provided health insurance increases due to tax incentives to employer and employee
Third party payer (employer), routine care coverage = rising health care costs as 3^rd party lacks motivation to control costs. Those without health plans feel effects of inflationary third-party payment.

1965 – Medicare passes - federal government becomes the largest single purchaser of health care

Continues flaws of private insurance – reimbursements based on “reasonable and customary” fees, no patient incentive to control costs, routine care coverage vs. catastrophic coverage
Rate of increase in hospital spending averaged 8.8% from 1960-65 nearly doubled to 15% from 1965-70³
Department of Health, Education, and Welfare regulations extremely beneficial to the medical industry to increase adoption of Medicare by hospitals.
40 year increase in personal health care expenditures – $82 in 1950 to $2,511 in 1990 ⁴
Medicare spending in constant dollars – 1978 = $25.2 billion, 1988 = $87.6 billion, 1990 = $111.2 billion. ^5,6
Medicaid spending in constant dollars – 1978 = $18.9 billion, 1988 = $54.7 billion, 1990 = $75.2 billion. ^5,6

1973 – Health Maintenance Organizations (HMO) Act by Congress to address rising costs

Further distorts market, instead of removing the controls, incentives and restrictions that created the problems.
Requires all companies with twenty-five or more employees that offer traditional plans to also offer a HMO plan.
Repealed in 1993, but by then essentially eliminated the market for affordable individual health insurance.

1983 – Social Security legislation establishes “prospective payment system” (PPS) for hospital reimbursement.

Treatments designated by 475 “diagnostic related groups” (DRGs). Serves to cost shift activities not covered to DRGs. Medicare costs continue to increase faster than inflation rate.

State mandates – laws enacted as the result of lobbying from health care providers and advocates seeking coverage for various diseases.

National Center for Policy Analysis states as many as 1 in 4 uninsured lacks health insurance because state regulations have increased the price. Prevents competition and portability as state lines determine which insurance carriers you can shop.

1992 – Resource Based Relative Value Scale (RBRVS) enacted.

Creates relative value of doctors in such specialties as family practice, internal medicine and obstetrics, and lower fees for surgeons and radiologists. Also limits “balance billing,” the amount doctors can charge above what Medicare allows. Skews demand for various types of physicians, with the government encouraging more students to become family practitioners and fewer to become surgeons which leads to shortages in certain areas of the medical industry.

2010 - Obamacare passes

Mandates purchase of insurance as well as numerous other mandates completely unrelated to health care. Does nothing to remove controls, regulations and tax code incentives that created the health care crisis.

So now that we can see the major contributors to the rapid rise in health care costs, what is the solution?
First, remove regulations that advantage one insurance provider over another, create a level playing field for all insurance carriers to increase competition. This includes removing state mandates that prevent insurance companies from offering insurance across all 50 states. The actual purpose of the commerce clause was to prevent one state from creating barriers to businesses from other states. State mandates violate the commerce clause as well as force consumers to purchase products they don’t want in order to get the product they need – that’s coercion.
Second, provide the same tax incentives to the individual purchasing health insuranceas the business owner enjoys. This will increase portability as one’s health insurance won’t be tied to a job. This allows increased cost control as the individual is incentivized to keep an eye on the reimbursement the insurance carrier provides.
Shift towards catastrophic care insurance with pay as you go for routine care. Our auto insurance doesn’t cover our oil changes. Our health insurance shouldn’t cover expected doctor’s visits. Direct pay between patient and doctor will further serve to control costs as medical offices will bill actual costs versus “reasonable and customary” fees.
Phase out Medicare and Medicaid. Let each individual state determine how best to care for their uninsured. Each additional level of bureaucracy increases cost without any increase in benefits received.
Remove regulations that distort the number of providers in the various medical specialties. This will normalize availability of providers which will improve our availability of care.
Repeal Obamacare.This legislation only worsens the already overregulated and controlled health care industry.
Where you have a provider able to fill a need, a consumer willing to pay and an absence of unnatural interference, the free market will see to it that the consumer’s needs are best met. Since the inception of health care insurance, there have only been a few years in the late 1920’s that it operated in a free market system. Since Blue Cross received its first favorable regulation in 1932, the free market ceased to determine how health care insurance is provided. Let’s give the free market a chance to solve the health care crisis – that is our quickest path to affordable health care for America and the only Constitutional option.

1 – Health Insurance Association of America, Sourcebook of Health Insurance Data, 1984-85, Tables 1.2, 1.3, 1.4, and 1.5.
2 – Paul Starr, The Social Transformation of American Medicine, (New York: Basic Books, 1982), p. 311.
3 – Joseph A. Califano, Jr., America’s Health Care Revolution (New York: Random House, 1986), pp. 54-55.
4 – David Holzman, “Medicine Minus a Cost Tourniquet,” Insight, 8 August 1988; Meyer, Sullivan, and Silow-Carroll, “Critical Choices,” p. 32; and Daniel Callahan, What Kind of Life (New York: Simon & Schuster, 1990).
5 – Committee on Ways and Means, U.S. House of Representatives, Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means, 1989 ed., 15 March 1989, pp. 1140-41; and HCFA.
6 – Figures for the Medicare and Medicaid programs are from the Health Care Financing Administration, National Health Accounts.