Health Care Reform -- MNLG Position Paper

The Fallacy of Government Sponsored Single-Payer Health Care
A consumer-driven model proves best for both patients and providers.
by Jeff Hagen

Almost everyone agrees that America's health care system is terminally ill. It is the most expensive in the world, with the US spending more on health care per person than any other industrialized nation. Recent estimates put health care spending at around 16% of U.S. GDP. In 2007, the U.S. spent $2.26 trillion on health care, or $7,439 per person. 46 million people are without medical insurance. The health care share of GDP is expected to continue upward, reaching 19.5 percent of GDP by 2017.

What most do not agree upon is how to solve the problem associated with rising health care costs. One argument is that single-payer universal health care is the answer. By paying out of one fund the advantages is administrative simplicity. Others think that the mandatory private purchase of health insurance by all is the answer, as is done in Massachusetts. A third option is that we need to adopt the system offered in Canada., where some see the free market and consumer-driven care as the solution. While all proposals are well meaning, the law of unintended consequences spoils the capability of centrally controlled health care schemes. We will take aim at the history of rising health care costs, the Canadian model, the laws of unintended consequences and examine our options going forward.

History of Health Insurance

The first U.S. President to propose a prepaid health insurance plan was Harry S. Truman. On November 19, 1945, in a special message to Congress, President Truman outlined a comprehensive, prepaid medical insurance plan through the Social Security system.

Before the advent of health insurance, patients were expected to pay all health care costs out of their own pockets, under what is known as the “fee for service” business model. The fee for service business model was relatively inexpensive and reliable, with doctors even making house calls. But it was not without its problems. Medical conditions such as infection, pneumonia, influenza, and tuberculosis were the leading cause of death and advances in medical products and services were limited. Serious innovation was still years ahead. My father recently told me that his birth in 1943 cost a grand total of $35; that’s $438 in inflation adjusted terms. And births at that time mandated the mother and child to spend several nights in the hospital, as compared to today’s same-day delivery.

Nonetheless, for decades the U.S. healthcare system was the envy of the entire world. Not coincidentally, there was far less government involvement in medicine during this time. America had the finest doctors and hospitals, patients enjoyed high-quality, affordable medical care, and thousands of private charities provided health services for the poor. Doctors focused on treating patients, without the red tape and threat of lawsuits that plague the profession today. As time when on, most Americans paid cash for basic services, and had insurance only for major illnesses and accidents. This meant both doctors and patients had an incentive to keep costs down, as the patient was directly responsible for payment, rather than an HMO or government program.

The Advent of Medicare and Medicaid

The 1960s however saw a plethora of concrete moves by the federal government to consolidate and modernize the U.S. healthcare system. With Lyndon Johnson's Great Society initiative, the U.S. established public health insurance for both senior citizens and the underprivileged. Known as Medicare and Medicaid, these two healthcare programs granted certain groups of Americans access to adequate healthcare services.

Download the full position paper here.