The Grand Unification Theory of Health Care

Section 3 - Health Care 2000 - How it got this way 

     A brief history of American Health Care
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Grand Unification Theory of Health Care

- Contents -


SECTION 1 - The importance of the doctor-patient relationship and why we can't have it anymore 

SECTION 2 - The truth about health care rationing

SECTION 3 - Health Care 2000 - how it got this way

SECTION 4 - Secrets of  managed care 

SECTION 5 - Portrait of a modern HMO 

SECTION 6 - The Clintonians Strike Back

SECTION 7 - Rationing and Death - Covert rationing and end-of-life care

SECTION 8 - Fixing our health care system

APPENDIX - Devising a methodology for open rationing

The two "golden eras" of American health care

The "economic" golden era

Any health care economist worth his or her salt will tell you that from an economic standpoint, an ideal health care system is one in which patients pay directly for their medical care.  In such a system, patients freely choose their own physicians, and together with their physicians make all medical decisions, mindful that any costs incurred thereby are theirs to pay.  Cost controls are therefore automatic. During the 1920s and for the next few decades, this “ideal” system existed in the United States.  Inasmuch as doctors at the time had very little to offer in terms of expensive (or effective) therapies, and since patients’ expectations were (appropriately) low, this system worked extremely well from an economic point of view.

The "medical" golden era

This economic equilibrium began to falter in the 1930s, and the disequilibrium rapidly accelerated in the years following World War II.  The first kink in the armor of direct contracting between physicians and their patients occurred during the Great Depression, when hospitals began to suffer from patients’ inability to pay their bills.  Over the initial objections of physicians, financially stressed hospitals prevailed on state legislatures to legalize the insurance schemes that became known as Blue Cross.  In order to assuage the moral indignation of physicians, however, the Blues were created as non-profit, provider-oriented insurance organizations. 

“Provider-oriented” meant two things.  First, Blue Cross (and later, Blue Shield) did not try to tell physicians how to practice medicine.  Physicians were free to practice as they saw fit, and the Blues would simply pay the bills on a fee-for-service basis.  Second, the boards of trustees of local Blue Cross and Blue Shield organizations were loaded with prominent local physicians and hospital administrators. 

Not only did such a system preserve the direct physician-patient relationship, it also paid the bills more reliably than did patients themselves. The system worked to so well that soon physicians became willing to countenance the formation of private health insurance companies, as long as those companies followed the same general guidelines set by the Blues. 

Health insurance proved to be so popular that, during the wage and price controls of World War II, companies began offering it to their employees in lieu of higher wages.  After the war, American labor unions began to demand that employers provide health insurance as a benefit of employment.  The government liked this idea, too, and in order to encourage it, tax laws were changed to make the provision of this benefit extremely attractive to employers.

It is important to note that this new tax policy created a fundamental change in how health care was paid for.  In effect, it shifted a huge chunk of the fiscal burden for health insurance from consumers and employers to the government, where it remains to this day. Within a few years, the majority of American workers had employer-provided health care insurance, heavily subsidized by the federal government.

Then in the 1960s, the federal government became directly involved in paying for American health care on a large scale with the institution of Medicare, and then Medicaid.  Since that moment, the proportion of health care spending directly attributable to the government has steadily grown – from 24% of all dollars spent on health care in the 1960s, to 40% by 1990.  Today, when you include tax subsidies for health insurance, fully 51% of America’s health care spending is accounted for by the government, and paid for by taxpayers.

Since politicians can tax the people only so much, a lot of this spending has been piling up in the form of the national debt, awaiting our children and grandchildren.

But for physicians and their patients in the second half of the 20th century, the resultant system seemed nearly perfect.  While patients retained complete freedom of choice regarding which doctors and hospitals they used, and while the physician-patient relationship remained largely free of outside influence, somebody else was paying the bills. There arose an almost complete dissociation between providing (and consuming) health care, and paying for it.

This economic arrangement did at least two things that would ultimately spell its own doom.  First, it allowed the American health care myth to flourish – the notion that the best possible care should be provided to everybody, and that where health care is concerned, there are no limits.  It created expectations that ultimately could not be met.

Second, this system fostered the development of the medical-industrial complex.  Since any medical advance that seemed useful would be paid for, powerful corporations arose dedicated to meeting the bottomless demand for medical advances. The pharmaceutical companies, hospital suppliers, and medical device companies began turning out a steady stream of improved and expensive technology.  Ironically (given that this whole system had evolved largely due to physicians’ attempts to shield themselves from corporate influence), these corporations used their considerable marketing clout to influence the decisions, the practice patterns, and even the demographic distribution (such as patterns of specialization) of the medical profession.

The bottomless expectations of patients and physicians, coupled with the never-ending meeting (and flaming) of those expectations by industry, created a rapidly spinning positive feedback loop. The more health care the doctors and patients got, the more they wanted.  The more they wanted, the more the medical-industrial complex was happy to provide.  It was inevitable that those paying the ever-mounting health care costs (i.e., employers and the government) would eventually reach the breaking point.  While the system that prevailed during this “golden era” came to be regarded as the norm by (if not the birthright of) American physicians and their patients, from a broader perspective that system is clearly an unsustainable aberrancy.  At some point the mounting costs of “no limit” health care had to generate its own backlash.  The system had to implode.

Next: The era of reform - the Clintonians have a go at the health care system

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