Health Care Reform and Existing Regulations

Earlier this week, our President Obama, not knowing the truth to which he spoke, stepped forwards to assert, “Time and again, the American people have suffered because people in Washington played the politics of the moment, instead of putting the interests of the American people first.”

He continued, “That is how we ended up with premiums rising three times faster than wages; that is how we ended up with businesses choosing between shedding benefits or shutting their doors; that is how we have been burdened with runaway costs and huge gaps in coverage.”

The president undoubtedly believes more government involvement in the health care sector can “pressure” America to better-controlled costs, whilst covering an even larger segment of the American citizenry.

When he says, “[T]here are going to be some areas where we want to regulate the insurers a little more,” what is one to gather other than such?

Yet, few in Washington acknowledge--let alone accept any responsibility for--the political catastrophe wrought by decades of shortsighted regulations, instead they seek perpetually to portray this health care situation as a free market failure.

However, government-run health care, if when one views the economic literature, cannot with all its poorly channeled incentives, insulated inefficiencies, and scores of hidden costs provide patients with the quality of care and reasonable prices as well as a well-designed private sector.

With such said though, health economist Patricia Danzon wrote, “The performance of the current U.S. health care system does not provide a guide to the potential functioning of a well-designed private market system.”

She further noted, “Cost and waste in the current U.S. system are unnecessarily high because of tax and regulatory policies that impede efficient cost control by private insurers…”

The health care industry stands as one of the most heavily regulated, and thusly strangled, sectors in the American economy.

Although the multitude of these ill-starred regulations commenced rapidly in the New Deal era and developed ever-increasingly thereafter, America’s economic history has never been as laissez-faire as some, for better or worse, want to perceive.

For example, Congress insipidly mimicked the British in 1789 by funding the Marine Hospital Service by monthly taxation of American seamen.

Health economist Linda Gorman observed, “As U.S. government grew, [politicians] continued passing laws to regulate the kind of health coverage people could purchase.”

These regulations run the gamut from blocking entry into the medical profession to limiting extensively selective options for managed care plans, from artificial cost controls on insurers, hospitals, and pharmaceutical providers to numerous moralistic laws that dictate the very lives of individual Americans.

All these added regulations do not come without their own set of unpleasant economic consequences;--that is, imposed regulatory costs push up health care prices which directly lead to increased numbers of uninsured.

The economic phenomenon, known as “The Regulatory Wedge,” pilots inflation upwards due exclusively to government prescribed regulations.

With the given amount of existing regulation, some health care analysts have reported that the regulatory wedge to be larger than eight percent of total cost spent annually in this sector.

Gorman, also, remarked, “The true cost of health care was hidden from covered individuals. Vast spending increases were the result. The introduction of Medicare and Medicaid in 1965 made the situation worse.”

For example, National Bureau of Economic Research’s Amy Finkelstein discovered that Medicare itself increased real hospital expenditure by some 23 percent within the first five years of the program.

The myriad regulations, broad and minute alike, enforced by government to lessen the weight of costs below the given market equilibrium only distorts the supply-and-demand factors, whilst shifting the true cost to less seen areas.

President Obama, alongside many congressional members, lacks the economic comprehension to understand it requires more than just regulating costs, for prices are signals, or more fitting symptoms, of markets actually working, healthy or otherwise.


Several issues arose with this column. One being that the last paragraph was published without “economic,” “actually working,” as well as “otherwise” was not changed from “not.” Second being that it lacked a certain "smartassness" that I felt the other two in the series had.