All Commentary
Friday, March 26, 2010

Wishful Thinking on Health Care

No one knows exactly what was passed.

This is an elaboration of my remarks at the seventh annual Jolicoeur Seminar, an event put on this week by FEE and the economics department at Western New England College, Springfield, Mass.

How an issue is framed is crucial to how it is decided. Advocates of the package of health insurance regulations, taxes, and mandates known as ObamaCare managed to frame the issue as “reform versus the status quo.” But to call the Obama-Pelosi-Reid plan (OPR) “reform” is to beg the question by assuming precisely what needs to be proved: namely, that the legislative package would actually reform — that is, improve — the medical system. Therefore the debate should have been not whether reform is desirable  – real reform (improvement) is always desirable — but whether OPR is really reform.

A better framing of the issue would have been: real reform versus the status quo on steroids, for in the end OPR is little more than what Holman Jenkins of the Wall Street Journal calls a “doubling down on the system’s existing perversities.” For example, under OPR everyone will be forced to become a customer of the health insurance industry that the ruling political class just spent a year demonizing, and that industry will reap billions in taxpayer subsidies. Moreover, demand for medical services will be further insulated from true costs. That is already the source of so much of what’s wrong today.

Let’s look at the newly signed law from four perspectives: moral, fiscal, economic, and political.


For a century the foundation of medicine in the United States has steadily shifted from cooperation and competition to compulsion and management through government power. In 1910 the Flexner Report, financed by the Carnegie Foundation, set in motion the process by which medical education and practice would be regulated by a physician cartel deriving its coercive power from government primarily at the state level. While the need for such management was publicly justified as a way to protect patients, what doctors told one another when no one else could hear was that their incomes not their patients were endangered by too many medical schools graduating too many doctors. Over the next 20 years, many independent medical colleges were closed. Was it mere chance that women’s and African-American medical colleges were the first to go and that, as a result, the smaller, more lucrative medical profession was firmly white and male?

Since that time, coercive administration – primarily in the form of state licensing – more and more took the place of patient-driven contract, competition, and cooperation. When fraternal organizations tried to bring affordable medical care to their middle- and low-income members through “lodge practice,” the protectionist medical cartel struck back and eventually destroyed this promising alternative to self-serving institutional medicine.  During World War II the crucial, if inadvertent, step was taken toward top-down control of the payment mechanism. The tax code became the means of inducing individuals to rely on employers and insurance for medical services. Money individually and privately spent on medical care would be subject to the tax collector, while money that one’s employer used for the same purpose would not. The result, intended or not, was to accustom people to rely on big intimidating bureaucracies for the payment of medical bills. Health care appeared to be free or well below its true cost — as long as the relevant bureaucracy approved of what was bought. The entitlement/supplicant frame of mind was established, which served the cause of centralization and further control by the government-medical complex. OPR is another step, though probably not the last, in that process.

Meanwhile each state became a protectionist-regulatory insurance guild that limited entry and competition in return for compliance with mandates and price guidelines that let regulators masquerade as the people’s advocates, while saddling policy holders with expensive, unneeded coverage. Many people were priced out the market, giving politicians a cause: the uninsured.

Government then assumed direct control over a good portion of medical spending through Medicare and Medicaid, bringing us to the point where third-party payments account for more than 85 percent of all medical spending in the United States. As someone has said, the patient is only needed to sign the papers that prompt one bureaucracy to cut a check for another.

Viewed historically, then, OPR is merely an extension of the current force-based bureaucratic system. Its novel contribution is to mandate that people buy medical insurance, the first instance in which the national government will compel us to buy something from a private company. This is said to be consistent with regulation of interstate commerce, but no intelligent person honestly believes that. For one thing, interstate commerce in health insurance is forbidden by the national government.

Adding insult to injury, OPR falsely promises that we can have government-subsidized consumption of medical services, lower prices, and freedom of choice at the same time. In fact, those three things cannot coexist. Subsidies will boost consumption, which will raise prices. If government is serious about lowering prices, it will have to curtail consumption, that is, limit freedom of choice, explicitly through rationing or implicitly through price controls and standards of practice.

Fiscal Considerations

On the other hand, if the ruling elite gives up the objective of lowering prices, fiscal chaos will ensue. The medical “entitlement” called Medicare already faces a $37 trillion unfunded liability. It is a big component of the government’s budget deficit and growing debt. Imagine what will happen when the new entitlement explodes. The assertions that OPR will cut costs and lower the deficit are ludicrous, and no one really believes that. It is just a game played in Washington under rules that Congress carefully sets for its fig leaf Congressional Budget Office.

As a result, government borrowing will increase, if lenders aren’t scared off; interest rates will rise, squelching economic activity; more new taxes will be thought up, discouraging investment; and the money supply will expand, shrinking our purchasing power.

Economic Considerations

OPR will directly subvert what is left of the insurance market and indirectly subvert what is left of the medical market. Insurance is about pooling risk in the face of an uncertain future. But OPR requires that insurance companies cover people without taking risk or even certainty (preexisting conditions) into consideration. There are no grounds for calling this insurance. Rather, it is welfare mixed with prepayment for future services. (Not that the insurers are complaining; it’s a price they’ll gladly pay for the captive customers that the mandate will deliver.)

While OPR’s advocates extolled the virtues of competition for the last year, they were being either dishonest or ignorant. Competition does not mean a few licensed companies providing identical government-defined products to government-coerced “customers’ according to government-defined pricing rules. It means open-entry trial and error by sellers attempting to satisfy buyers who are free to say no thanks. OPR gives us anything but that.

Politicians and bureaucrats cannot possibly know what they would need to know to manage the insurance and medical industries. Yet they convinced themselves and enough others to get OPR passed.

Political Considerations

Finally, OPR puts another nail in the coffin of government transparency. Regardless of how much or little government (if any) people want, they should at least be able to see and understand what it is up to and how much it costs them personally. In every way OPR flouts this principle. The law’s 2,700 pages of impenetrable “English” was read in its entirety by few if anyone. But that only begins to describe the offense. The law leaves much to be defined in the future by government departments, boards, and commissions. Hundreds of rules and regulations have yet to be written – and who do you think will be right there offering counsel as the new insurance rules are formulated? The same insurance companies whom last week were said to be the devil incarnate. (And Organized Medicine and Big Pharma too.) That’s how the Washington game is played. And we’re the losers.

Moreover, huge costs that could have more honestly been placed on-budget for all to see will instead be hidden in various ways. People will have no idea what this “reformed” system really costs them.

The upshot is this: Today no one knows what the members of Congress passed and Obama signed, including them. Self-government? Representation? Democracy? What a laugh.

At best, this was a triumph of wishful thinking over sound thought.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.