Friday, August 6, 2010

Learn from History Indeed

Repeatedly supporters of the Obama Administration's health care reform have refered to the debate over medicare decades ago to show us that we have nothing to fear in our brave new world. In a bit of commentary in The Guardian, Sahil Kapur does so as he attempts to explain "How the US learned to love healthcare reform." He appeals to recent poll numbers that show an increase in the number of people who approve the plan compared to two months ago. He then seeks for reasons for this improved image.

In his explanation he uses the passage of Medicare as an historical analogy. Kapur cites conservative fears that passage of Medicare would result in creeping socialism and then notes that everything turned out okay, because Medicare is overwhelmingly popular. There is much to be learned from the history of 20th Century U.S. health care policy, but the lessons to take away are not what Kapur thinks they are.

The idea that health care is a mess only government can solve would be laughable if not so dangerous. It is true that the health care problem is not working itself out in the marketplace, but the reason is that we have a highly interventionist market for health care. Past government intervention to mitigate the problem of rising health care costs has resulted in a system in which the U.S. Government is already the number one purchaser of health care, and that is precisely the problem.

The history of health care in the U.S. is a quintessential case of progressive interventionism, most brilliantly explained by economist Ludwig von Mises. In his classic article "Middle-of-the-Road Policy Leads to Socialism," Mises explains that, whenever the state intervenes in the economy, negative consequences occur that are then used as a motive for even more intervention. What begins as an intrusion in a single market can grow until it incorporates an entire industry or even economy.

This is the story of health care in the United States over the 20th Century. As Vijay Boyapati notes in an excellent brief overview of the economics of health care reform, our current system didn't develop organically, as it were, from health care providers or employers responding to demand from consumers. It was the result of government intervention in labor markets. After World War II began, the U.S. government mandated wage and price controls. Employers who wanted to compete for the best employees, but were barred from offering them higher wages, began to provide their workers with health insurance. In 1943 a modification to the tax law was passed that made insurance provided by employers tax free. That set in motion our long march toward the present

As Mises' theory indicates, intervention begat intervention. Health care costs began to increase due to demand increasing faster than supply until there were calls to insure that retired elderly citizens could pay for treatment. In 1965 the government made things worse by expanding this system to everyone over 65 years of age with the creation of Medicare.This other government health care programs greatly increased the demand for health care services (the entire third party payer system we have does this) and government licensing and regulation reduces the supply. In an interventionist market like this, health care costs must go up. Government intervention in the market for medical services is primarily responsible for our situation. Even more intervention in our present direction will only make things worse.

It also turns out that claims that socialized medicine in the form of Medicare would lead to large constraints on our freedom were not far off at all. With the passage of Obamacare it is illegal for a person to simply not buy health care. If a person decides he would rather save his money or spend it in some other way, he will be fined. The state is now forcing us all to give money to a health insurance company or to pay the state. This is legalized theft. The government has become like old man Potter in It's a Wonderful Life. As George Bailey rebuked, "You're talking about something you can't get your fingers on, and it's galling you."

The lesson to be learned from history is that government intervention in health care is the problem not the solution. What the patient needs is not more interventionist poison. It needs the cure of a free market, where consumers will be more price attentive and health care providers will be more eager to provide higher quality care at lower costs.

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