Organized Crime

At the heart of the U.S. government’s continued takeover of the healthcare sector of the economy was a law passed during the Obama administration that would eventually drive the private health insurance industry out of business or transform it into a de facto nationalized industry. The law imposed additional taxes and other costs on health insurance companies while creating a government health “insurance” bureaucracy to ostensibly “compete” with private companies. This is all part of a long-term plan to finally achieve the socialist pipe dream of socialized medicine in America, socialism having performed so wonderfully in so many other countries. Like all government monopolies, this one would operate with all the compassion of the IRS and the efficiency of the post office.

Some years ago the Nobel laureate economist Milton Friedman studied the economic history of healthcare supply in America. In a 1992 study published by the Hoover Institution entitled “Input and Output in Health Care,” Friedman noted that 56 percent of all hospitals in America were privately owned and operated as for-profit enterprises in 1910. Then after decades of subsidies for government-run hospitals, the number had fallen to 10 percent. It took decades, but by the early 1990s government had taken over almost the entire hospital industry. The tiny portion of the industry that remains private and for-profit is regulated so heavily that it might as well be considered as an appendage of the state as well. The overwhelming majority of decisions made by “private” hospital administrators have to do with complying with government’s bureaucratic edicts, not patient care per se.

Friedman’s key conclusion was that, as will all bureaucratic systems, government-owned or government–controlled healthcare created a situation whereby increased “inputs” such as expenditures on equipment, infrastructure, and the salaries of medical professionals, actually led to decreased “output” in terms of the quantity and quality of medical care. For example, while medical expenditures rose by 224 percent from 1965 to 1989, the number of hospital beds per 1,000 population fell by 44 percent and the number of beds occupied declined by 15 percent. During the 1945–1989 period that Friedman studied, costs per patient-day also rose almost twenty-four-fold even after price inflation was taken into account. Increased government domination of hospital care resulted in less service while fueling astronomical cost increases.

This kind of result is present in all government-run bureaucracies because of the absence there of any kind of market feedback mechanism. Since there are no profits in an accounting sense in government, there is no reliable mechanism for rewarding good performance and penalizing poor performance. In fact, in all government enterprises exactly the opposite is true: poor performance is typically rewarded with larger budgets after promises are made to “do better” with more money.

Costs always explode in any industry whenever government gets involved. In 1970 the government forecast that the hospital insurance (HI) portion of Medicare would be “only” $2.9 billion annually. Since the actual expenditures were $5.3 billion, this was a 79 percent underestimate of cost. In 1980 the government forecast $5.5 billion in HI expenditures; actual expenditures were more than four times that amount—$25.6 billion. Yet government always promises cost reductions whenever it begins to take over any industry.

In response to the cost explosion that its own policies caused, government then granted itself even more extraordinary powers over the healthcare industry by enacting twenty-three new taxes in the first thirty years of Medicare (see Ronald Hamoway, “The Genesis and Development of Medicare,” in Roger D. Feldman, ed. American Health Care).

All government healthcare monopolies, whether they are in Canada, Great Britain, or Cuba, experience an explosion of both cost and demand, the latter since healthcare is “free” under such a system. (Of course it is not “free”; the costs are simply buried in general tax bills). Whenever anything has a zero explicit price associated with it consumer demand will increase dramatically and healthcare is no exception. At the same time, routine bureaucratic bungling will guarantee gross inefficiencies that will fester and get worse and worse every year. As costs get out of control and begin to embarrass those who falsely promised cost reductions, the politicians can be expected to do what politicians always do in such situations and impose price ceilings on the industry, usually disguised by some kind of slick euphemism like “global budget controls.”

Price ceilings always stimulate demand while reducing supply, thereby creating shortages. Non-price rationing becomes necessary. This means that government bureaucrats, not individuals and their doctors, inevitably determine who will get medical treatment and who will not, what kind of medical technology will be available, how many doctors and nurses there will be coming out of medical and nursing schools, and so forth. They assume totalitarian control over the industry, in other words.

All countries that have adopted socialized healthcare have suffered from the disease of price control-induced shortages of care. If a Canadian, for instance, suffers third-degree burns in an automobile crash and is in need of reconstructive plastic surgery, the average waiting time for treatment is nearly five months. The waiting time for orthopedic surgery is also almost five months; for neurosurgery it is three months; and it is even more than a month for heart surgery (see The Fraser Institute publication by Baccus Barua, Mark Rovere, and Brett J. Skinner, Waiting Your Turn: Hospital Waiting Lists in Canada, 2011 Report). This of course is why so many of the more affluent Canadians in need of emergency care have flooded American hospitals for so many years.

A January 16, 2000 New York Times article entitled “Full Hospitals Make Canadians Wait and Look South,” by James Brooke, provided many examples of how Canada’s nationalized healthcare system has created serious, life-threatening shortages. For example, a fifty-eight-year-old grandmother awaited open-heart surgery in a Montreal hospital hallway with sixty-six other patients as electric doors opened and closed all night long, bringing in freezing drafts from sub-zero weather. She was on a five-year waiting list for her heart surgery at the time.

In Toronto, twenty-three of the city’s twenty-five hospitals turned away ambulances in a single day because of a shortage of doctors. In Vancouver, ambulances were at one time “stacked up” for hours in the parking lot while heart attack victims waited in them before being treated. At least one-thousand Canadian doctors and many thousands of Canadian nurses have left for the U.S. to avoid price controls on their salaries. “Few Canadians would recommend their system as a model for export,” wrote James Brooke in the New York Times.

Canadian price control-induced shortages also manifest themselves in scarce access to medical technology. Per capita, the United States has eight times more MRI machines, seven times more radiation therapy units for cancer treatment, six times more lithotripsy units, and three times more open-heart surgery units. There are more MRI scanners in Washington state, with a population of around five million, than in all of Canada with a population of more than thirty million (see John Goodman and Gerald Musgrave, Patient Power: Solving America’s Health Care Crisis). This will be America’s future if it continues down the road of socialized medicine.