The Long Evil History of Government Involvement in Healthcare

the combination of exempting health insurance from the World War II wage controls and then giving health insurance a significant tax break firmly institutionalized employer-sponsored health insurance in the United States.

Robert Wenzel writes. . . 

I recently reported on The Long Evil Role of Government in Creating the Education Monster, after reading Glenn Harlan Reynolds's book, The New School: How the Information Age Will Save American Education from Itself. 

Now, I am reading Reinventing American Health Care: How the Affordable Care Act will Improve our Terribly Complex, Blatantly Unjust, Outrageously Expensive, Grossly Inefficient, Error Prone System, the very evil Ezekiel Emanuel (Rahm Emanuel's brother),  who played a major role in the designing of Obamacare.

I suspect the book will ultimately outrage me but, in its early chapters, Emanuel provides a semi-decent history of government involvement in healthcare. He writes:

In the 1940s and 1950s the federal government fueled a huge expansion in the construction of hospitals...

The Hill-Burton Act of 1946 was the first major health care act that the federal government funded. Over  the next 25 years Hill-Burton contributed funds to approximately a third of all hospital construction...

Another postwar transformation in hospitals was the creation of Medicare in 1965. As Rashi Fein...has pointed out, many hospital administrators had plans for expansion...but were waiting for donors . . . 

Medicare obliterated the need for hospitals to provide free or subsidized care for poor elderly patients. In addition, to buy off hospitals and pre-empt any ideas of boycotting Medicare, the Medicare payments were made generous, Essentially Medicare paid hospitals cost plus a percentage...This wildly inflationary payment system lasted until DRGs and prospective payment were introduced in the 1980s . . . 

Before 1900...[there was] a constant battle between different sects: homoeopaths, meopaths, electics, osteopaths and allopaths... In 1904...the American Medical Association established the Council of Medical Education . . . 

To support the AMA's new standards, the Carnegie Foundation for the Advacement of Teaching commissioned Abraham Flexner, who was neither a physician nor a scientist to survey American and Canadian medical schools...Ultimately he recommended that there be fewer schools . . . 

[Note: In Making Economic Sense, Murray Rothbard provides a clue on how Flexner got his job and what was behind his decisions:

Abraham Flexner, an unemployed former owner of a prep school in Kentucky, and sporting neither a medical degree nor any other advanced degree, was commissioned by the Carnegie Foundation to write a study of American medical education. Flexner’s only qualification for this job was to be the brother of the powerful Dr. Simon Flexner, indeed a physician and head of the Rockefeller Institute for Medical Research. Flexner’s report was virtually written in advance by high officials of the American Medical Association, and its advice was quickly taken by every state in the Union.

The result: every medical school and hospital was subjected to licensing by the state, which would turn the power to appoint licensing boards over to the state AMA. The state was supposed to, and did, put out of business all medical schools that were proprietary and profit-making, that admitted blacks and women, and that did not specialize in orthodox, “allopathic” medicine: particularly homeopaths, who were then a substantial part of the medical profession, and a respectable alternative to orthodox allopathy.

Thus through the Flexner Report, the AMA was able to use government to cartelize the medical profession: to push the supply curve drastically to the left (literally half the medical schools in the country were put out of business by post-Flexner state governments), and thereby to raise medical and hospital prices and doctors’ incomes.]

Physicians, still wary [in the early 1930s] of any financial intermediary between them and patients, were hostile to any form of health insurance that covered physician services . . . .

[But the AMA softened its position.]The Great Depression depressed the utilization of physician services and physicians' income fell. Furthermore, there were increasing calls for compulsory, government-sponsored national health insurance, but the AMA viewed private voluntary health insurance preferable to government insurance...In 1934, as a prelude to the battle over compulsory health insurance that they suspected would be in Roosevelt's Social Security legislation, the AMA specified principles that should govern any insurance for physicians...

The Stabilization Act of 1942 required that the president stabilize prices and wages at September 15, 1942 levels. The day after its passage President Roosevelt issued an executive order that . . . excluded insurance benefits from controls...As a consequence, by 1950  nearly two-thirds of working Americans had health insurance for hospital stays...

Thus, the combination of exempting health insurance from the World War II wage controls and then giving health insurance a significant tax break firmly institutionalized employer-sponsored health insurance in the United States.