Pitfalls of Private Health Insurance

Scott Gottlieb, M.D., reviews Jonathan Cohn's Sick: The Untold Story of America's Health Care Crisis--and the People Who Pay the Price.

Scott Gotlieb, deputy commissioner for medical and scientific affairs at the Food and Drug Administration
Resident Fellow
Scott Gottlieb
The system of private, employer-based health insurance that has become the pervasive model in this country was not the product of careful planning or policy designs, but rather the result of a series of disconnected political decisions. Most seemed innocuous at the time they were enacted. All have gone on to have profound and persistent impact on our health care.

The first big decision came from the Roosevelt administration during World War II, when federal officials decreed that fringe benefits were exempt from wartime controls on wages. That encouraged employers to offer more health insurance, since better benefits were one of the few enticements they could use to attract scarce workers in a tight, wage-controlled labor market. Soon, the government also decided that money spent on health insurance provided by employers would not be subject to tax. The result? Increased demand for such benefits, since a dollar of health insurance was more valuable than a dollar of salary.

The rest of the story is history, or rather, economics 101. When a good or service is priced below its real value, demand for it increases. The economic forces that were set in motion by these policy decisions led to fragmentation of care, cost escalation, and ultimately an underperforming health care system that fails the rich and poor alike, according to Jonathan Cohn in his highly readable Sick: The Untold Story of America's Health Care Crisis--and the People Who Pay the Price.

Mr. Cohn provides readers with an easily obtainable history of how our current system of patchworks of private health insurance plans and public assistance programs came to pass. A senior editor at the New Republic, Mr. Cohn is a gifted storyteller, and he uses his skill to turn a wonkish matter into an uncommonly good read, tracing what he sees as the prevailing failures of various health care policy goals through compelling personal stories of patients spread across the country.

There is Betsy in Gilbertsville, N.Y., who lacks insurance coverage or out-ofpocket money to pay for routine doctor visits, so she ignores a festering mass on her chest wall until she finally appears before her doctors with terminal breast cancer and just weeks to live. There is Janice in Florida, who is denied healthcare coverage because her pre-existing diabetes makes her a high risk, until she finally finds an amenable insurer who turns out to be a scam artist. And there is Gina, in Denver, who struggles to get appropriate treatment for her psychiatric condition before eventually dying from a suicidal drug overdose.

Mr. Cohn's anecdotes are vivid and engaging, but the book works best as an honest and compact history of the various political and economic developments that led to our American approach to health insurance, which still leaves a marketplace--shrinking every day--for individuals to purchase private coverage.

Unfortunately, most of these developments turned out to be mistakes. Not only the provisions enacted in World War II that tilted the tables against individuals toward big employers when it came to purchasing insurance coverage, but also a development in the 1970s called the Employment Retirement Income Security Act. Erisa further increased the leverage of large employers at the expense of individuals and small businesses, who lacked capital to self-insure or cover their own health care costs. This drove up premiums for those who did not get their health insurance from big employers. Individuals have struggled ever since to get coverage with affordable premiums in the private market. Meanwhile, the escalating cost of the employer-purchased insurance--an economic result of unbridled demand for medical care by price insensitive consumers of health insurance--has left some big employers working equally hard to get out of the business of providing health insurance in the first place.

With this state of affairs, Mr. Cohn proposes we have more government-run health care. His model is the French health care system, the archetype for big-government healthcare. But on this point he loses some credibility, not only because his arguments for a "solution" are the least developed part of his story, but also because he fails to recognize big government when he sees it. He criticizes President Bush for "ignoring" health policy and failing to invest in social programs that would cover more uninsured, but ignores the single largest expansion in government-sponsored health care in recent time, the Medicare drug benefit, a giant spending program that remains the bane of many conservatives.

Mr. Cohn is a keen observer who has done meticulous research for his book, but one cannot help but lament that more and more, health policy decisions are decided by an increasingly incestuous group of economists and political polemicists with no real connection to the practice of medicine. One result has been an endless stream of rating systems out of Washington that measure healthcare quality more by the input than the outcome, all pumped out by motivated third parties, such as Families USA and Kaiser, and published in increasingly politicized journals like the Journal of the American Medical Association and the New England Journal of Medicine. These serve as the blueprints of the government programs that are increasingly advocated by Mr. Cohn and many others. It does not take a village to rewrite a nation's health policy, but surely it should involve a few physicians.

One alternative to having more government agencies regulating health care delivery would, of course, be more empowerment to individuals to buy affordable insurance and make their own decisions. What is the popular idea proposed by the right? To level the playing field between the big purchasers and individuals who make up the bulk of the uninsured, while giving those with limited means money to enter the private market on their own, a concept called premium support.

Toward these ends, the current proposal of Health Savings Accounts may be another Trojan horse tucked inside the new Medicare law, poised to redesign the health market in unexpected ways, akin to how simple provisions enacted as an accommodation to a world war set in motion cataclysmic change more than 50 years later. Who in 1940 thought that an inducement to entice tight labor into factories would give rise to an entire health care industry? HSAs may set in motion similar change. In health care policy, like political scandal, it is the seemingly innocuous experimentation that seems to have the most lasting consequences.

Scott Gottlieb, M.D., is a resident fellow at AEI.

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