The current system of employer-provided health insurance traces back to domestic policy during the World War II era. Due to government policy, inflation grew both before and during WWII. As a “remedy,” caps on wage increases were imposed by the government. In response, employers began to offer their employees health insurance to soften the blow and attract quality workers.
The federal government did not consider an increase in health benefits a violation of these wage controls, and in 1943 the IRS ruled that health benefits were tax exempt for workers. After the wage caps were abolished, health insurance benefits became seen as the norm and were not eliminated. For instance, by the early 1960s, General Motors was paying 100% of the healthcare bills for their employees (retirees included). FULL ARTICLE by Anton Batey
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“and adding more government provisions would only increase the costs for taxpayers and insurance consumers.”
I’m of the opinion there are large demographic reasons as to why healthercare continue to go up. Surely governmental provisions are one of many contributors, but it’s demographics which are the primary driver. Everything else is secondary.
Christopher,
Care to elaborate? What are these “large demographic reasons” and how do they drive up health care costs in general?
You’re totally wrong about just demographics. This article didn’t mention tort law, EMTALA, and HIPAA. They aren’t just “secondary.” Stop spewing nonsense.
Mike,
I’m speaking of the aging baby boomers. Our workforce is aging, so you have less ‘healthy’ workers paying into the system and more older workers who are drawing from it. Here’s a perfect example. A few years ago a story ran about the rising healthcare costs for the employees of a large defense contractor in my area. Their cost went up partly because the average age of an employee was 55.
It seems every country in the world who has some form of socialized medicine constantly grapples with cost overruns because more people are drawing on the system yet all of these countries have an aging and/or decreasing population.
It’s just a hypothesis.
Christopher,
Essentially what you’re saying is that demand is growing. In a truly free market, the immense profit incentives from this increased demand would produce a tendency to grow the supply until equilibrium is reached. In fact, you’ve really just presented evidence that suggests that government is severely distorting the market.
The free market produced the premier healthcare system in the world. Later generations then took that system as a given, called it a “resource” and set about divvying it up according to political expediency. It’s no wonder we’re having shortages.
So what are those people supposed to do that are unhealthy because of nature? For instance..my mother is 54, never drinks, never smokes, needs NO medication!
She does have a degenerative disc issue. She’s had 3 surgeries (fusions to spacers), which have all vastly improved her quality of life. Then she (like most women her age) had to have a hysterectomy.
She is employed by an individual and has no group or employer health insurance option. She was covered under COBRA until that expired. She was forced to do temporary coverage (6 months per term). She was denied permanent coverage from literally every company she applied.
She took a job to get insurance via a group and the premium is $700 per month…almost 30% of her GROSS INCOME!
So what is the solution for her? Tough crap? I’m just saying I can see why people want socialized medicine. In addition, how about employees that lose their jobs/pensions/coverage: example: GM and Delphi retirees? How are they going to afford coverage if they are not yet eligible for Medicare on a pension (now reduced) of $1500 per month plus social security of maybe $1100 per month?
I don’t believe the govt is the answer, but what are these people supposed to do?
Lindsay,
Unfortunately in life, sh*t happens. There are a million and a half ways nature is not fair.
That being said, the best hope for people like your mother is a truly free market where the medical industry can grow and begin to tackle these problems in a more economical manner, reducing costs.
Not to mention significantly reducing the tax burden, and getting rid of inflation so that your family can actually save money to help out your mother.
The alternative is socialized medicine, which for many reasons (I won’t list them here but you will discover them if you peruse this site) absolutely will NOT help people like your mother in the long run, and will ultimately subject the general population to misery.
Lindsay, the point is that government regulation is what is making health insurance (and also health care), more expensive and less flexible than it needs to be. It’s true that any major free market reforms have a slim to none chance of happening any time soon, thus, there is no solution for your mother because the government won’t allow the solutions to work. It is the government regulations that have caused the problem and socializing the health care system won’t fix it, but make it worse. Those who favor regulation and socialization are the ones who are essentially saying “tough crap”, even if that’s not what they mean to say.
I agree…I was just pointing out the fact that words are easy…there are real people facing these issues.
Our current problem is too much insurance. The end result of these “free” healthcare insurance policies after WW II is an increase in the demand for healthcare as people flocked to the doctor for every little ailment. Why not, it was free!
Now our government wants to compound the problem by increasing the insurance coverage which will result in public opinion that if I am paying for it, then I am going to get my money worth.
In order to bring heathcare cost down, we need less insurance for all. All employers should stop paying for healthcare and pay their employees more so they can purchase their own plan. Most employees will opt for higher deductables which will save them money and make them think twice about running to the doctor with a common cold.
Less demand on healthcare, cost will come down and insurance rates will fall as well.
It seems that the ever-escalating costs of medicine in this country are a result of the hybrid nature of our system, a sort of “worst of both worlds” mix of private profit seeking and socialization. Thus it seems reasonable to think that a strong move in either direction would improve things; either fully socialize the system, thus bringing SOME sort of rational controls on prices, or fully free the system. Obviously, the better answer, from the perspective of liberty and efficiency, is to move toward a fully free market. However, given the fact that the needed market reforms are vanishingly unlikely to happen, we are stuck with the fact that a crippled market, unable to provide the wonderful benefits of its natural workings, is instead leading to grotesque disparities and desperate economic choices for the mass of people. In reality, this mass of people is just as violently subject to the current insane price regime as they would be to any forced socialization, a la the NHS in England.
Mike,
Yes, demand which is for the most part inelastic is growing and growing fast.
It’s said that health insurance companies nationwide are forced to insure applicants, regardless of preexisting conditions. This is an oversimplification, since insurers are not always obligated to pay for the treatment of the preexisting condition, even if they are prohibited from discriminating based on the condition in accepting the insurance application. For instance, the condition may be excluded or paid with by higher premiums and/or deductibles for that particular patient. Requiring the insurance to cover the preexisting condition at no extra cost to the patient is a different animal altogether, and would have the effect of increasing prices for all, as mentioned, but to my knowledge this is not the current state of affairs.
The “price controls” mentioned are not specified to any extent. Exactly what price controls have allowed premiums to increase by an average of more than 119% in the last decade? Would the prices have increased even faster without price controls?
In regard to “community pools,” it’s not clear that having a flat premium for all members in the area is worse than allowing premiums to vary according to risk factors. Because the elderly are the highest risk individuals and are typically low-income, they would be priced out of insurance if younger customers did not pay disproportionately.
It’s true that mandated coverage raises premiums. On the other hand, no numbers or context is given (yet again). “Some” states could be 1 or 2 states, or 18, or 42. Why bother giving details (“some require 50+ forms of mandated coverage”) but leaving out the big picture?
Why are the profits of the insurance companies rising when they are being forced to provide more care? Something is missing here.
Regarding barriers to entry, I find it quite incredible that the restriction on buying insurance across state boundaries is a relevant barrier to entry. It segments the market by state, to be sure, but then each state is a separate insurance market, isn’t it? How does that keep new insurance businesses from forming within a state? Absent any explanation, I find this unconvincing.
The alternative is also unexplored, as are its consequences. For instance, say that this regulation were nixed. Then, insurance companies would flock to the state with the most relaxed insurance regulations. As a consequence, they’d be able to sell insurance to customers nationwide using the same set of rules as are present in that state. Since the insurers look to make a profit, they won’t choose a state that offers the most free market, but will choose the one that allows them to charge the highest premiums to as many healthy people as possible, and reject as many claims as possible. From a free-market perspective, this would be fine only as long as state governments rescinded their regulations, but this is not mentioned at all.
That the lack of new competitors to the health insurance market means that there are too many government-erected barriers to entry is a silly argument to make, for a couples of reasons: A) monopsony and monopoly are legitimate free market outcomes B) the premise does not imply the conclusion. There may be barriers to entry, but these may just as well be caused by the dominant insurance companies themselves. They have a vested interest in discouraging competition, after all.
It is also not clear that universal, government-provided insurance is the worst state of affairs. As is often pointed out, other countries like Canada, France, and Norway have universal, government-provided care, and still pay far less for their care per capita, while our mixed-market system struggles.
In fact, the case for fair and affordable healthcare for all was made, on this very blog, on the basis of charity for those who can’t afford the costs of their care. In other words, fair and affordable healthcare for all *requires* the rich to pay disproportionately for the healthcare of the poor. Some think they will do this out of kindness, while the public in general believes that taxation is the more reliable choice. The rate of increase in insurance industry profits (and horror stories of legitimate claims denied) favors the latter opinion, I’m afraid.
If a free market solution is to stand a chance, it needs better support than vague generalities and nonspecific claims. Lay out some relevant facts and be more rigorous in your conclusions. Argue for the free market as a proponent of reason, not as if it were a product to be marketed to sods who can’t do comparison shopping.
Good post and good questions Ribald. Free marketers like to think the price of health insurance and healthcare can be determined with supply and demand curves like soda or I-Phones. There is a reason why everyone does not have an I-Phone, because the market price forbids it. Sorry, but pricing people out of treatment or care is unacceptable. Suggestions such as ‘ask your friends and family for assitance’ or ‘nature just works that ways sometimes’ are poor at best, immoral at worse (yes, their is a moral component to this issue).
Sorry libertarians, but the free market just does not work for health services. Never has. Never will. I’m sure most everyone on this site will disagree but Medicare and Medicaid have provided tremendous economic benefit over the years, even for upper middle class healthy folks.
I’m sure most everyone on this site will disagree but Medicare and Medicaid have provided tremendous economic benefit over the years, even for upper middle class healthy folks.
Please show your work.
sb101, it should be clear that the government doesn’t work very well for health services, either. But if you realize that health care is made up of doctors, nurses, hospitals, medicines, ambulances, medical equipment, etc, you’ll realize that these are scarce resources, like any other good or service. Nothing allocates scarce resources better than a free market, i.e. a market of voluntary exchanges, and it makes no difference whether we’re talking about desires and luxuries, or very real and urgent needs, such as health care.
Medicare and Medicaid have provided tremendous economic benefit over the years
Compared to what? To what people could have purchased with their Medicare taxes if they had been able to keep and invest them personally into their own health insurance and health care plans?
@Micael A. Clem – you are exactly correct. The free market allocates scarce resources appropriately. By definition the free market raises the price when the service is demanded the most. You OK with this if you get cancer tomorrow and you’re not one of the 60% of insured that’s part of a group plan? How about if you lose your job? Maybe you could call your neighbor as some Senators suggest. Or just chalk it to that’s nature. Sorry, I’m not OK with this. And unfortunantly the scarce resources you refer to are not the ones making the money in this game (as they should be…). It’s the insurance company.
And to those who think Medicare does not provide ecnomic benefit: how many of you save for large, unexpected medical expenses that may occur in the back end of your life? How much would you save if you had to? Nobody does this. Why? Medicare. Without pooling the risk, as individuals we would be forced to save more than the Medicare tax. Just look at Asian consumers. Our social safety net allows us to save less, spend/invest more and take more entreprenurial risk.
http://econ-www.mit.edu/files/1820
“By definition the free market raises the price when the service is demanded the most. You OK with this if you get cancer tomorrow and you’re not one of the 60% of insured that’s part of a group plan?” You fail to realize that in a world of increased demand this will attract increased supply thus bringing the price down. Also the scarce resources you talk about do make money, do you think doctors don’t make money? And lastly you say that this allows us to save less and invest more, that seems to be two sides to the same coin doesn’t it?
Another problem worth pointing out is a problem with the definition of demand vs the definition of need.
Everyone who suffers from a life-threatening illness *needs* care, but is not necessarily able to pay for it at the market price (in other words, they can’t demand care in the economic sense). In the free market ideal, charity solves this problem, but the reality is likely far different: those who can’t pay would be excluded from the market altogether, because there really isn’t a market mechanism that gives away something as expensive as healthcare for free.
This is related to what I would call the central assumption of the free market:
If all men are absolutely free, they must necessarily become just, because it is against their interests to be unjust.
Of course, there was a time when all men were absolutely free. Afterwards, there was civilization.
RIbald,
Your assumption is that people are not generous enough to supply medical care to those who cannot afford it. I’m not sure that this assumption is warranted. Even today, when government taxes almost half of one’s income to (supposedly) provide those things that you say charity cannot, there is still vast amounts of money given to charitable organizations. Would those figures be greater if people did not suppose that their tax dollars were already funding similar causes?
This is precisely the “market mechanism” (by market do you mean voluntary transactions?) that supplies expensive medical care to those in need. Shriners hospitals, to cite one instance, gives away very expensive medical care for free.
Additionally, do you think that people would not band together and form mutual aid societies or similar organizations? Is this not a market mechanism whereby people who may not be able to afford expensive care can pool their risk?
Why would you suppose that there would be less charity, rather than more, in absence of government intrusion? Let me ask you, what would you do in such a case? Would you give? Would you refrain from giving? What about your friends? Would they give or refrain?
“sb101, it should be clear that the government doesn’t work very well for health services, either.” – M. A. Clem.
If someone who can’t afford medication or treatment on their own but do access to these thing because of government services then how did the government not work well? Or are you going to say those people shouldn’t have access to health services if they can’t pay for it? Yet after saying that you will then say people with be worse off if the government chipped in?
Christopher wrote “Our workforce is aging, so you have less ‘healthy’ workers paying into the system and more older workers who are drawing from it”.
That doesn’t make sense. Why should it matter if the workers paying in are less healthy, so long as they are paying in?
Or is this one of those cases which shows up just why matters not to use “less” if you mean “fewer”?
Christopher wrote “Our workforce is aging, so you have less ‘healthy’ workers paying into the system and more older workers who are drawing from it”.
That doesn’t make sense. Why should it matter if the workers paying in are less healthy, so long as they are paying in?
Or is this one of those cases which shows up just why it matters not to use “less” if you mean “fewer”?
The basic premise of this post is correct: We don’t have anything like a “free market” in health care services and products, now. Everything is controlled by monopolies, both on the local level (hospitals and specialist clinics), and on the federal level by Pharma monopolies which are protected and subsidized unlike any other sort of business.
And medical licensing, access to medical schools and other licensing is a scandal, resulting in only very wealthy people being able to afford it (plus you must be some sort of academic superstar – not necessarily good preparation for surgery or other “hands on” skills). I just talked with a woman who completed nursing school, but can’t afford the $300 to get her state certification! What’s that about?
Plus, all sorts of alternative treatments and philosophies such as herbal (from which nearly all pharmaceuticals are derived – the herbs are very cheap and often work better), accupuncture, dietary regimens, reflexology, etc – which have all shown great value under clinical trials. Millions of people believe in other things (which I don’t) like Christian Science, homeopathy, or other “faith healing.” Yet, none of these are covered by commercial insurance or Medicare. And you have to leave the country to actually get market-based prices for drugs, surgery, etc.
So, this is a good point.
The other part that needs to be emphasized is that the present pricing, cost-shifting, and collection policies (forcing bankruptcy, foreclosure, confiscation of pensions, etc.) should already be illegal. Consumer protection laws simply aren’t enforced against medical providers.
Do all these things and we wouldn’t need “socialized medicine” – or only a little bit for the indigent or those with super-costly illnesses, accidents, etc.
The best evidence that there is no “market” in healthcare is to compare our prices with any other country’s with the same standard of living. We pay anywhere from 3-10 times more than the same procedures and treatments in Canada, Japan, Germany, Sweden, etc.
I’ve long maintained that ‘health insurance’ is an oxymoron, or “category mistake.” There is no such thing. It is not ‘health’ that is being insured. The only reason we need any sort of ‘health insurance’ is to protect our assets by confiscation due to fraudulent, padded bills which bear little or no relation to actual costs. And now, of course, one needs ‘proof of insurance’ to have any access to medical services at all!
One simple and obvious reform would be to prohibit providers from charging those without insurance anything more than the minimum they can be reimbursed from Medicare/Medicaid (I realize they are different rates, but they shouldn’t be). Price discrimination in medicine is a perennial problem, recognized in the 1960′s or earlier. But only in recent decades have those without insurance or other means of payment been excluded from treatment – even by charitable, religious, and other non-profit providers.
A Single Payer system guaranteeing that all providers would be reimbursed for whatever necessary care they provide would end all this. For those who want to pay more for better treatment, they could do so – and still pay much less than the fraudulent pricing now in effect.
I’m a Green Party organizer in Montana, by the way.
Mr Lawrence,
I used a poor choice of words. I mean “less” as in “fewer”. Sorry for the confusion.
how many of you save for large, unexpected medical expenses that may occur in the back end of your life? How much would you save if you had to? Nobody does this. Why? Medicare.
If someone who can’t afford medication or treatment on their own but do access to these thing because of government services then how did the government not work well? Or are you going to say those people shouldn’t have access to health services if they can’t pay for it? Yet after saying that you will then say people with be worse off if the government chipped in?
Geez, guys, how long have you been reading the Mises site? No, people don’t save for large, unexpected expenses–that’s exactly what insurance is for, IF the government would stop interfering in the insurance biz and let them offer REAL insurance. Medicare is fake insurance, and is just another redistribution scheme.
Furthermore, government options such as Medicare crowd out private alternatives (scarce resources), since it takes money away from the taxpayer and leaves them less to spend as they see fit, for insurance or anything else. So naturally, government-provided “insurance” leaves consumers worse off than they would be without it.
I am tired of people who think they’re being “compassionate” by suggesting more taxation and more government policies and regulations. Just because you have trouble seeing the alternatives doesn’t mean they wouldn’t be there if the government hadn’t interfered to preclude them.
Health insurance is not only ‘not free’, it also does not pay for health. It pays for drugs and treatments approved by a medical monopoly.
Many (fortunate!) people find that alternative medicine which cures and prevents is effective where the monopoly fails. UN-fortunately, insurance is not monopoly-approved to pay for such alternative remedies.
Type II food allergies
BioIdentical hormone and thyroid su
Health insurance is not only ‘not free’, it also does not pay for ‘health’. It pays for drugs and treatments approved by a medical monopoly.
Many (fortunate!) people find alternative medicine that cures and prevents is effective where the monopoly fails. UN-fortunately, insurance is not monopoly-approved to pay for such alternative remedies.
Look into things like:
Biological terrain
Bioidenticals
Type 2 food allergies
Wylie protocol
…or simple supplements like adren all, niacin, phosphatidel serene, xylitol and licorice.
These are things that really work when addressed properly for specific individuals by qualified doctors – (not necessarily AMA-approved.)
Now, try to find insurance that covers what has made and keeps you well.
Ref sb101:
“Sorry, I’m not OK with this.”
However, I surmise you are okay with forcibly extracting (via officers with guns) an individual’s money in order to pay for his neighbor’s surgery.
Most folks are. And the economic reality is upon us.
Ref. Paul Stephens, and emphasis my own:
“One simple and obvious reform would be to _prohibit_ providers……
“A Single Payer system _guaranteeing_ that _all_ providers….
“….I’m a Green party organizer, by the way.”
Indeed.
One aspect of the health care situation that is easily solved is the “inflated” wages of professionals.
we pay big money for public colleges. why not just offer medical education in ALL public colleges at reasonable rates for all students who desire to serve and have some smarts? remove ridiculous standards and hindrances to entry.
we will soon have twice the healthcare professionals we have now. i would think wages would relax a bit.
remove all restrictions on insurance companies. let them cover whoever they want, for whatever price.
pump up medicaid to cover those that will be left out by the insurance companies, so they will have basic care.
healthy people will soon realize their insurance isn’t buying squat, since they are healthy, and possibly prices will slacken and catastophic insurance will return to the system in place of “maintainence” insurance.
and then there are the drug patents. they need to go and the chances of that is very slight, which means drugs will remain ridiculously overpriced.
The Revolution A Manifesto
Ron Paul
Pgs 89-91
Even now, though, it is possible for physicians to operate outside this crazy system if they make a special effort to do so. Several years ago I had a chance to meet Dr. Robert Berry, who had come to Washington to offer testimony before the congressional Joint Economic Committee, of which I am a member. Dr. Berry had opened a low-cost clinic in rural Tennessee. The clinic does not accept insurance, Medicare or Medicaid, a policy that allows Dr. Berry to treat patients without interference from third-party government bureaucrats or HMO administrators. He and his patients can therefore decide for themselves on appropriate treatments.
Here is the list of Dr. Berry’s charges.
http://www.patmosemergiclinic.com/FEE_SCHEDULE.pdf
List of similar clinics.
PATMOS : Payment At The Moment Of Service Medical Services Directory
http://www.patmosportal.com/payment-at-the-moment-of-service-medical-care/item.php?id=5&dir=
This all suggests that insurance is not needed and could easily become obsolete in a real Capitalist gold standard economy.
I’m quite delayed in making a response here – many things going on, none of them related to poor health ;>) But I want to go on record regarding this article and certain comments.
The so-called health insurance market in Arizona – my legal residence and physical residence 6 months per year – is extremely limited in what is available to me. Last year, when 63 and in excellent health (no chronic health problems) – as I continue to be now at age 64 – the lowest quote I could find on the Internet was $131.88 per month for a $25k deductible policy. The premium amount did not change if I manipulated the correct personal data of 5’5″ and 110lb (BMI = 18.3) to a weight of155lb (BMI = 22.5) and even 180lb (BMI = 30)! Although “Build” information was requested, it was obvious that it was never used in determining the premium. When I questioned the company by email as to why it is not a factor of premium determination that my BMI is *not* obese or even overweight, I got no real answer. In fact the Vice President of Sales responded in part to me: “Based on the basic info you input you were given the best possible rate we offer- Preferred Risk which with your current health status you should be able to qualify for.” While weight (or any other preventative factors) made no difference to this company, if I were a smoker, at my actual weight, the premium quote took a jump to $225.08.
In the current health care insurance market there is no incentive for truly healthy individuals *of any age* to have a policy. Because of this, I continue – as I have for the past 9 years – to be self-pay. I insure my own health primarily by practicing numerous health degeneration prevention measures in the areas of diet, sleep, activity and supplementation, and I self-treat minor ailments and injuries. I have sought a physician’s services only for a true emergency – a renal calculi almost 7 years ago has been the only time (it was the first and only occurrence) – and for prescriptions for a couple items, that have preventative benefits, available only that way, per government edict. Because of my health practices and their results for me – determined by regular self-monitoring of parameters and every 12 to 18 month blood tests (obtained through LEF.org without physician visit), I contend that I have far less health cost risk than many 30 year olds and definitely less than the vast majority of males or females my age. (My and husband, Paul Wakfer’s practices and results are viewable online via – http://morelife.org/personal/ ) But such individualization of likelihood for health related costs is not practiced by any current insurance company.
I have no plans for enrolling in Medicare (I turn 65 in April) since I do not want the government interfering further in any physician-patient/client relationship I may choose to make. I will continue with the health degeneration prevention measures that are deemed appropriate for me as determined by me and my (very knowledgeable) husband, age 71. We are convinced that the vast majority of disease and disability is preventable, but a (?very?) large majority of the populace, including many health practitioners themselves, in the US (and elsewhere) continue to operate on the idea that ill health (cancer, heart disease, strokes, dementia, etc. etc.) “just happens”. An enormity of high quality information abounds if one understands how to assess and evaluate the voluminous streams of various quality information available, making farsighted wide-viewed use of that most precious of resources, time. In addition to our health practices, we maintain a moderate amount of liquid and semi-liquid assets and are debt free – the results of frugal living – for the purposes of paying for any desired/needed health related services that may nonetheless arise.
Lastly, kudos – to Paul Stephens: “And medical licensing, access to medical schools and other licensing is a scandal, resulting in only very wealthy people being able to afford it” The government decides those whom it will let individuals choose to consult for health (and very many other) purposes and, complements of the FDA, what it will let anyone sell.
Paul, again: “It is not ‘health’ that is being insured. The only reason we need any sort of ‘health insurance’ is to protect our assets … One simple and obvious reform would be to prohibit providers from charging those without insurance anything more than the minimum they can be reimbursed from Medicare/Medicaid (I realize they are different rates, but they shouldn’t be).” Our experience in this area can be seen at – http://selfsip.org/focus/healthcareexample.html Although the “simple and obvious reform” suggested by Paul Stephens would be yet another restriction of liberty, it is made necessary by the prior restrictions of health provider licensing.
And kudos also to Michael A Clem: “No, people don’t save for large, unexpected expenses–that’s exactly what insurance is for, IF the government would stop interfering in the insurance biz and let them offer REAL insurance. Medicare is fake insurance, and is just another redistribution scheme.” And as long as there is no REAL insurance, those who are not willing to pay exorbitant premiums for the pre-paid health services plans and who are self-responsible will make use of evidence-based preventative measures and keep moderate amounts of assets on hand for unexpected health related expenditures – ie. the most cost effective action will be to self-insure.
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