ealth care in our country
is sick indeed. Prices are skyrocketing and good care is growing less
accessible. How did we get into this mess? Today's big-government
solutions, like the one promoted by our President, are band-aids on a
mortal wound. If history teaches us anything, we should have learned by
now that the U.S. government should not be involved in health care at
all.
Step One: Government-Backed AMA Cartel
The American Medical Association (AMA) was first established nationally in 1847. It was then a trade association designed to increase the quality of medical care and protect consumers from quacks. But important among its goals was also to guard the financial interests of physicians. Before long the state and federal governments were using the AMA to control medical care. This happened as AMA members influenced state licensing boards, requiring physicians to meet their standards in order to practice. Many nurses, midwives, chiropractors, and therapists were denied the right to practice for failure to follow the AMA Party Line, thus suppressing potentially helpful services along with more questionable practices. The effect on medical schools was more dramatic. In 1910 the AMA-influenced "Flexner Report" bemoaned the state of medical research and training in the United States. Every state adopted the report's call for the licensing of all hospitals and medical schools. As a result, the AMA successfu lly shut down 35% of America's medical schools by 1920; 47% by 1944. Hit hardest were schools for blacks, Jews, and women. Such schools were shut down on whatever pretense the licensors came up with. Also hit were developers of alternative medicines. Those out of line with the AMA orthodoxy weren't allowed to compete in a market within the State's grip. Not surprisingly, a leaner supply of physicians resulted, and with decreased competition, prices skyrocketed. [*]
The AMA still argues that licensing is necessary to protect consumers. To the contrary, a state license often lulls consumers into assigning respect to physicians to whom respect doesn't necessarily belong. Our market would be much better off with many competing, private licensing agents rather than the imposition of one set of rules forced upon us by a heavy-handed State. Such competition would increase choice and quality, and decrease price.
Step Two: Third-Party Payments
In the late 1920s, some companies offered medical benefits to employees. Most hired their own physicians. This was unthinkable to the AMA because it required doctors to bid against one another (gasp!). Not surprisingly, these plans faced stifling government regulations by the mid-thirties.
The AMA preferred an alternative that protected physicians from having to compete in a free market. It promoted third-party insurance plans (e.g., Blue Cross) which became exempt from the stiff regulations. In such plans, the patients, not the employer, would choose the doctor and an insurance company would be billed. Patients had no incentive to consider price when shopping for doctors, or even in deciding whether or not a particular treatment was needed. Physicians had no incentive to price their services competitively, and many recommended wildly expensive treatments that had only slight benefit to the patient.
In technical-economic terms, the demand curve shifted far to the right. Prices skyrocketed. And so did premiums.
A possible solution would be consumer-run insurance plans that consciously would keep prices low. But AMA influence in the 1940s prompted most states to outlaw such plans. In these states, incorporators of insurance plans were required by law to be doctors and remember, to be a doctor one must be AMA/State licensed!
Step Three: The Great Society
The Johnson administration pushed through Congress the highest spending bills known at that time. Millions financed hospital and clinic construction, and the education of medical professionals. At the time, many recognized that the rising costs of health care were due largely to a shortage of doctors, and hence, to less competition. But these new hospitals and doctors still did not meet the rising, government-subsidized demand. Medical costs still rose dramatically.
With the passage of the Medicare program in 1965, the government had become the largest single purchaser of health care. The industry supported Medicare after concessions were made: hospitals could overcharge the government by 2% for care given to medicare patients, and doctors were given significant control over how Medicare would set its fees. Now third-party insurance dominated the market, as most health bills were paid either by the government or by government-approved Blue Cross programs.
And the prices skyrocketed. . .
Epilogue
This historical survey of our health care industry has been all too brief. More details would only produce a darker picture. Isn't it time that government got out of an industry in which it should never have been involved in the first place?
