The
unimpressive origins
of
U.S. health care policy
By Randall J.
Pozdena, PhD
American health care policy has not
evolved from careful study and analysis of the health care
marketplace. Rather, it has evolved out of a series of poorly
informed attempts to pander to certain constituencies and
mimic policies of other countries without fully understanding
the weaknesses of those policies.
The result is a trend that has
dissipated the potential advantages of private, competitive
markets. Instead of harnessing the consumer’s powerful
cost-containment and quality control abilities, policy makers
have chosen to drastically minimize the role of the consumer.
Instead of harnessing the private market, they have
implemented a series of heavy-handed and ill-considered
governmental interventions in healthcare markets.
Proponents of socialized medicine
pressed for such intervention throughout the first part of the
20th century. However, the watershed in U.S. government
intervention in medical care began during World War II when
the first step was taken to remove consumers from direct
responsibility for making their health care spending
decisions.
This first step was the adoption of
tax subsidies for employer-provided health insurance. This
resulted in both the implicit subsidization of medical
services relative to other goods and services, and reduced
direct consumer involvement in the purchase of care.
The second, later step was the
dramatic expansion of government-provided insurance, through
Medicare and Medicaid, and through increased intervention in
health insurance and provider markets. The third major step in
the socialization of American medicine is being proposed today
in the form of single-payer insurance. The single-payer
approach uses government-mandated insurance, direct regulation
of provider prices and wages, and controls over the quantity
and quality of services in the attempt to contain costs.
The Stimulation
of Private Insurance
Prior to World War II, health
insurance was a relative rarity, and usually limited only to
coverage of catastrophic care or insurance pools covering
workers in dangerous industries, such as logging and mining.
Such pools were formed in the
Northwest logging industry as early as 1870. The health care
market was overwhelmingly private, with less than 10 percent
of health care expenditures paid for by government in the late
1920s versus approximately 50 percent today. Perhaps as much
as 90 percent of health care expenditures, therefore, were
paid for out-of-pocket in 1929 versus less than 18 percent
today.
The adoption of tax-subsidies for
health insurance was not an intentional, carefully thought-out
policy innovation. In fact, it was an inadvertent side effect
of the wage and price controls placed on employers during
World War II. Companies began offering health care benefits as
a way to attract workers after courts ruled they could do so
without violating wage and price controls.
The companies did not report these
benefits as employee income, thus they were a tax-subsidized
form of income. By the time the Federal tax authorities
realized what was going on, the tax-exemption was a political
sacred cow. The IRS formally endorsed the tax-exempt treatment
of employer-provided insurance in 1954. In effect, a scheme to
evade a government regulation became a major feature of
American health care policy by default. The proportion of
medical payments made through private health insurance rose
sharply from less than 3 percent in 1940 to 21 percent in
1960.*
Postwar Reforms
In the immediate postwar period,
some American politicians and labor groups again began
advocating direct government involvement in the provision of
health care or health insurance. The advocates were enamored
of the health care policies that had evolved in central and
southern Europe, and Great Britain. Otto von Bismarck had
instituted compulsory, national health insurance in Germany as
early as 1883. Britain began its National Health Insurance
program in 1911, and the National Health Service in 1948.
There had been earlier attempts by American reformers to
institute national health insurance, but these had been
unsuccessful because the public was relatively happy with
health care services, and providers were opposed. A number of
states considered single-payer plans between1915 and 1920, but
none garnered public support. For example, in California in
1918 a voter referendum on state-provided health insurance
failed by a 2-to-1 margin.
Mimicking the policies of socialist
Europe had greater cachet in post-WWII America, despite the
fact that the quality of U.S. health care was arguably the
best in the world at that time. A Gallup poll in 1945 showed
59 percent of Americans favorably disposed toward national
health insurance—much greater support than previously
registered. Nevertheless, despite President Truman’s strong
support, the Wagner-Murray-Dingell national health insurance
bill failed to get out of committee in 1947. Later, anti-union
and anti-communist popular sentiment killed interest in a
national health insurance initiative for the rest of the
Truman administration.
Truman’s successor, Dwight D.
Eisenhower, was opposed to national health insurance.
President Eisenhower briefly endorsed Republican Governor
Nelson Rockefeller’s plan for health insurance that covered
the costs of catastrophic care only. Instead, Congress passed
the Kerr-Mills Act in 1961. This act provided federal aid to
existing state public assistance programs to include a new,
medical indigence category as a way of underwriting care to
the elderly poor.
Although liberal reformers still
wanted national health insurance, popular support for it was
weak, and reform continued to be focused on expanding Social
Security to incorporate health insurance for the elderly.
Public support for Medicare legislation, as it came to be
called, was not particularly strong in the beginning either.
It waned with the popularity of the Kennedy administration,
but interest was revived and action finally taken under the
Johnson administration.
Medicare, the first national health
insurance program in the United States was born on July 9,
1965, when Congress approved the Mills Bill (H.R. 6675), and
President Johnson signed it into law (Public Law 89-97). Under
the new law, Medicare and Medicaid programs became Title XVIII
and Title XIX, respectively, of the Social Security Act.
Whereas Medicare is a national
health insurance scheme, Medicaid is a state-administered,
federally-aided medical assistance program for low-income
persons. Each state is allowed to set use and dollar
limitations on the amount, duration, and scope of Medicaid
coverage. Also, thanks to “waiver authority” in the Social
Security Act, states have latitude in program design as well,
under sections 1915(b) and 1115 of the Social Security Act.
As this brief history illustrates,
American policy to a significant degree has increasingly
eliminated consumer involvement in health care decisions and
finance. Advocates of such policy would argue that this
direction has been necessary to ensure that the poor can
afford medical care. But with the consumer now responsible for
less than 18 percent of health care spending, the important
side effect of such policy has been to put the cost and
quality of health care at the mercy of government regulatory
and insurance policies. It has been so long since economic
logic prevailed in this market that health care policy is now
driven almost entirely by sound-bite policy concepts, most of
which involve serious misconceptions about the market for
health care.
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*The actual
proportion of medical expenditures covered by private
insurance prior to the 1940s is unknown. The author has
estimated this figure from other sources and US Census data.
See, for example, Odin W. Anderson, “Private Expenditures for
Drugs and Other Components of Medical Care: A Brief Review
from the 1920s to the Present,” Odin W. Anderson, December
1959. return
This article is
excerpted from the NPRI study, First Do No Harm: Why
American health care policy is failing, and how to fix it,
available on the Web at
www.npri.org/mgraphs/1stDoNoHarm.pdf .
