How Did We Get Into This Health Care Mess?

January 2, 2010

How Did We Get Into This Health Care Mess?

Many people would like the relationships in health care to follow a straightforward economic pattern. They imagine that the doctor-patient relationship should look like an Intro to Economics price to quantity graph, with physicians as suppliers and patients as demanders. If that were the case, simply adding more doctors could shift the supply curve and create a new equilibrium. They think that would produce a lower price for health care and resolve many of America’s health care concerns. The real world, however, is not quite like that.

The first, and most obvious, problem is that the physician supply has not kept up. That is one of the many reasons why the United States is being inundated with foreign-trained physicians. As another post showed, the number of U.S. physicians is inadequate for our country’s needs now. The most reliable resources indicate that there may be a shortfall of 150,000 by the year 2025. If the economics of health care followed the simple model described above, then the supply curve would shift in the undesired direction. In that case the price of health care would become even greater than the dollar figures mentioned in the current political debate.

But there is more. The demand for health care has increased much more than expected. A look at the Congressional Research Service’s demographic charts shows that there are many more older people in this country. The United States is in the midst of a profound demographic change, and has had an overall aging of its population; this has been characterized by the increased proportion of persons aged 65 and older in our population. In general, as people get older, they use more health care. The result may be a shift of both the supply and demand curves. Using that old economics diagram, the resulting equilibrium will be higher and much more costly.

However, some argue that physicians are more than just the suppliers of health care. Those people feel that physicians may be a part of the problem themselves and some physicians may stimulate overuse of the heath care system. In the recent past, President Barack Obama spoke to the American Medical Association about this issue, and implied that physician behavior may be one of the factors driving up costs. He suggested that some doctors create a demand for services, and their intervention has contributed to the problems of the health care market. The difficulty with that argument is in separating issues that relate to demand from the physician role as the gatekeeper to health care system. Physicians are often the means that patients use to initiate access the health care system. However, the health care demand exists in and of itself; it is an independent factor. All that physicians do is show they care for patients by responding to the existing demand.

If physicians are not the cause of the problem, is physician supply a factor of concern? It is important to be aware that some believe an increase in physician supply does not translate into better care. In fact, as counter-intuitive as it may seem, some recent reports indicate that patients’ satisfaction with care, and patients’ perceptions of access, are no better in high physician supply regions than in low physician supply regions. With that understanding, many argue that more physicians may not result in better care for patients. People who follow that argument believe that what we need is improved efficiency, not more doctors, to produce a more cost-effective result. (See: Skinner et al, “The Elusive Connection Between Health Care Spending and Quality.” Health Affairs 28, w119–w123, 2009.)

Could it be that what we need is both more doctors and more efficiency? In some countries with different health care systems, demographic predictions of this variety have resulted in significant changes in hospital design and physician education. The demographic details for our country present a pretty strong argument showing that there will not be enough physicians for your care when you get older. At the same time, every one could use more efficiency. How will the combined House and Senate bills respond to these issues?

« Read Previous Entry Read Next Entry »

5 Comments »

To answer the question you pose in this post’s title, we got into this health care mess as a result of government regulation. First, wage and price controls during World War II created the phenomenon of health insurance as an employer-based benefit:

The modern American health-care system has its roots in World War II. As part of the war effort the U.S. government imposed wage and price controls on its citizens. It was illegal for American employers to compete for scarce employees by offering them better salaries, so employers came up with a new concept—we now call it the ‘benefit.’ One such benefit was health insurance.

This was cemented by government policy allowing employer-provided health care to be paid for with pretax dollars, while individual health care purchases were paid for with post-tax dollars, creating a huge marginal incentive to demand that employers provide insurance rather than consumers purchasing it themselves.

Restraint of interstate policy sales and licensure-based barriers to entry in medical fields only exacerbated the resultant rising costs. As Roderick Long summarizes here, health care used to be inexpensive and widely available until the government stepped up its interventionist policies:

At the turn of the century, the average cost of “lodge practice” to an individual member was between one and two dollars a year. A day’s wage would pay for a year’s worth of medical care. By contrast, the average cost of medical service on the regular market was between one and two dollars per visit. Yet licensed physicians, particularly those who did not come from “big name” medical schools, competed vigorously for lodge contracts, perhaps because of the security they offered; and this competition continued to keep costs low.

The response of the medical establishment, both in America and in Britain, was one of outrage; the institution of lodge practice was denounced in harsh language and apocalyptic tones. Such low fees, many doctors charged, were bankrupting the medical profession. Moreover, many saw it as a blow to the dignity of the profession that trained physicians should be eagerly bidding for the chance to serve as the hirelings of lower-class tradesmen. It was particularly detestable that such uneducated and socially inferior people should be permitted to set fees for the physicians’ services, or to sit in judgment on professionals to determine whether their services had been satisfactory. The government, they demanded, must do something.

And so it did. In Britain, the state put an end to the “evil” of lodge practice by bringing health care under political control. Physicians’ fees would now be determined by panels of trained professionals (i.e., the physicians themselves) rather than by ignorant patients. State-financed medical care edged out lodge practice; those who were being forced to pay taxes for “free” health care whether they wanted it or not had little incentive to pay extra for health care through the fraternal societies, rather than using the government care they had already paid for.

In America, it took longer for the nation’s health care system to be socialized, so the medical establishment had to achieve its ends more indirectly; but the essential result was the same. Medical societies like the AMA imposed sanctions on doctors who dared to sign lodge practice contracts. This might have been less effective if such medical societies had not had access to government power; but in fact, thanks to governmental grants of privilege, they controlled the medical licensure procedure, thus ensuring that those in their disfavor would be denied the right to practice medicine.

Such licensure laws also offered the medical establishment a less overt way of combating lodge practice. It was during this period that the AMA made the requirements for medical licensure far more strict than they had previously been. Their reason, they claimed, was to raise the quality of medical care. But the result was that the number of physicians fell, competition dwindled, and medical fees rose; the vast pool of physicians bidding for lodge practice contracts had been abolished. As with any market good, artifical restrictions on supply created higher prices — a particular hardship for the working-class members of fraternal societies.

Historian David T. Beito delves into this history in exhaustive detail in his excellent book From Mutual Aid to the Welfare State: Fraternal Societies and Social Services, 1890–1967 — a former Show-Me Institute book club selection. In fact, I think I gave you a copy several months ago.

Doctor shortages are a big problem, but those shortages are artificial, a symptom of longstanding and ongoing government intervention in health care markets. Legislators won’t be able to provide solutions that fix this problem short of repealing the regulatory measures that led to the problem in the first place.

Comment by Eric D. Dixon — January 2, 2010 @ 3:29 p.m.
Thank you for your suggestions Eric. The problem is that we cannot change history; no matter what errors people may have made in doing things in the past, we can only go forward. Thank you for your comments, though, because it is important for our readers to be aware of the historic evolution of this problem in America. But that is also why this comment was centered on more recent events. I think they have a closer relevance to what may happen in Congress in the next few days.
By the way, your reference to the work of David Beito was very good. In my classes, however, we use a book that is more directly related to health care issues. It is “The Social Transformation of American Medicine” by Paul Starr. Although it was written some time ago (It was the winner of the Pulitzer Prize for Non-Fiction in 1984), it has value today. For people who want a deeper understanding of what really happened, it has 50 pages of references that can direct the readers to the original source documents.

Comment by Femanss — January 3, 2010 @ 4:13 p.m.
[...] combined House and Senate bills respond to these issues?” — Stephen Feman, writing at ShowMeDaily.org, a blog of the ShowMe [...]

Pingback by The Transformation of the Medical Profession | www.statehousecall.org — January 4, 2010 @ 3:09 a.m.
Performance payments are not the answer. There is no way to assure patient compliance once they leave the office. Entirely too much testing is done in the name of quality of care. Who decides what this is? Insurance companies and HEDIS with their lists of things that must/should be done have little meaning in the real world. Committees of specialist experts what to insure that testing is done that will have a financial benefit to them. Insurers need to decide, based on evidence-based medicine, what is necessary and what is reassuring, and decided how much, if anything, should be covered. Annual stress tests on patients with a previous normal? Give me a break! Annual PFT for those with asthma and COPD? Doesn’t prevent deterioration to requiring oxygen, prevent lung cancer, or reduce hospitalizations for breathing exacerbations. Lipid profiles every 3 months in those >80 with coronary disease? These are just some examples.

As for physician supply, the most cost-effective way to deliver the primary care product is thru clinics with 8 NP or PA and 2 internists. The patient will show up with either a card or bio-identity thumb drive. Swipe or plug it into a computer. A touch screen will guide them thru alogrithims. Ancillary tests will be then done based on the alorithim. The patient will finally see a provider who will estabilsh a diagnosis and use preferred meds to treat. If the condition is atypical, the patient will be referred to the physician. If the patient wants to see a physician, they will pay additional out of pocket. I suspect that many of the young without chronic medical conditions have little interest in establishing a doctor-physician relationship – just treat the acute problem.

Comment by Nathan, an MD — January 4, 2010 @ 4:57 p.m.
[...] and scholars have discussedbetter solutions for health care reform in blog entries, op-eds, and policy [...]

Pingback by State Policy Blog » Blog Archive » Questionable Comparisons, Questionable Conclusions — June 23, 2010 @ 6:56 p.m.

RSS feed for comments on this post. TrackBack URL

Categories

To answer the question you pose in this post’s title, we got into this health care mess as a result of government regulation. First, wage and price controls during World War II created the phenomenon of health insurance as an employer-based benefit:

The modern American health-care system has its roots in World War II. As part of the war effort the U.S. government imposed wage and price controls on its citizens. It was illegal for American employers to compete for scarce employees by offering them better salaries, so employers came up with a new concept—we now call it the ‘benefit.’ One such benefit was health insurance.

This was cemented by government policy allowing employer-provided health care to be paid for with pretax dollars, while individual health care purchases were paid for with post-tax dollars, creating a huge marginal incentive to demand that employers provide insurance rather than consumers purchasing it themselves.

Restraint of interstate policy sales and licensure-based barriers to entry in medical fields only exacerbated the resultant rising costs. As Roderick Long summarizes here, health care used to be inexpensive and widely available until the government stepped up its interventionist policies:

At the turn of the century, the average cost of “lodge practice” to an individual member was between one and two dollars a year. A day’s wage would pay for a year’s worth of medical care. By contrast, the average cost of medical service on the regular market was between one and two dollars per visit. Yet licensed physicians, particularly those who did not come from “big name” medical schools, competed vigorously for lodge contracts, perhaps because of the security they offered; and this competition continued to keep costs low.

The response of the medical establishment, both in America and in Britain, was one of outrage; the institution of lodge practice was denounced in harsh language and apocalyptic tones. Such low fees, many doctors charged, were bankrupting the medical profession. Moreover, many saw it as a blow to the dignity of the profession that trained physicians should be eagerly bidding for the chance to serve as the hirelings of lower-class tradesmen. It was particularly detestable that such uneducated and socially inferior people should be permitted to set fees for the physicians’ services, or to sit in judgment on professionals to determine whether their services had been satisfactory. The government, they demanded, must do something.

And so it did. In Britain, the state put an end to the “evil” of lodge practice by bringing health care under political control. Physicians’ fees would now be determined by panels of trained professionals (i.e., the physicians themselves) rather than by ignorant patients. State-financed medical care edged out lodge practice; those who were being forced to pay taxes for “free” health care whether they wanted it or not had little incentive to pay extra for health care through the fraternal societies, rather than using the government care they had already paid for.

In America, it took longer for the nation’s health care system to be socialized, so the medical establishment had to achieve its ends more indirectly; but the essential result was the same. Medical societies like the AMA imposed sanctions on doctors who dared to sign lodge practice contracts. This might have been less effective if such medical societies had not had access to government power; but in fact, thanks to governmental grants of privilege, they controlled the medical licensure procedure, thus ensuring that those in their disfavor would be denied the right to practice medicine.

Such licensure laws also offered the medical establishment a less overt way of combating lodge practice. It was during this period that the AMA made the requirements for medical licensure far more strict than they had previously been. Their reason, they claimed, was to raise the quality of medical care. But the result was that the number of physicians fell, competition dwindled, and medical fees rose; the vast pool of physicians bidding for lodge practice contracts had been abolished. As with any market good, artifical restrictions on supply created higher prices — a particular hardship for the working-class members of fraternal societies.

Historian David T. Beito delves into this history in exhaustive detail in his excellent book From Mutual Aid to the Welfare State: Fraternal Societies and Social Services, 1890–1967 — a former Show-Me Institute book club selection. In fact, I think I gave you a copy several months ago.

Doctor shortages are a big problem, but those shortages are artificial, a symptom of longstanding and ongoing government intervention in health care markets. Legislators won’t be able to provide solutions that fix this problem short of repealing the regulatory measures that led to the problem in the first place.

Comment by Eric D. Dixon — January 2, 2010 @ 3:29 p.m.

Thank you for your suggestions Eric. The problem is that we cannot change history; no matter what errors people may have made in doing things in the past, we can only go forward. Thank you for your comments, though, because it is important for our readers to be aware of the historic evolution of this problem in America. But that is also why this comment was centered on more recent events. I think they have a closer relevance to what may happen in Congress in the next few days.
By the way, your reference to the work of David Beito was very good. In my classes, however, we use a book that is more directly related to health care issues. It is “The Social Transformation of American Medicine” by Paul Starr. Although it was written some time ago (It was the winner of the Pulitzer Prize for Non-Fiction in 1984), it has value today. For people who want a deeper understanding of what really happened, it has 50 pages of references that can direct the readers to the original source documents.

Comment by Femanss — January 3, 2010 @ 4:13 p.m.

[...] combined House and Senate bills respond to these issues?” — Stephen Feman, writing at ShowMeDaily.org, a blog of the ShowMe [...]

Pingback by The Transformation of the Medical Profession | www.statehousecall.org — January 4, 2010 @ 3:09 a.m.

Performance payments are not the answer. There is no way to assure patient compliance once they leave the office. Entirely too much testing is done in the name of quality of care. Who decides what this is? Insurance companies and HEDIS with their lists of things that must/should be done have little meaning in the real world. Committees of specialist experts what to insure that testing is done that will have a financial benefit to them. Insurers need to decide, based on evidence-based medicine, what is necessary and what is reassuring, and decided how much, if anything, should be covered. Annual stress tests on patients with a previous normal? Give me a break! Annual PFT for those with asthma and COPD? Doesn’t prevent deterioration to requiring oxygen, prevent lung cancer, or reduce hospitalizations for breathing exacerbations. Lipid profiles every 3 months in those >80 with coronary disease? These are just some examples.

As for physician supply, the most cost-effective way to deliver the primary care product is thru clinics with 8 NP or PA and 2 internists. The patient will show up with either a card or bio-identity thumb drive. Swipe or plug it into a computer. A touch screen will guide them thru alogrithims. Ancillary tests will be then done based on the alorithim. The patient will finally see a provider who will estabilsh a diagnosis and use preferred meds to treat. If the condition is atypical, the patient will be referred to the physician. If the patient wants to see a physician, they will pay additional out of pocket. I suspect that many of the young without chronic medical conditions have little interest in establishing a doctor-physician relationship – just treat the acute problem.

Comment by Nathan, an MD — January 4, 2010 @ 4:57 p.m.

[...] and scholars have discussedbetter solutions for health care reform in blog entries, op-eds, and policy [...]

Pingback by State Policy Blog » Blog Archive » Questionable Comparisons, Questionable Conclusions — June 23, 2010 @ 6:56 p.m.

January 2, 2010