ObamaCare is unraveling, faster even than many who expected it to thought it would happen. And, as surely as the sunrise, liberals and statists of many stripes are declaring that its failure is due to corporate greed, the immoral pursuit of private-sector profits, and to the free market in general. They’re asserting that single-payer was the correct solution all along, supporting their assertion with the observation that the rest of the first world offers “free” health care, and claiming that the problems with health care and health insurance all stem from the aforementioned free market.
All these stone throwers and scolds have it backward, of course. The big problems that Americans face in health care and health insurance are rooted in decades of government interference. Market forces exposed the problems, but they didn’t create them.
Lets consider some history.
In 1943, smack dab in the middle of World War II, the government sought to counter wartime inflation by instituting a wage and price freeze. FDR’s Executive Order 9328 froze prices on just about everything, froze wages and prohibited employment changes except in special circumstances. Employers, in particular defense contractors, could not offer higher wages in order to attract the workers they needed for the war effort, so they added benefits, including employer-provided health insurance, to the compensation they offered. While one might think that these benefits would run afoul of FDR’s executive order, the War Labor Board ruled that the wage freeze didn’t apply to benefits. Health insurance was already a “thing” by then, with its origins tracing back to the late 19th century (and even earlier). So, government’s meddling in the free market (the wage freeze) created fertile ground for the increased prevalence of employer-provided health insurance.
Now, here’s the real kicker. A few years earlier, the government enacted the Revenue Act of 1939, which established employee tax exclusion for health insurance benefits. When a company pays an employee, the company treats that payment as an expense, and the employee reports that payment as income. But, under the Revenue Act, employers could expense the cost of the health insurance provided to employees without those employees having to declare the value of that insurance as income (and thus pay income tax on it).
This means that the money employers spend on health insurance isn’t taxed. On the other hand, if an individual at the time looked to buy health insurance directly, out of pocket, he’d have to pay for that insurance out of after-tax income. Employer-provided insurance was thus granted, and continues to have to this day, a substantial tax advantage over individual insurance.
Consider, also, that the wage freeze meant that an employee could not tell the employer “I’ll take the cash instead of the insurance” and use that cash to buy his own insurance per his own preferences, wants, needs and predilections. This was the other half of the one-two punch that individual insurance was dealt during the FDR years.
This double whammy greatly skewed the market for health insurance, and anyone whose employer offered health insurance would have to not only forego the benefit should he want to buy his own insurance, he’d have to pay for it with after-tax dollars. Inevitably, insurance became tied to employment. Individuals no longer had a direct say in what their policies might look like and had no connection to the premiums paid for those policies. The essential feedback system that characterizes the free market and creates the benefits and efficiencies the free market provides was severed, and all sorts of undesired consequences came to be. These consequences have been blamed in recent years on the free market, but if we consider this history, it’s obvious they’ve been created or exacerbated by government’s actions from the FDR days.
Take the “pre-existing condition” problem, as one example. Under a system where health insurance is tied to employment, if you lose your job, you lose your insurance. Government put some bandaids on this problem with legislation that allows one to pay for up to 18 months of insurance coverage after termination (COBRA) and, in some states, by providing a window within which one could reinsure without being denied for pre-existing conditions. ObamaCare took this a step further by forbidding denial of coverage based on pre-existing conditions. Consider how this would be a far smaller problem, though, if insurance wasn’t tied to employment. If you could purchase a basic health insurance policy when young, when you’re healthy and premiums are low, and have that policy for the rest of your life at those low premiums, the pre-existing problem wouldn’t exist, even if you changed jobs frequently and even if some of your employers didn’t provide insurance. The fixes emplaced by the government never addressed the root cause: the coupling of insurance to employment.
Reviewing all the pernicious effects of the link between health insurance and employment would take days and pages. Just a few to consider: Mandated coverage for quack medicine, 50 states = 50 rulesets, opaque costs and billing practices, $15 for a single Tylenol tablet provided by a hospital and $10 for the cup it was served in, a giant lobbying industry, a lack of consumer choice, a lack of responsiveness to consumer desires, small-town doctors squeezed out of practice, your new job’s plan doesn’t cover your existing doctor, and of course the unholy marriage between big government and big business.
All these and more are, indeed, the result of market forces, but they’re not the product of a free market. Even within the most constrained and controlled systems and economies, market forces have their way. If one puts an obstacle in a stream, the water finds its way past. The new path isn’t as efficient, and may cause some undesired and unintended side effects, but there’s no stopping the water. Even a dam can only hold the stream at bay for so long before it overflows or bursts. Market forces are a messenger. They show us what’s wrong with things, and present better alternatives when permitted to. In the case of health insurance, they’re screaming loudly that the government’s interference is making things worse.
Unfortunately, people would rather blame the messenger than heed the message. It seems far more likely that we’ll end up with single-payer and all the problems it creates than making the corrections that would allow market forces to make things better.
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