Highlights

• Medical ignorance isn’t bliss, it’s required by law. FDA restrictions on advertising prevent firms from informing consumers of the full benefits of medicines. As a result, consumers are less healthy and pay far more.
• Rather than seeking price controls, seniors seeking to reduce the cost of prescription medicines should ask Congress to control the FDA–which raises the cost of new medicines through regulations. FDA delays in the approval of life-saving medicines–now lasting about eight years–cause tens of thousands of deaths each year.
• Reform medical malpractice laws to discourage frivolous lawsuits and encourage health-care providers to focus on actual treatments instead of “defensive medicine.” The number of unfounded lawsuits can be lessened, decreasing insurance costs, if courts and insurers learn more from doctors about the care they give.
• Medicare and Medicaid costs quickly exceeded projections after becoming law–some doubling in the first year! Caps, controls, and transfers to states have failed to rein in runaway expenditures on health care.
• Medical savings accounts (MSAs) and private contracts. MSAs would make health coverage portable and affordable, reducing the number of people uninsured, and consumers would see even greater savings and choices through private contracts for health-care services.
• The privacy of Americans is threatened as health records go online. The Health Insurance Portability and Accountability Act of 1996 authorizes the broad collection of “health information” and the assignment of a “unique health identifier” for health-care consumers.
• Licensed to care? Removing licensure requirements for health-care providers would lessen the medical labor shortage without sacrificing the quality of service.

Synopsis

In the United States today, one out of every seven dollars of income is spent on health care. Yet according to a variety of measures, such as life expectancy at birth or life expectancy at age 65, the American health care system performs poorly. The comprehensive new book, American Health Care: Government, Market Processes and the Public Interest, explains why our high-cost system produces inferior results, and it describes fundamental reforms to improve access to good quality, affordable health care. Unlike most efforts at reform, which would increase government control of health care—an approach that was rejected by the American public in 1994 and is increasingly being abandoned in Canada, Britain and elsewhere around the world—American Health Care argues for realistic, market-based policies based on deregulation, privatization, and greater reliance on competitive markets. Edited by Roger Feldman, professor of health insurance at the University of Minnesota, American Health Care contains the insights of prominent economists, legal scholars and historians who explore the origins of the current health-care system and its flaws, and propose practical and highly effective ways to resolve these problems.

Health Insurance and Finance

Ronald Hamowy, professor of history at the University of Alberta, opens American Health Care with a comprehensive review of Medicare’s genesis and development. Medicare costs began to rapidly exceed projections almost immediately following its passage into law by President Lyndon Johnson in 1965. What followed was a lengthy series of attempts to control costs, none of which have succeeded. Medicare has also distorted American health care in untold ways. In the physician fee schedule in place until 1996, for example, “physicians were paid far more for high-technology services than for basic care” and “practioners in rural areas were compensated at substantially lower rates than those practicing in cities.” As a result, costs were driven up and doctors were encouraged to move out of rural America. The current fee schedule attempts to reverse these distortions but the distortion of allocating medical services by bureaucratic fiat rather than by consumer desire remains. Charlotte Twight, professor of economics at Boise State University, complements Hamowy’s history of Medicare with a discussion of how legislation is passed without the public’s knowledge or approval. In so doing, such policies not only have created health-care problems, but are the basis for blatant and unnecessary intrusions into the privacy of Americans. Twight focuses her attention on little known provisions of the 1996 health care legislation that created “a national electronics database threatening the privacy of individual’s medical records.” American Health Care then considers reforms of the financing of health-care services directly. Clark Havighurst, professor of law at Duke University, argues that fundamentally the current insurance system offers us only two choices: insurance guaranteeing the most technologically advanced and sophisticated health care available anywhere in the world, or no insurance at all. Affordable intermediate choices could be made available if judges would respect well-specified contracts which limit payments based on economics and not just on ill-defined “medical necessity.” Health-care reform should not make the best an enemy of the good. Contractual reform promises a realistic hope of making good quality health care more affordable and widely available. Medical Savings Accounts (MSAs) also offer realistic hope for reform. Gail Jensen, professor of economics in the Institute of Gerontology at Wayne State University, explains the economics of MSAs and concludes that their widespread use would produce a number of significant benefits including “lowering health care costs, reducing the number of uninsured, and fostering increased personal savings for long-term care expenses.”

Part two of American Health Care examines the regulation of hospitals, pharmacies, and other health-care services. Michael Morrisey, director of the Lister Hill Center for Health Policy at the University of Alabama, points out that in response to greater competition many health-care providers have turned to state governments to help them to cartelize their industries and keep prices and profits above competitive levels. Certificate-of-need (CON) laws are supposed to lower costs but, Morrisey writes, the “exhaustive literature on CON yields virtually no evidence that it has controlled costs.” Instead, CON laws have “restricted the entry of new hospitals” and, as a result, increased prices. Morrisey’s evaluation of CON laws is seconded by Barbara Ryan, vice president of Capital Economics, who examines CON regulations and their peculiar interaction with antitrust regulation. Richard Epstein, professor of law at the University of Chicago, then presents an examination of the unintended consequence of regulations governing community ratings and preexisting conditions.

Part three of American Health Care examines the regulation of drugs and other health-care products. Ronald Hansen, senior associate dean at the Graduate School of Management at the University of Rochester, notes that over the past four decades the costs of developing new drugs has more than tripled and the evidence “points to regulation as one of the major causes of increased development cost.” As a result of higher costs, the yearly number of new drugs has declined dramatically since the early 1960s. Hundreds of thousands of people may have died or had reduced life experiences because higher regulatory costs made uneconomic the research and development necessary to produce new drugs. Noel Campbell, professor of economics at North Georgia College and State University, finds that Food and Drug Administration (FDA) delays in approving medical devices has caused thousands of deaths. Campbell notes that consumers are protected from unsafe electrical devices like toasters, televisions, and smoke alarms by competitive, certifying agents like Underwriters Laboratories. He proposes that “independent, privately funded institutions” replace FDA review and approval of drugs and medical devices. FDA restrictions on advertising concern Paul Rubin, professor of economics and law at Emory University, who shows that the FDA ban on advertising aspirin as a preventative measure for heart attacks “undoubtedly causes tens of thousands of needless deaths per year. Elimination of this ban would probably be one of the simplest measures to reduce death rates available.”

The regulation of health care personnel is the subject of part three of American Health Care. H. E. Frech, professor of economics at the University of California at Santa Barbara, finds that price controls on physician fees are so pernicious that the key principal of any reform must be “the absence of price controls in any form and under any euphemism.” Shirley Svorny, professor of economics at California State University, Northridge, finds licensure laws for physicians of diminished value and suggests that the states experiment with allowing increased roles for non-physician providers. Patricia Danzon, professor of health-care systems and insurance in the Wharton at the University of Pennsylvania, calls for reform of medical malpractice laws to limit non-economic damages and discourage speculative litigation. However, such reforms as shifting to a no-fault compensation system would create “unnecessary injuries” and should be avoided.

American Health Care is an exciting, comprehensive, and very timely volume that challenges the conventional wisdom on health-care provision and offers practical de-bureaucratization proposals for reform that would produce dramatic cost reductions, better quality, and greater access for all Americans, especially the most disadvantaged.

About the Editors

Roger D. Feldman is Professor of Health Insurance, Center for Health Services Research at the University of Minnesota and a Research Fellow at The Independent Institute.