People ask me all the time about the economics of health Care. I sent this via private message to someone who had asked me a question and thought others may find it edifying so i am posting my response publicly. :) It seems to me the problem has two points of genesis. First, lets look at the beginning of how we got here (where insurance companies and government play a non-financial role in ones care). It all began, of course, with FDR. The Wartime Revenue Act of 1942 which FDR himself called, the greatest tax bill in American history.” The deduction was supposed to be a temporary (wartime) provision permitting extraordinary” (totally undefined by the bill) and was limited to 5% of AGI. Of course rarely is any legislation truly temporary and in 1954 (during another war) corporations were also permitted to deduct particular NON-WAGE benefits expended on behalf of employees. The ideal was to promote the use of health insurance and the idea was popular with almost everyone, especially with medical insurance companies and people who already were paying for health insurance. Being that any rational person would prefer to pay their bills with PRE-tax rather than POST-tax dollars, corporations in competition for skilled labor, began offering health insurance as part of their employment benefit packages. Innovations were developed to take full advantage of the 1954 law, and now insurance companies were paying non-catastrophic costs such as office visits directly; because again, ANYONE prefers to pay such things with PRE-TAX $. Prior to this legislation, health insurance policies were totally portable meaning completely unattached to ones job. They were also almost completely unregulated. Flash forward to today where insurance companies administrate office visits, referrals, and $10 co-pays, are massively regulated, and we see the Unintended Consequences of FDRs greatest tax bill in American History (which btw, also set marginal tax rates as high as 95%!). Second consider the real purpose of Medical licensure, made obvious from state and federal legislative history -- Monopoloid Restriction of Supply. In the 19th Century the USA enjoyed more physicians per 1000 people, than any country in the world for which we had data. There were competing Medical Boards and certification companies, and the profession of Physician enjoyed relatively free entry and exit. What was the problem? Physicians rarely got rich, the had to compete for customers, and solicit refersls. Consider this excerpt from the July 27 1901 issue of the Journal of the American Medical Association (JAMA) -- note that the American Medical Association (AMA), through political connections, was now the premier medical cartel having entrenched itself by that time in 37 states as a monopoly provider of medicine. The AMA even paid the prosecution costs in many cases. In 1890 we were sixty-five millions, in 1900 we are seventy-five, an average net annual increase of 1,000,000, which at the ratio of one physician to 600 people (hardly a living ratio for the doctor) would make places for nearly 1700 additional physicians annually. This, therefore, with the 1600or so vacancies by death would make room for nearly 3300 new doctors each year, provided the same annual increase in population continues, which is perhaps dubious. Our 160 medical colleges, however, turn out annually a crop of nearly 6000 graduates, or over 2000 more than can thus be provided for. These figures, it should be remembered, do not include a vast number of off-color practitioners, who nevertheless have their share of public patronage and thus serve to curtail the means of support of recognized physicians, nor the accessions from outside the country by immigration. (JAMA, July 27, 1901). By 1910, every state except Alaska and Oklahoma gave the AMA complete monopoly control on the certification of medical schools and therefore the SUPPLY of physicians. From that date on, physician average income rose relative to the population at large. Hence, your physicians office is full; appointments are merely approximations (unless you are late); they have little time to get to know you, or even care for that matter; and the office staff often has the customer service style of a loan shark. Blame it on the rent-seeking behavior of the AMA who like all government enforced monopolists seek to restrict output to receive a larger price. The moral of all this is do not blame the market for weird insurance and medical imstitutions. Blame government blunders and their unintended consequences. We once had a wonderful system until of course it was fixed. :)
Posted on: Wed, 30 Oct 2013 13:11:32 +0000
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