Government Intervention in Healthcare: A Brief History

[steveh_131]

Read more here: http://www.policestateusa.com/2013/health-care-100-years-creeping-government-control/

Some people think we need socialized medicine. Some think we need tort reform. Some think we need heavier regulations of insurance companies.

My opinion: We need less government.

There are two main factors that haven driven prices up into the atmosphere:

1. Simple supply and demand. The government programs in place affect this in two ways. They increase the demand by subsidizing luxurious health care for people who couldn't otherwise afford it. And they decrease the supply by regulating health care providers in accordance with their lobbyists demands.

2. Removal of consumer choice from the equation. The vast majority of consumers have no incentive to price shop. Providers can charge whatever they choose. And since the provider is linked directly to the supplier via the insurance companies - there is absolutely no competition in price.

Here is a short summary of the history surrounding the very strange health care system that now consumes a vast portion of our wealth. You may notice a common theme: Government.


1910 - The Flexner Report

Leveraging government regulation, the AMA permanently solidifies its market share and monopoly on health care.

Murray N. Rothbard, Making Economic Sense

Abraham Flexner, an unemployed former owner of a prep school in Kentucky, and sporting neither a medical degree nor any other advanced degree, was commissioned by the Carnegie Foundation to write a study of American medical education. Flexner's only qualification for this job was to be the brother of the powerful Dr. Simon Flexner, indeed a physician and head of the Rockefeller Institute for Medical Research. Flexner's report was virtually written in advance by high officials of the American Medical Association, and its advice was quickly taken by every state in the Union.

The result: every medical school and hospital was subjected to licensing by the state, which would turn the power to appoint licensing boards over to the state AMA. The state was supposed to, and did, put out of business all medical schools that were proprietary and profit-making, that admitted blacks and women, and that did not specialize in orthodox, "allopathic" medicine: particularly homeopaths, who were then a substantial part of the medical profession, and a respectable alternative to orthodox allopathy.

1929 - Blue Cross

The predecessor to Blue Cross is created by the hospitals, explicitly designed to ensure steady income. The AHA lobbies for tax exempt status and succeeds, allowing it an unfair market advantage and spurs its growth.

The History of Health Care Costs and Health Insurance

Hospitals, hit hard by the Great Depression, rushed to embrace plans for prepaid health care as a way to survive. In 1939 the American Hospital Association began allowing plans that met its standards to use the Blue Cross name and logo. State legislatures agreed not to treat Blue Cross plans as insurance, based on the rationale that they were owned by hospitals. This permitted Blue Cross plans to operate as non-profit corporations, escaping the 2% to 3% premiums generally charged private insurance companies, and exempted them from insurance company reserve requirements.

Worried that the hospitals would expand the Blue Cross concept into physician services, physicians began thinking about their own organization. By 1946 all of the prepaid physician services plans had affiliated and became known as Blue Shield.

Since the primary concern of the early Blue Cross and Blue Shield plans was to ensure that hospitals and physicians were paid, the plans covered all costs, and everyone in the same geographic area paid the same price. This encouraged patients and their doctors to use medical care without worrying about costs.

The plans designed by the AHA were specifically designed to stifle competition, but remained profitable due to the government-created incentives - Fewer regulations and tax exempt status.

Health Insurance In The United States

The AHA designed the Blue Cross guidelines so as to reduce price competition among hospitals. Prepayment plans seeking the Blue Cross designation had to provide subscribers with free choice of physician and hospital, a requirement that eliminated single-hospital plans from consideration. Blue Cross plans also benefited from special state-level enabling legislation allowing them to act as non-profit corporations, to enjoy tax-exempt status, and to be free from the usual insurance regulations.

Originally, the reason for this exemption was that Blue Cross plans were considered to be in society's best interest since they often provided benefits to low-income individuals (Eilers 1963, p. 82). Without the enabling legislation, Blue Cross plans would have had to organize under the laws for insurance companies. If they organized as stock companies, the plans would have had to meet reserve requirements to ensure their solvency. Organizing as mutual companies meant that they would either have to meet reserve requirements or be subject to assessment liability.3 Given that most plans had little financial resources available to them, they would not have been able to meet the requirements.

1942 - Legislation surrounding WWII permanently solidifies employer-based health insurance.

The practice of offering health insurance as an employment benefit was spawned by government imposed wage restrictions. Business were encouraged to bypass these restrictions by offering high-end insurance packages.

An Introduction to the Health Care Crisis in America

Responding to the inflationary pressures of a wartime economy, the federal government imposed wage and price controls to prevent employers from raising wages in order to compete for scarce labor. While stripping them of their power to increase wages, the 1942 Stabilization Act allowed employers to expand their benefit offerings. By permitting employers to offer health insurance to their employees, the government provided private insurers with a new market for their product. In the years that followed, the government passed several additional rulings that reinforced the efforts of insurance companies to link health insurance with employment and institutionalized the employment-based system of health insurance that exists today.

1945-1954 - More legislation is passed to further entangle employment and health insurance.

An Introduction to the Health Care Crisis in America

The first piece of legislation, passed by the War Labor Board in 1945, ruled that employers could not change or cancel an employee’s insurance plan during the contract period. The second ruling, which became law in 1949, mandated that benefits should be considered part of the compensation package so that unions could haggle over both wages and health insurance in their contract negotiations. Finally, in 1954, the IRS decided that workers would not be taxed on the contributions that their employers made to their health insurance plans. This preferential tax treatment for “fringe” benefits gave businesses an incentive to offer health insurance to their employees.

1965 - Medicare is passed.

Medicare is based on the same flawed concepts that the AHA specifically designed to ensure hospital profitability. Third party payer with no possibility of competition.

In addition, medical care is now made available to an even larger segment of the population. Demand increases dramatically while the supply is still artificially hampered by the consequences of the Flexner report and the corrupt legislation that followed.


1973 - Health Management Act is passed.

Marketed as an attempt to control costs, it accomplished the opposite. These organizations further connected the supply with the demand.

An Introduction to the Health Care Crisis in America

Along with certificate of need laws, the federal government embraced managed care as a cost control measure, tilting federal health policy towards Health Maintenance Organizations (HMOs) with the passage of Senator Edward Kennedy’s (D-Mass) 1973 HMO Act. Federal agencies were formed to aid in the development of HMOs. To artificially create a market for services that few people at the time wanted, businesses with more than 25 employees were required to offer an HMO option under their health insurance plans. According to John C. Goodman and Gerald L. Musgrave, HMO premiums accounted for just 2% of all health insurance premiums in 1962. Federal insistence on adopting the HMO model of care delivery resulted in rapid growth in HMO membership rising from 5% in 1980 to 46% by 1996, of the total insured population under age 65.

Health Maintenance Organizations differ from standard indemnity insurance and from preferred provider organizations (PPOs) because they combine the physician and the insurer in a single organization. Patients pay a flat fee for their health care, a capitated payment, and the HMO promises to provide all of the health care an individual needs. A conflict of interest is built into HMO structure: HMO physicians work for the insurer, not for the patient.

1983 - Medicare introduces price controls.

In yet another attempt to control costs, medicare introduces a fixed price system that is ultimately adopted by the entire industry.

These fixed prices encouraged health care providers to game the system. Helping the individual was no longer profitable, considering the fixed prices for any given diagnosis. Despite the fixed prices, more health care was ultimately consumed and overall costs increased.

An Introduction to the Health Care Crisis in America

With its fixed price for any case with a given diagnosis, the prospective payment system instantly turned patients who cost more, generally those who were older, sicker, and frailer, into financial liabilities. Hospitals discharged patients “quicker but sicker,” shifting much of the burden of care and rehabilitation to nursing homes unconstrained by the new payments system. As providers learned to game the system, diagnoses with higher reimbursements increased, corrupting medical records. Intense lobbying efforts occurred to create DRGs that reflected costs in various specialties and treatments for various diseases. As of 2004, the number of DRGs had expanded to 526.

As a result of prospective payments, Fitzgerald, Moore, and Dittus found that between 1981 and 1986 the mean length of hospitalization for elderly patients with hip fracture decreased from 21.9 to 12.6 days and the maximal distance walked before discharge fell from 93 to 38 feet. The proportion of patients discharged to nursing homes rose from 38% to 60%, and the proportion of patients who were still in a nursing home one year after their hip fracture also rose, from 9% to 33%.

Sicker but quicker discharges appear to have been the norm for patients with other conditions as well. In 1990, Kosecoff et al. developed measures of discharge impairment for five conditions before and after the imposition of prospective payments. They found that before prospective payments, 10% of patients discharged to their homes were unstable. After prospective payments, 15% of patients discharged to their homes were unstable. In general, unstable discharge was associated with a higher mortality rate; death in 16% of cases versus death in 10% of cases.

Although prospective payment undoubtedly reduced hospital use, it may well have done so at the expense of increasing overall costs. Unstable patients often have to be readmitted to hospitals, increasing the cost per case even as the number of days of hospitalization per admission falls. Writing in 1990, Keeler et al. looked at the U.S. system before and after prospective payments, finding that patients admitted to the hospital were much sicker after prospective payments than before. Captivated by what planners said should be happening, the authors figuratively scratched their heads, saying that the reasons for this were “not clear,” because under the new system hospitals should be encouraged to take healthier people.

They did not consider the possibility that the sicker patient population was an artifact of multiple readmissions.

2010 - Obamacare.

At no point has a single piece of government regulation or intervention actually accomplished anything other than increase the cost of health care.

I think it is safe to assume that this time will be no different.

 

[poptab]

Thanks for this. Though don't think facts matter much at this point. Americans are ruled by emotion.

 

[steveh_131]

Thanks for this. Though don't think facts matter much at this point. Americans are ruled by emotion.

True.

Figured I'd put it out there for anyone interested in having a rational argument against Obamacare. Even most of the people who are against it will advocate some form of government intervention to correct the problems we have.

 

[rambone]

Great research Steve. Thanks.

 

[88GT]

How did I miss this one?!?!?!?!?!

6 days and this is all the response it has received? (I can't believe everybody else missed it too!)

I can only add that tort reform couldn't hurt, but it's hardly the critical factor in the boondoggle.

 

[jrogers]

The state was supposed to, and did, put out of business all medical schools that were proprietary and profit-making, that admitted blacks and women, and that did not specialize in orthodox, "allopathic" medicine: particularly homeopaths, who were then a substantial part of the medical profession, and a respectable alternative to orthodox allopathy.

At least it would be funny if people didn't seriously subscribe to this sort of deadly nonsense.

 

[steveh_131]

How did I miss this one?!?!?!?!?!

6 days and this is all the response it has received? (I can't believe everybody else missed it too!)

I can only add that tort reform couldn't hurt, but it's hardly the critical factor in the boondoggle.

Medical malpractice (including procedures done for no reason other than avoiding lawsuits) makes up roughly 2.4% of total health care costs (2010 stats). I'm not necessarily against reforming it, but it really is a very small portion of the problem. I was surprised when I learned that, I had always touted tort reform as the answer to this problem. In my opinion, it is pushed by the medical industry as a red herring to distract from the real issues while possibly increasing their profit margin (when tort reform legislation is enacted).

I wish more people would become more informed on these issues. I was quite ignorant about them before I did this research. If we had been informed about Obamacare instead of shouting "Socialism! Socialism!" (it is not socialism), we probably could have stood together with the Democrats to oppose this nonsense.

At least it would be funny if people didn't seriously subscribe to this sort of deadly nonsense.

There is nothing deadly about it. I have personal experience with well-respected and highly educated doctors at Children's Memorial in Chicago who include homeopathic treatments as a legitimate part of their practice. There are many people who have been helped by it. It has a place in medical care, but the AMA has made sure that it is isolated to the fringe quacks. I've seen that gradually changing over the last few years.

But thank you for illustrating my point about the indoctrination. Do you also still support their exclusion of blacks and women?

 

[mrjarrell]

Steve, are you confusing homeopathic with holistic? Or herbalism? Homeopathy is nothing more than magical thinking and water diluted substances. You can get the same effect from drinking tap water as you can from engaging in homeopathy. Herbalism and holistic medicine are entirely different things.

 

[steveh_131]

Steve, are you confusing homeopathic with holistic? Or herbalism? Homeopathy is nothing more than magical thinking and water diluted substances. You can get the same effect from drinking tap water as you can from engaging in homeopathy. Herbalism and holistic medicine are entirely different things.

No, I'm talking about Homeopathy. We recently visited one of the top pediatric gastroenterologists in the area. He practiced both standard medicine and homeopathy. It is becoming more mainstream in recent years, and does seem to help a lot of people.

 

[steveh_131]

And regardless of your opinion of the efficacy homeopathy, do you think that the AMA should have been allowed to use a government sponsored monopoly to exclude homeopaths, blacks and women?

That is the real issue, here.

 

[jedi]

Too late steveh the AMA will never give you.

 

[ViperJock]

2.4% of the total doesn't seem like much BUT that 2.4% all comes only out of the portion of the doctor makes. --(What percent of the total is that? ) You know, one of the key people who actually DO something for you. The total health care costs include all the money that is also paid to health insurance companies that make huge profits and their CEOs make millions. All they do is take your money and give part of it to the hospital/doctors/pharma etc they keep a lot of it. That's health care money added to the 2.4% that does noting for your health.

There are also an increasingly huge portion of administrators in health care. Many of these people also do very little in terms if functional health care but they make more and more regulations and take additional money out of the system without providing any sort of a useful product or service. Then there are the folks that use the Emergency room as their primary care doctor. More money gone. Then there is just the enormous cost of providing modern health care with all the required BS and the legitimate expense. People don't want to live healthy lifestyles and they expect doctors to fix them. More money wasted.


And the blame goes to guys like our own hoosierdoc who work their ass off saving our lives and/or improving our health. Yet people turn around and worship actors, athletes, talk show hosts etc that make tons more than the doctors do.

 

[steveh_131]

2.4% of the total doesn't seem like much BUT that 2.4% all comes only out of the portion of the doctor makes. --(What percent of the total is that? ) You know, one of the key people who actually DO something for you.

This isn't really true.

Of the $55.6 billion annual cost of medical malpractice lawsuits, $45.6 billion revolves around defensive medicine. Tests and procedures that would not otherwise be performed if not for the constant threat of lawsuits. This does not come out of the portion that the doctor makes.

Malpractice costs (placed on the doctors themselves) therefore make up less than a percent of total health care costs.

The True Cost Of Medical Malpractice - It May Surprise You - Forbes

The total health care costs include all the money that is also paid to health insurance companies that make huge profits and their CEOs make millions. All they do is take your money and give part of it to the hospital/doctors/pharma etc they keep a lot of it. That's health care money added to the 2.4% that does noting for your health.

There are also an increasingly huge portion of administrators in health care. Many of these people also do very little in terms if functional health care but they make more and more regulations and take additional money out of the system without providing any sort of a useful product or service. Then there are the folks that use the Emergency room as their primary care doctor. More money gone. Then there is just the enormous cost of providing modern health care with all the required BS and the legitimate expense. People don't want to live healthy lifestyles and they expect doctors to fix them. More money wasted.

Agreed, and every bit of this waste can be traced back to government intervention.

 

[jrogers]

No, I'm talking about Homeopathy. We recently visited one of the top pediatric gastroenterologists in the area. He practiced both standard medicine and homeopathy. It is becoming more mainstream in recent years, and does seem to help a lot of people.

When scientifically rigorous testing shows that homeopathic "treatment" is effective we can talk, but no such testing exists. That homeopathy's operating principles are essentially "magic" might have something to do with this. The placebo effect does seem to help a lot of people, but that doesn't mean that sugar pills qualify as "medicine."

And regardless of your opinion of the efficacy homeopathy, do you think that the AMA should have been allowed to use a government sponsored monopoly to exclude homeopaths, blacks and women?

That is the real issue, here.

Don't lump those three together as if there's any equivalence. You want to believe in your voodoo feel free, although it's a shame if you're forcing a child to participate. At least it's only ineffective, not actually harmful unless you embrace it to the exclusion of Western, or "real," medicine.

And yes, preventing people from claiming that quackery such as homeopathy, reflexology, crystal healing, et al. is medicine is precisely what I want the government to be doing.

 

[88GT]

That homeopathy's operating principles are essentially "magic" might have something to do with this. The placebo effect does seem to help a lot of people, but that doesn't mean that sugar pills qualify as "medicine."

Well, naturally. When you define "medicine" as allopathic nothing else qualifies as "medicine."

Don't lump those three together as if there's any equivalence. You want to believe in your voodoo feel free, although it's a shame if you're forcing a child to participate. At least it's only ineffective, not actually harmful unless you embrace it to the exclusion of Western, or "real," medicine.

Speaking of straw man arguments. He didn't lump them together. The AMA did. Though you have to wonder why someone would feel the need to remove a group of practitioners from competition if there's no real competition in the first place.

And yes, preventing people from claiming that quackery such as homeopathy, reflexology, crystal healing, et al. is medicine is precisely what I want the government to be doing.

Are you equally opposed to weight loss pills? Or cellulite creams? How about face-lifts-in-a-jar? Why can't people be free to decide for themselves?

 

[jrogers]

Well, naturally. When you define "medicine" as allopathic nothing else qualifies as "medicine."

Medicine is anything that can be shown to be effective in ethical, scientific trials. "Allopathic" is a silly term used by proponents of mystical nonsense to describe efficacious treatments.

Speaking of straw man arguments. He didn't lump them together. The AMA did. Though you have to wonder why someone would feel the need to remove a group of practitioners from competition if there's no real competition in the first place.

He certainly did. I expressed my opposition to unverifiable quackery, not women or blacks. Whether the AMA excluded these groups is immaterial to the point to which he was responding. The need to prevent homeopaths from claiming that their superstition is medicine is a matter of basic consumer protection.

Are you equally opposed to weight loss pills? Or cellulite creams? How about face-lifts-in-a-jar? Why can't people be free to decide for themselves?

I'm opposed to calling anything that hasn't been properly tested and shown to safely treat an illness or condition as medicine. If a product or service doesn't perform as claimed then the purveyor is committing fraud. People can decide to use ineffective treatments if they like, but we have the right to factual information about products and services because it is impossible to make an informed decision without it.

 

[steveh_131]

When scientifically rigorous testing shows that homeopathic "treatment" is effective we can talk, but no such testing exists. That homeopathy's operating principles are essentially "magic" might have something to do with this. The placebo effect does seem to help a lot of people, but that doesn't mean that sugar pills qualify as "medicine."

Heh. So when a highly regarded and educated doctor tells me to heavily vaccinate my infant child, I should obey because he is a doctor and I'm not.

But when a highly regarded and educated doctor tells me he has studied the field of homeopathy and thinks it has some legitimate uses, he is a quack and I should not listen to him.

Am I getting this right?

I don't know a whole lot about homeopathy and its effectiveness is not really relevant to this discussion. What is relevant is that some very intelligent and educated people think that is is effective and the AMA and AHA should not be allowed to use their government-sponsored monopoly to exclude practitioners of it.

And yes, preventing people from claiming that quackery such as homeopathy, reflexology, crystal healing, et al. is medicine is precisely what I want the government to be doing.

Well I know that you do. You're a standard collectivist/statist. I wasn't asking you, I was asking mrjarrell who actually believes in liberty.

I do find it curious that you're supporting crony capitalism, which is the entire point of this article, but I wasn't expecting much consistency.

 

[steveh_131]

I am actually thankful this was brought up. It gave me the opportunity to dig deeper into the AMA's frightening history.

The AMA was practically founded for the purpose of using government force to destroy their primary competition: Homeopaths.

AMA's initial drive to increase physician incomes was motivated by increasing competition from homeopaths (AMA allopaths use treatments--usually synthetic--that produce effects different from the diseases being treated while homeopaths use treatments--usually natural--that produce effects similar to those of the disease being treated). This competition did serious damage to the incomes of AMA allopaths. In the year before AMA's founding, the New York Journal of Medicine stated that competition with homeopathy caused "a large pecuniary loss" to allopathy. In the same issue, the dean of the school of medicine at the University of Michigan railed against competition because it made treating sickness "arduous and un-remunerative."

Apart from reversing rapidly declining incomes, allopaths also wanted to rescue their public reputations, which quite reasonably suffered given their proficiency in killing patients through such crude practices as bloodletting ("exsanguination") or mercury injections (poisoning). A few allopaths desired adulation normally reserved for star athletes and actors. The Massachusetts Medical Society opined in 1848 that physicians should be "looked upon by the mass of mankind with a veneration almost superstitious."

100 Years of Medical Robbery - Dale Steinreich - Mises Daily

And some horrifying statistics about the AMA's suppression of the health care supply, artificially hiking their profits:

Since AMA's creation of the Council a century ago, the U.S. population (75 million in 1900, 288 million in 2002) has increased in size by 284%, yet the number of medical schools has declined by 26% to 123. In terms of admissions limits, the peak year for applicants at U.S. schools was 1996 at 47,000 applications with a limit of 16,500 accepted. This works out to roughly 64% of applications rejected. On a micro level, for the last six years the University of Alabama (hardly a beacon of prestige in the medical discipline) has averaged about 1,498 applicants per year with an average of about 194 accepted. This is about an 87% rejection rate. The sizes of the entering classes have been of course even smaller, averaging about 161.

The article goes on to discuss the 'Cadillac standard' of health care, and how this adversely affects the market if you care to read more.

The AMA is clearly not an organization that has the public well-being at heart. I have no choice but to question the validity of their stance on homeopathy, since they have spent the past hundred years trying to stifle it instead of allowing the free market to shut down what they make out to be outright quackery.

 

[88GT]

Medicine is anything that can be shown to be effective in ethical, scientific trials. "Allopathic" is a silly term used by proponents of mystical nonsense to describe efficacious treatments.

Allopathic's origin may chafe you, but the term is in widespread usage these days to differentiate between "modern" "western" "medicine" and all others.

He certainly did. I expressed my opposition to unverifiable quackery, not women or blacks. Whether the AMA excluded these groups is immaterial to the point to which he was responding. The need to prevent homeopaths from claiming that their superstition is medicine is a matter of basic consumer protection.

There are two points. He addressed both. You can't seem to do that, being stuck on controlling what other people do and how they define words and all that. The original point and the one relevant to this thread has nothing to do with homeopathy's efficacy. Only that a private organization used the force of the government to control other people for its own benefit.

I'm opposed to calling anything that hasn't been properly tested and shown to safely treat an illness or condition as medicine. If a product or service doesn't perform as claimed then the purveyor is committing fraud. People can decide to use ineffective treatments if they like, but we have the right to factual information about products and services because it is impossible to make an informed decision without it.

You have a right to seek the information you want in order to reach your level of satisfaction with informed consent. Nobody has to provide it to you gratis. I would suspect a vendor who didn't supply it, but nobody has to give you what you demand. And you have no right to compel them to provide it via the government.

 

[Rhoadmar]

Allopathic's origin may chafe you, but the term is in widespread usage these days to differentiate between "modern" "western" "medicine" and all others.




There are two points. He addressed both. You can't seem to do that, being stuck on controlling what other people do and how they define words and all that. The original point and the one relevant to this thread has nothing to do with homeopathy's efficacy. Only that a private organization used the force of the government to control other people for its own benefit.


You have a right to seek the information you want in order to reach your level of satisfaction with informed consent. Nobody has to provide it to you gratis. I would suspect a vendor who didn't supply it, but nobody has to give you what you demand. And you have no right to compel them to provide it via the government.

This is the same blindness exhibited by streak in your home school thread. I can't fathom the innate desire of some to have government supplied and regulated health care, education, income or any of life's needs and wants. I admire your reasoning abilities.