Thursday, June 21, 2007

American Healthcare History

David Gratzer is a physician proponent of free market solutions to the problem of healthcare expense. The perceived crisis in American medicine is not quality of service but rather affordability of care. This “money” problem develops from prior decisions trying to out think the market. “American health care has been shaped by two days: October 26, 1943 and December 1, 1942.”

What's Wrong With American Health Care? On October 26, 1943, the IRS ruled that employers could continue to pay health insurance premiums in pre-tax dollars. As a response to wage and price controls, employers had begun to offer health benefits to attract better employees. The IRS ruling legitimized and encouraged the practice, giving rise to the dominance of employer-sponsored health insurance.

On December 1, 1942, Lord Beveridge issued his report on health care and pensions to the British Parliament, envisioning zero-dollar public health insurance. Lord Beveridge had enormous influence here, particular among Democrats; his thinking (and persuasiveness) helped lay the intellectual foundation for Medicare and Medicaid.

Fast forward 60 years, and the end result of these two days is that Americans - whether privately insured or publicly covered - tend to be over-insured, and thus less sensitive to prices. And so we come to a paradox: American health care is so expensive because it's so cheap.

So now the challenge is to hold strong against the forces proposing to address the economic failure of over-insurance with expanded universal insurance. Lord Beveridge (1879-1963) was an intellectual civil servant who as a young man earns the enmity of the labor unions during WWI, yet eventually becomes the father of the modern welfare state in the years after WWII.

Social Insurance and Allied Services was published in December 1942 and outlined a vision of society’s battle against the five giants, idleness, ignorance, disease, squalor and want. The report proposed a system of cash benefits, financed by equal contributions from the worker, the employer and the state, together with a public assistance safety-net. Underlying this system were three assumptions, all necessary, Beveridge argued, for the abolition of want: a national health service available to all, tax-financed family allowances and a commitment to state action to reduce unemployment.

The comparative level of, ignorance, disease, squalor and want between the present and the recent past is remarkable. How often do Americans speak of tatterdemalion? Idleness gives way to leisure time as the economy keeps most people busy. As Dr. Gratzer points out: “In most other sectors of the economy, costs fall with advancements in technology”, so the affordability problem can be improved by moving back towards market established pricing. The big impediment, however, remains the lure of “tax-financed family allowances”.