The purpose of this short series of articles regarding the history of health insurance is to highlight the issues of how government intervention has pushed the US toward a single payor system by adding layers of legislation that created problems that have brought the US to the point where it now will continue down the path of a single payor system. This system can be avoided, but the pathways away from it are few and require the work of undoing the decades of legislation that provided the consequences that created the problems that lead to the single payor system. The problems that exist are a result of government intervention and not of the open markets.
In 1937, federal legislation was introduced that eliminated insurance companies’ ability to compete across state lines. The free market efficiencies that lower costs was dramatically interrupted, and national insurance companies wishing to do business in multiple states were forced to create smaller companies as subsidiaries in order to sell in these states. More layers of costs, higher barriers to entry, and less competition.
In the early days of the development of health insurance, government intervention in wage and price controls forced employers to offer health insurance as a way of getting around the controls. This forever instituted many problems that included the movement away from the purpose of insurance, which is to say that it covers every day sorts of care rather than catastrophic types of events (unlike any other form of insurance). It adds the reliance on a third party to administrate the care and adds unnecessary costs. It creates a situation where coverage is no longer portable, and therefore people lose coverage when they change jobs. They also then have pre-existing conditions.
In order to address these problems that were created by government intervention in those early days, a series of legislation in following years were passed that had the consequence of actually exaggerating the problems. As is often the case with government intervention, unintended (or according to some who believe there were ulterior motives – intended) negative consequences result.
In 1965, in order to address the poor and the elderly either losing their coverage from losing or leaving a job, the act that formed Social Security was amended to create Medicare and Medicaid. Medicare attempted to address the needs of the elderly, while Medicaid attempted to address the needs of the impoverished. Both had negative consequences.
Medicaid requires that both the federal and state governments be involved. The federal government issues guidelines, but the states each create their own plans and fund the programs. Both governments must coordinate the types of coverage available, and therefore two massive administrative bodies add to the costs of these coverages. Additionally, for two important markets in health insurance, the markets are owned by the federal government, with minimal participation form private markets, creating significant market inefficiencies. It has also created public reliance on health care in these two critical markets.
An important note is that Medicare has no real coverage for long term care. An elderly person on Medicare can receive a maximum of six months of care in a skilled nursing facility, but is eligible for much greater lengths under Medicaid. In order to qualify for Medicaid’s impoverishment requirements, the elderly people who are of middle to moderate means end up purposefully impoverishing themselves to become eligible for the benefits, because of the initial reliance on public care. This encourages an elderly person to move away from a market with limited private care options to a market with strictly public care and creates unnecessary impoverishment.
In order to address two problems that existed as a result of employers now offering health coverage to a large segment of the population, a piece of legislation, named COBRA, was adopted in 1985, with amendments in 1986. Because there was an exaggerated risk pool in independent insurance markets, making costs higher, and because people changing jobs created situations of pre-existing conditions, an employer mandate for businesses of 50 or more employees was established. Every company with 50 or more employee must provide coverage to all employees and share in at least 50% of the cost. Pre-existing conditions must be covered within a maximum elimination period of 12 months. Greater numbers of employer covered people means the exaggeration of these problems addressed rather than helping it. The problem of pre-existing conditions flourishes, while the forced coverage of these conditions skyrockets the cost of health insurance (because a pre-existing condition is not a risk but rather a certain coverage of already existing costs).
In 2015, the establishment of the Affordable Care Act compounds these problems even further by eliminating elimination periods for pre-existing conditions entirely, both in employer sponsored plans and individual plans. The costs of health insurance since then has skyrocketed astronomically, prompting some to wonder if this was not the design of the act in the first place – to purposefully cause health insurance costs to dramatically increase so that people are begging for a single payor plan. Previous government interference resulted in average annual costs increasing at a rate of about 3 to 4 times inflation, but the ACA increased rates far above and beyond this already high average annual increase. In addition, many carriers of health insurance have abandoned the market entirely, leaving few private options in health care.
Most of the problems that Americans have with their health care were caused by government intervention – not saved by it. It is only by eliminating the legislation that caused the problems that Americans can hope to regain efficiencies in free markets that aid in the problems. Repealing the ACA is not nearly enough to stave off the inevitable march to a single payor system. It merely prolongs the amount of time it takes to get there. Bringing back free-market solutions requires the incredibly difficult work of undoing a massive mess of decades of government-caused problems in the system. There are market solutions that would dramatically decrease the cost of health care and cover the impoverished, but they cannot be realized in the current environment. Movement away from reliance of employer-sponsored plans and greater movement into portable individual plans aids in significant cost savings. The hard work of repeal of all of the decades of legislative mess is a very significant undertaking, but it would be worth it in preserving one of the few remaining effective free market health care systems left.
This post was written by Danny Chabino.
The views expressed here belong to the author and do not necessarily reflect our views and opinions.
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