Reason for Our Health Care Crisis: Government

By John C. Goodman.

"The old saw about health care in leftist quarters is this: “The United States is the only industrialized country without national health insurance.” The listener is left to infer that in our country we care less about whether people have access to health care than other countries do.

But consider this. Compulsory spending on health care (government spending plus mandated private spending) consumes a greater share of our health care spending than in most other developed countries (85 percent in the U.S. versus an OECD average of 76 percent). Further, compulsory health care spending consumes a greater portion of our national income than any other country in the world.

Not only is government more involved in health care spending than other countries, it is also more active in regulating health care. For example, among a select group of drugs, the U.S. requires a physician’s prescription for twice as many as are required in Australia.

Trying to Solve Government-Created Problems

And that’s the problem, according to Michael Cannon, author of Recovery: A Guide to Reforming the Health Care System. Cannon argues that all of our major health care programs (Medicare, Medicaid, Obamacare, etc.) came into existence primarily to solve problems created by previous government interventions. And, the reason why there is a continuing push for further reform is because all the programs that are supposed to be solving problems are creating new ones.

Take Medicare. Cannon writes that before Medicare started in 1965, numerous private insurance plans were guaranteed to be renewable for the beneficiary’s lifetime. Even if their health deteriorated, people had continuing insurance coverage. The reason many retirees didn’t have that kind of insurance at the time is that government policies encouraged them to get tax-free health insurance from their employers. When they retired, they lost that insurance.

Medicare and Medicaid unleashed an enormous amount of new health care spending. But there was no overall increase in health care. There was a shifting of resources to the elderly and the poor from the rest of the population. But the number of overall doctor visits and hospital procedures barely changed.

As any freshman economics student knows, if you have a substantial increase in demand with no change in supply, prices will rise. In the years following the introduction of these two programs, physicians’ fees rose twice as fast as the economy-wide rate of inflation, and hospital prices increased almost five times as much. By one estimate, one-third or more of this spending was wasted, and economists find that no additional senior lives were saved in the first 10 years of Medicare’s existence.

What Led to Medicaid?

Cannon says that one reason we have Medicaid is that low-income families were priced out of the market for medical care. The cause: regulations that limit the number of people who can become doctors and limit what services nondoctors can offer. The American Medical Association (AMA), long regarded as the most successful medieval guild in the U.S. economy, has for well over a century been responsible for excessively limiting the number of students who can be trained in medical schools and then licensed to practice.

Most states legally prevent nurses and physician’s assistants from practicing to the full extent of their training. Even where nurses provide routine primary care (e.g., walk-in clinics), state medical societies lobby to hobble them with costly regulations. Cannon says the AMA boasts that in 2019 alone it blocked more than 100 attempts to expand scope-of-practice freedom to nondoctors.

The hospital sector may be even worse. Certificate of Need (CON) laws make it impossible to erect a new hospital or medical facility unless the newcomer can show that the market needs more supply. Existing facilities get to challenge any such claims and argue that all relevant needs are already being met. Cannon cites studies showing that CON laws protect monopolistic providers, raise costs and increase the size of patient bills.

Cannon says another reason for the existence of Medicaid is the tax subsidy for employer-provided health insurance. In 2021, employer family coverage averaged $22,221. Assuming a 30 percent marginal tax rate, that’s a $7,333 annual subsidy. Yet historically there has been little or no tax subsidy for low-income families buying their own health insurance.

Government tax subsidies for years encouraged middle- and upper-income families to over-insure and over-consume care, while crowding out care for those at the bottom of the income ladder.

Currently Medicaid finances 20 percent of all health care spending in the U.S. What are we getting for all that money? Cannon cites an Oregon study, which is the most comprehensive study of the effects of Medicaid ever undertaken. The study found that new enrollees in Medicaid increased their emergency room visits by 40 percent and that after two years there was no difference in their physical health. This is the exact opposite of what the health policy orthodoxy predicted would happen.

Although Cannon doesn’t mention it, 40 percent of children in this country are enrolled in Medicaid or CHIP. Since these programs pay rock-bottom fees, that may explain why the incomes of pediatricians are lower than any other specialty. That, in turn, may explain why there is a persistent shortage of pediatricians.

Why Do We Have Obamacare?

There is only one reason why we have Obamacare. Its advocates frightened people who had employer-provided insurance. The fear was that people might be discriminated against if they left their employers, had to buy their own insurance, and had a pre-existing medical condition. But the only reason why that fear lingered is because federal tax policy prohibited employers from funding personal and portable health insurance and failed to subsidize individually owned insurance to the same degree that it subsidized employer-provided coverage.

Even so, in the first decade under Obamacare, the number of people buying private insurance in the (Obamacare) exchanges was largely offset by a decrease in employer coverage. Almost all the increase in the number of insured was achieved through an increase in Medicaid enrollment. This increase was achieved by giving states financial incentives (a larger matching rate) to enroll healthy, single adults, while doing nothing to increase access for the developmentally disabled on Medicaid waiting lists.

As in the case of Medicare and Medicare, there was no increase in health care nationwide under Obamacare, despite a huge increase in government health care spending. There was a small uptick in services for low-income families offset by an insignificant decrease in services for the rest of the population. But that was it. Doctor visits per capita actually went down in the years leading up to the Covid pandemic.

Cannon says that because Obamacare private insurance was available for the same premium, regardless of health condition, premiums doubled in the first four years and families were exposed to the highest deductibles and out-of-pocket exposure found anywhere in the entire health care system. To make matters worse, Cannon cites studies showing there has been a “race to the bottom,” in which the plans are denying high-quality care to patients most in need of it.

How Congress Rescued Obamacare

As a result, the unsubsidized part of the (Obamacare) exchanges was in a free fall (what some might call a “death spiral”)—as people left to find better insurance options elsewhere. A Democratic Congress came to the rescue with “enhanced subsidies,” which include as much as “$12,000 for people earning $212,000 a year.”

Remember what the same Congress didn’t do. It didn’t use that same money it is spending on healthy adults and high-income families to meet the far greater needs of the developmentally disabled on waiting lists or to increase the fees for pediatricians needed to care for children in low-income families.

The solution? Cannon would give Medicaid and Medicare funds to the beneficiaries in the form of cash and give employer payments to employees in the form of large Health Savings Accounts. I’ll write about those ideas in a future column."