Friday, September 11, 2009

What Happened in the 70s?

Category: Issue 15

According to the Centers for Medicare and Medicaid Research (http://www.cms.hhs.gov/NationalHealthExpendData/downloads/nhe2007.zip), between 1970 and 2004, the portion of national healthcare expenditures that went to “Admin & Net Cost of Priv. Hlth Insurance” just about doubled. From 1974 to 2007, the actual expenditures went up by a factor of over 16. This was measured in 2007 dollars, so you can’t blame it on inflation. So what happened in the 70’s?

The Health Planning Resources Development Act of 1974 caused many states to adopt “Certification of Need” (CON) laws.  The Act was repealed in 1987, but http://www.ncsl.org/... explains that 36 states still have CON laws.  http://www.justice.gov/... says that CON laws actually contribute to rising prices because they inhibit competitive markets.

Another law adopted in 1974, ERISA, prohibits the sale of health insurance across state lines.  The New America Foundation points out that “it may help the young and healthy,” but insinuates that this benefit is smaller than the cost, which is to make those who are sick or old pay more for their health insurance.  The entire paper is written form the point of view that consumers are stupid and incapable of making good purchasing decisions for themselves.  As Robert Harding posts here, they are not stupid and would purchase their policies from the companies that sell them for the lowest price.  What Harding fails to point out is that they will also select policies that have only what they are interested in purchasing, rather than all the extras that are currently mandated by their own state.

The Health Maintenance Organization Act of 1973 required employers with 25 or more employees to offer federally certified HMO options, which had to offer a specified list of benefits to all members, including those that didn’t need or want them.  Since the employer had to offer it and was not allowed to make hiring decisions based on whether or not the employee participated, the employer/consumer had no incentive to refuse it.  Additionally, benefits not on the list were desired by consumers, and demanded through politics rather than through selection of provider, since provider selection was up to the employer.  This led individual states to mandate additional benefits on top of the list established by the HMO Act.  Thus, all members were again given benefits even if they didn’t need or want them, and had no incentive to refuse them.

I believe that these laws suggest some pretty simple ways to “reform the healthcare system” in this country, but they do not involve taking money from those who are richer and giving it to those who are not.  They may also have good effects that no one in congress is thoughtful enough to preserve with new laws that get rid of the bad effects.  Lastly, there is a significant portion of the population that is incapable of seeing that some laws have negative effects, and so there is little pressure to get rid of bad laws.