When Bill Clinton tried to implement universal government supplied health care in 1993, the public backlash was strong enough to result in the 1994 Republican Revolution, which brought strong GOP majorities into both houses of Congress.
Having painfully learned that the front door method was a hard sell, advocates of socialized health care instead went for the incremental back door approach. And it has worked out very well for them, but not for health care consumers. In the years since the backlash, supporters of medical socialism have gradually expanded government health programs, steadily increasing the numbers of Americans (and non-Americans in the country) covered by these programs. It is no coincident that health care costs in the U.S. have skyrocketed along with this incremental expansion of government meddling.
This strategy has worked so well that Democrats, now holding both houses of Congress for the first time in a dozen years, are poised to increase the rate of incrementalism in socialized medicine until most Americans are covered by at least one government health program. And it’s not just Democrats, but Republicans that have forgotten what small government is all about. For some of these folks, any government program can be justified if it assays to spend a little less than Democrats want to spend.
Senator Orrin Hatch (R-UT) is among Republicans that are happily gliding down this slippery slope. Hatch has worked closely with Democrats and big government Republicans in the Senate on passing legislation to extend the State Children's Health Insurance Program (SCHIP) that was originally passed in 1997 and signed by President Clinton. President Bush has threatened to veto the legislation. Why? Well, because he’s an evil Republican that hates poor children and wants to see them suffer and die. At least, that is the rhetoric coming from his critics.
Actually, Bush criticizes the expansion of the program to cover people earning as much as 400% of the federal poverty rate. That’s $82,600 for a family of four. As noted by David Hogberg and Paul Gessing in this article, “children in families that are in the top 25 percent of income-earners would be eligible for government-funded health insurance.” Bush also dislikes the expansion of SCHIP to cover many non-children, including single adults up to 25 years of age. This would increase the cost of the program from its current five-year cost of $25 billion to $85 billion; although, a compromise would spend “only” $60 billion.
Senator Hatch and Senator Chuck Grassley (R-IA) have publicly called on the president to forego his veto threat. They say that they have negotiated the best deal that they can get with a Democratically controlled Congress, and that their “conservative compromise … addresses many of the concerns conservatives have with states which are covering adults and children with well-off parents with SCHIP funds.” But there is no guarantee that their compromise will be reflected in the final legislation that goes to the president’s desk. Both Hatch and Grassley know this. They are betting that it will. The president on his side is making it clear that he will permit no expansion of the program from its current form.
SCHIP proponents can point to a recent BYU-Arizona State study that found that “kids who drop out of SCHIP end up costing states more money because they shift away from routine care to more frequent emergency care situations.” It’s just that the costs show up elsewhere in the budget. SCHIP proponents almost always refer to those covered by the program as children of the working poor, when many participants come from well-to-do families or are even adults. The program’s advocates seem to regularly measure the program’s success by the number of individuals covered by the program, while ignoring the market effects of the program.
Although the market effects of SCHIP have not been specifically studied, other studies have found (see here) that “the introduction of Medicare was associated with a 23 percent increase in total hospital expenditures (for all ages) between 1965 and 1970, with even larger effects if her analysis is extended through 1975.” The study cited did find some benefits arising from the introduction of Medicare, but an unintended side effect has been the increase in medical and health insurance costs for those not covered by Medicare. We can safely assume that the SCHIP has produced similar results.
Another study has found that publicly funded health insurance is crowding out private coverage at the “rate of about 60%.” Hogberg and Gessing explain that this means that “for every 10 kids signed up for SCHIP, the number with private insurance drops by 3 to 8.” In other words, the government is competing with private industry and is interfering in the market. While this makes us feel good socially, this meddling prevents the market from producing solutions that would better benefit those now covered by the government programs. It causes employers to drop health insurance plans, and it causes private insurance companies to increase rates and reduce coverage.
Hogberg and Gessing suggest that the ultimate result of government meddling in the health care market will be to produce a system implosion, where costs are so high and care so inadequate that a crisis results. Of course, the crisis will be blamed on greedy insurance companies and doctors, rather than on government interference in the market. This will “[open] the door for a single-payer system.” They do not say whether this is “by design or not,” but certainly some advocates of socialized health care favor this strategy. Hogberg and Gessing comment here on two other pieces of health care legislation that will ultimately increase health care costs in the name of accomplishing a moral good.
Does the government need to provide health care/health insurance?
There are certainly elements in our society that require government control. Roads are the classic example. There is probably no feasible way to satisfactorily run all of our nation’s roads and highways as a private industry; although, it is probably more feasible today to consider more market oriented approaches even to this industry than at any time in the past.
To preserve liberty and freedom of choice, government must not directly compete with private business. Government may appropriately regulate, only to the extent absolutely necessary, as long as regulations apply equally and foster competition rather than impeding it. It is also important to understand that each regulation imposes costs (ultimately on individuals) that limit positive (as well as negative) options available to individuals and businesses, so that only essential regulations should be pursued.
What is needed with respect to health care, then, is for government to get out of the business of competing with private business. Rather, government’s role should be to provide a legal structure that fosters the greatest amount of competition and personal choice.
A very good start to fixing our health care industry’s problems would be to decouple health insurance from employment. This link exists mainly due to our tax laws, which give employers tax breaks for providing health insurance to employees. The actual insured individuals are most concerned with getting the highest quality appropriate level of health care at a cost they find acceptable. Employers are mostly concerned with keeping health insurance costs down. Health insurance providers market their plans to employers (relatively few) rather than directly to those insured (many). This creates a barrier in the provider-consumer relationship that distorts the market. Insurance companies do not experience direct market pressures from consumers that would cause them to respond to consumer desires.
Things are different in the automobile insurance industry. States establish regulations that all auto insurance providers must follow, but individuals are free to purchase insurance from any qualified provider. They are free to purchase any insurance product that at least meets the minimum required by law. Consumers can terminate this relationship at will. Auto insurance companies experience direct market pressures due to their direct relationship with consumers. They create flexible products and compete for customers via pricing and product design. Allstate promotes its safe driver discounts. GEICO promotes its 24-hour nationwide claims service.
The life insurance industry functions differently than the health insurance industry as well, despite the fact that many employers offer life insurance benefits. Competition in the life insurance industry has driven the cost of term insurance down dramatically over the past decade and a half.
Removing the artificial employer barrier to the insurer-insured relationship in health care would bring to bear market forces that would revolutionize the health insurance industry. Insurance companies would suddenly be competing for individual customers instead of competing for contracts with employers. Lower cost and more flexible products would result. Consumers would have more choices available than ever before. Health care providers would respond to these new market pressures as well and would focus on providing the level of care desired at a price acceptable to the consumer.
But this system would only work well if the government were not directly competing with the industry. Instead of providing health insurance itself, government should focus on figuring out how to incentivize the market to provide for the less fortunate among us. A stipend or voucher for purchasing health insurance would be far superior to any government-run health insurance system.
As politicians from both sides of the aisle debate how much or how quickly to socialize medicine, what is actually needed is market-friendly reform. We do not need socialized medicine. We need consumer-friendly medicine.