Politics & Policy

Unhealthy Rx

Health-care legislation to come.

In recent years, the Democratic party has campaigned on promises to make health care and health insurance less costly for Americans. Look over any of the Democrats’ official websites and you’ll be certain to see a promise to “make health care more affordable.” So what are the chances that they’ll make good on that promise? If history is any guide: slim to none. When Democrats have controlled both houses of Congress, they have passed legislation resulting in more government involvement in the health-care sector. Whatever its intended effect, such legislation has invariably made health care and health insurance more expensive. Here’s a review.

McCarran-Ferguson Act: In 1944 the Supreme Court ruled that insurance was interstate commerce, thereby making it far more difficult for state governments to regulate it. In response, Congress passed the McCarran-Ferguson Act in 1945 that gave states the power to regulate insurance companies. The problem was that the legislation did not prevent the states from prohibiting people from purchasing health insurance out of state. Thus, most states now prevent people from purchasing health insurance across state lines. Few things have done more to prevent the development of a national health-insurance market and thus insulate health-insurance companies from competition. Less competition, of course, means greater cost.

Medicare: Passed in 1965, the health-care program for the elderly covers most hospital and outpatient services, and imposes few cost constraints on recipients. Since that time, health-care spending in the U.S. has risen dramatically. Is there a connection? Early research suggested that there was no link between the introduction of Medicare and rise in health-care spending. But an innovative new paper by MIT economist Amy Finkelstein noted that different regions of the country had different levels of health insurance among the elderly (and, hence, different levels of health-care spending) prior to the introduction of Medicare. By taking those difference into account, Finkelstein found a strong link between the introduction of Medicare and the rise in health-care spending, particularly the rise in hospital expenses. According to Finkelstein, it is possible that the spread of health insurance from 1950-1990, of which Medicare was a big part, accounted for “half of the increase in real per-capita health care spending.”

Medicaid: Attached almost as an afterthought to the legislation that created Medicare, the health-care program for the poor now accounts for over 15 percent of national health-care spending. Although no analysis like that of Finkelstein’s has been conducted on Medicaid, it is hardly a stretch to suggest that Medicaid has also made health care more expensive since it imposes even fewer cost constraints on recipients than Medicare.

ERISA: An acronym for the Employee Retirement and Income Security Act of 1974, this law exempts businesses that self-insure from costly state health-insurance regulations. However, only large businesses  – those with at least 100 employees  – have sufficient resources to self-insure. As more large businesses self-insured, they had no reason to be concerned about state regulations. Thus, there was no counter-balance to all the interest groups pushing coverage mandates  – laws that force insurance companies to cover treatments for all sorts of maladies, from colon cancer to Chlamydia. As a result, the number of such mandates has exploded, from a very few in the 1960s to over 1,800 today. This makes health insurance more expensive for small groups and individuals, resulting in a greater number of uninsured. Perhaps that’s one reason why some critics say that ERISA stands for Every Ridiculous Idea Since Adam.

CLIA: Short for the Clinical Laboratory Improvement Act, CLIA was initially passed in 1967, but it was a set of amendments in 1988 that gave it teeth. It is supposed to establish quality standards for laboratory testing; in reality, it is an exercise in government health-care micromanagement. It is absurd that a doctor cannot administer a pregnancy test that can be bought over the counter at a drugstore without first registering with the federal government, paying the necessary CLIA fees, and then being screened by regulators. An FDA website says that CLIA is funded by user fees, laughably suggesting that “all costs of administering the program must be covered by regulated facilities.” As any economist worth his degree will tell you, such costs inevitably get passed on to patients. The Center for Medicare and Medicaid Services has as much as admitted that there is no irrefutable evidence that CLIA has improved laboratory testing or public-health outcomes. Indeed, it’s quite possible that CLIA has worsened health outcomes by making lab tests less affordable and diverting funding from care of patients to regulatory compliance.

Stark I and II: Named for its sponsor, Representative Fortney “Pete” Stark, this 1989 legislation was supposed to reduce conflicts of interest among health-care providers. It prohibits any physician who treats recipients of Medicare, Medicaid, or any other federal health program from referring patients for certain health services to any entity with which the physician has a financial interest. Consider a group of doctors who would like to establish a joint-testing laboratory in the same building as their offices. Such a lab would be more convenient for patients and help cut down on costs. Under Stark I and II, this is illegal. The list of things that are prohibited includes not only lab services, but also imaging services like radiology and MRIs, prosthetics, physical therapy, and outpatient services. Now that Pete Stark will once again be chair of the Subcommitte on Health in the Ways and Means Committee, it is probably just a matter of time before more legislation that increases the costs of health care and health insurance comes out of Congress.

To be fair, Republicans, when they have controlled both the House and Senate, have also managed to make health care and health insurance more expensive. The Health Insurance Portability and Accountability Act of 1996 and 1997’s State Children’s Health Insurance Program are two examples. Nevertheless, it won’t be the Republicans who are taking the reigns of congressional power in a few days. The Democrats will surely claim that the legislation they plan to pass will make health care and health insurance more affordable. History shows that it would be unwise to believe them. Whatever claims the Democrats make, the probable effect of any legislation they pass will be to make health care and health insurance more expensive.

 – David Hogberg is a senior policy analyst for the National Center for Public Policy Research 


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