In my last column, I explained how the market reacted to get more people into the health care market. This included ways through groups and associations to create health maintenance organizations that gave more people access to hospitals and doctors — the Blue Cross/Blue Shield type of organizations. I also recounted how big insurance began looking into ways to garner health care dollars through hospitalization coverage for serious events and surgeries because these events were more predictable than overall “health care.”
All of these were indeed excellent market reactions that gave access to people for both routine health care as well as serious incidents in which a hospital stay was involved. The reason they were so popular is because they were affordable; offered greater access to goods and services that were not only desired, but also needed; created options that kept prices lower; and helped shore up an industry struggling economically. But most important, the efforts were also successful because freedom is the only way to create and address this kind of situation in the market.
Sadly, the government never saw a market that’s making money and giving consumers what they want that it didn’t want to control. Health “insurance” fit the bill with nearly 70 percent of households having some form of it by 1960. Worse, there are always players inside the market more than willing to use government and its lust for control to eliminate competition and make conditions better for themselves. This is where health insurance and health care found itself as its success grew in the 1940s, 50s and 60s.
If you recall, I wrote about an initial government intrusion in New York, where the state insurance commissioner decided prepaid health care services were forms of insurance. Even though service providers ultimately won at the Supreme Court, the die had been cast for allowing government to control these industries, all with the help of the major players who had the government’s ear as the intrusion grew. This is how Blue Cross and Blue Shield carved out “territories,” eliminated competition and were designated non-profits exempt from insurance laws. Once again, the government took a market that was burgeoning and picked winners and losers. Sadly, citizens are always losers.
The losing was about to become greater, this time due to the direct and indirect affects government laws and regulations impose on a market. One of the ways health “insurance” grew rapidly during the Great Depression was through the implementation of wage and price controls from the FDR administration. The National War Labor Board (sounds like something that can only do good, no?) set wages for each industry. (A side note: Wage legislation was written with the help of big business and put thousands of smaller, regional competitors out of business, but that’s for another column.) As these firms competed for workers, mostly women entering the work force in record numbers due to World War II, businesses decided to offer health “insurance” to prospective employees.
Once again, government both directly and indirectly affected a market adversely through laws and regulations. Here’s the kicker on this government-created mess. The government had to declare health insurance was not a wage; something that would be used against folks decades later under Obamacare in taxing people with “Cadillac” health plans.
Also growing the health insurance market was Taft-Hartley, which declared health insurance to be a condition of employment, subjecting it to collective bargaining and the growth of unions. The final area where the government intruded in the industry stems from where it does the most harm: the tax code. Employer-provided health insurance was deemed exempt from income taxes. So what’s a state to do when it can’t get a slice of this pie? It sues. Soon enough, rulings determined insurance was indeed part of an employee’s wages. That left only one thing left to do: write a federal tax law to take care of all the problems the feds created.
That’s when employer-sponsored health insurance was declared tax-exempt by the IRS, prompting employers to pay their workers less and shift toward providing benefits instead. It also destroyed much of the association plans to the point where Blue Cross/Blue Shield abandoned its initial mission (in which it was the biggest player due to its position with government boards) to compete with the big insurance players.
But what I want you to notice is the slow creep of government at differing levels invading a market-driven solution to people’s needs for health care and insurance — some of it at the invitation of providers to control competition and preserve income, some of it due to over legislating and some of it due to mandating laws and regulations to exert more control of the same market that adjusted to the intrusion. In the end, all these intrusions destroyed what the market was created to provide: a personal relationship between health care professionals and consumers to provide goods and services, all while making it more expensive.
It will get exponentially worse as we roll into the 1960s.