Health Care Fight Returns

Published June 1, 2002

The health care reform debate of the early 1990s didn’t end with the defeat of HillaryCare in 1993. It just went underground.

Those looking to expand the reach of federal and state government into medicine merely changed their tactics and started advancing their agenda in smaller, more digestible bites. Meanwhile, conservatives who opposed President Bill Clinton’s wacky plan began to lose interest. They failed to fight for market-based policies, such as tax reform, that would increase consumer power and responsibility.


The result has been disastrous. After a brief period of quiescence in the mid-1990s, health care inflation is back with a vengeance. Much of the new inflation can be attributed to such liberal legislation as the 1996 Kassebaum-Kennedy bill, the deceptive Child Health Insurance Program adopted in 1997, and various regulatory schemes that I have called the “Trial Lawyers’ Bill of Wrongs.”

In the public sector, the resurgence of rapid growth in annual health care expenditures is a major reason the federal budget slipped back into deficit, and why so many state governments are seeing big budget gaps of their own.

In my home state of North Carolina, for example, Medicaid expenses will grow by an astounding $1 billion or so over two years. (Counties are also suffering from this, because in North Carolina they are forced to pay about 5 percent of the cost but have no real control over prices or services.) The state employee health plan is similarly imperiled, requiring hundreds of millions of dollars over two years just to remain solvent.

The pressure is also severe in the “private” sector, which I put in quotes because our current employer-based health insurance system is a creation of government rather than free markets. According to a recent story in Investor’s Business Daily, health plan costs for private-sector employees rose 8.1 percent in 2000 and 12.2 percent in 2001, and are projected to increase 13.6 percent in 2002. The cost of supplemental health plans for retirees is growing even faster, with a 15.1 percent rise projected for this year alone.

It’s the Regulation

Admittedly, health care expenditures in a developed country probably should grow somewhat faster than the rest of the economy. As people become more prosperous, they often spend a smaller share of their disposable income on food and other goods and a higher percentage on such services as recreation, travel, and health care. The aging of a population will also have the effect of shifting consumption patterns toward health care.

But the current increases don’t reflect mere demographic realities. They reflect a lack of incentives for efficiency. The principle is simple. Most employees at a business lunch where their employer pays the bill are tempted to order more expensive fare than they would if they were paying the bill directly. If automobile insurance covered not just emergencies and accidents but oil changes and wiper blades, motorists would probably change their oil and blades more often, even though it wasn’t necessary.

You can’t expect insurance products—originally designed to help individuals manage the risk of a major calamity—to pay for such routine services as doctor visits and prescription drugs. That doesn’t make sense. It weakens the relationship between prices paid and services demanded, encouraging consumers to consume medical services inefficiently because they aren’t paying a significant portion of the bill at the time of sale (and, in the case of Medicaid, they aren’t paying any part of the bill in the first place).

The system is broken—which is exactly what advocates of a single-payer system, otherwise known as socialized health insurance, prefer. They knew exactly what they were doing when they lobbied for Medicaid expansions and new insurance regulations while fighting off tax reforms and medical savings accounts. Let’s see how long it takes for them to proclaim that the free market has failed and it’s time for the government to take over.

The real problem is that a free market for health care—one not warped by regulations and special tax advantages—doesn’t exist.

John Hood is president of the John Locke Foundation and publisher of Carolina Journal.