All Commentary
Thursday, April 1, 1993

What Has Government Done to Our Health Care?

Free market, deregulatory approaches to health care financing have merit.


Never before has so much relevant information and clear explanation of health economics been condensed into such a thin volume. If every congressman were to read this book on a flight home, America would have much less to fear from the Clinton administration.

Ms. Wasley’s references are a virtual “Who’s Who” in market approaches to health care. She includes a sprinkling of the usual villains, but uses them as strawmen or foils for her analysis. The book faithfully condenses the analyses and approaches being developed and used by the new market-oriented health economists. Under the old approach, markets are to be manipulated. That conventional wisdom is to prescribe 1950s-style social engineering masked by 1990s-style politically correct rhetoric of “Global Budgets” and the oxymoron of “Managed Competition.” After reading this book, one would certainly know that free market, deregulatory approaches to health care financing have merit.

The book contains the best synopsis of the history of twentieth-century health care. Not one in 100 health economists knows that World War II price and wage controls are an important cause of today’s problems. To dampen the problem caused by wage controls, in 1942 the War Labor Board ruled that fringe benefits in the form of health insurance would not be considered inflationary, and thus not controlled. Enrollment in group hospital insurance grew from less than seven million to about 26 million from 1942 to 1945 and marginal income tax rates rose from about four percent to 23 percent. Employers could launder wages through insurance companies. That is, the normal health expenses we all have could then be consumed with pre-tax dollars at a saving of 23 percent. Today, with total marginal tax rates being over 50 percent (federal, Social Security, Medicare, and state), it is not surprising that most of us obtain health care via employer-purchased “insurance” rather than our own personal and portable coverage for catastrophic situations, and why we don’t self-insure for small bills. Many other historical issues are covered, but the treatment of this one is superb.

The book covers the slippery slide to nationalized health care. It is an interesting and thought provoking analysis. Ms. Wasley’s thumbnail sketches of foreign systems should give any thoughtful person hesitation about grafting an alien approach to an American culture.

A final section introduces what is called “Health Care Based on Consumer Choice.” No one blames farmers for hunger, or carpenters for homelessness, and the author does not blame health care suppliers for the other-than-utopian treatment of illness. She presents the major free market approaches to health care financing such as medisave accounts. She also offers deregulation, including the elimination of costly and wasteful mandates. For example, some states require that treatment by chiropractors and herbal healers, care for the “accidental” smoking of crack, and payment for items such as toupees be covered in all insurance policies.

If only one senator understood and fought for the ideas in this book, there would be hope that Teddy Kennedy would be denied his lifetime dream of socialized medicine. If that happened, this book would become a modern classic. 

Dr. Musgrave is the President of Economics America, Inc., in Ann Arbor, Michigan, and the publisher of The Right Guide.