Read The Revolution Online

Authors: Ron Paul

Tags: #BIO010000

The Revolution (10 page)

It is easy to forget that for decades the United States had a health care system that was the envy of the world. We had the finest doctors and hospitals, patients received high-quality, affordable medical care, and thousands of privately funded charities provided health services for the poor. I worked in an emergency room where nobody was turned away for lack of funds. People had insurance policies for serious health problems but paid cash for routine doctor visits. That makes sense: insurance is intended to protect against unforeseen and catastrophic events like fire, floods, or grave illness. Insurance, in short, is supposed to measure risk. It has nothing to do with that now. Something has obviously gone wrong with the system when we need insurance for routine visits and checkups, which are entirely predictable parts of our lives.

Today most Americans obtain health care either through a Health Maintenance Organization (HMO) or similar managed-care organization, or through Medicare or Medicaid. Since it is very hard to make actuarial estimates for routine health care, HMOs charge most members a similar monthly premium. Because HMOs always want to minimize their costs, they often deny payment for various drugs, treatments, and procedures. Similarly, Medicare does not have unlimited funds, so it generally covers only a portion of any costs. The result of all this is that doctors and patients cannot simply decide what treatment is appropriate. Instead, they constantly find themselves being second-guessed by HMO accountants and government bureaucrats.

When a third party is paying the bills and malpractice lawsuits loom, doctors have every incentive to maximize costs and order all possible tests and treatments. The incentive to cut costs is lost, as physicians (now working essentially as low-level employees) seek to make as much as they can in the new corporate environment and charge the maximum the HMOs allow. Before 1965, physicians and hospitals (like all other private entities competing for your dollar) strove to charge the minimum; because payment now comes so largely from third parties, they instead charge the maximum. At the same time, patients suffer when legitimate and necessary treatment is denied. HMOs have become corporate, bureaucratic middlemen in our health care system, driving up costs while degrading the quality of medical care. In all other industries, technology has nearly always led to lower prices—except in health care, thanks to the managed-care system that has been forced upon us.

In fact, with costs skyrocketing due to this system, more and more Americans are actually traveling overseas to get high-quality, inexpensive health care—half a million of them took this route in 2005 alone. It is not unusual to be able to get an operation in India, at the hands of Western-trained physicians, for 60 percent less than it would cost in the United States.

The story behind the creation of the HMOs is a classic illustration of what economist Ludwig von Mises once said: government interventions create unintended consequences that lead to calls for further intervention, and so on into a destructive spiral of more and more government control. During the early 1970s, Congress embraced HMOs in order to address concerns about rising health care costs. But it was Congress itself that had caused health care costs to spiral by removing control over the health care dollar from so many consumers in the 1960s, and thus eliminating any incentive to pay attention to costs when selecting health care. Now, Congress wants to intervene yet again to address problems caused by HMOs, the product of still earlier interventions.

Now that HMOs are all but universally unpopular, the very politicians who brought them to us are joining the bandwagon to denounce them, hoping the American people will forget, or never be told, that the federal government itself virtually mandated HMOs in the first place. The tax code excludes health insurance from taxation when purchased by an employer, but not when purchased by an individual. In addition, the HMO Act of 1973 forced all but the smallest employers to offer HMOs to their employees. The combined result was the illogical coupling of employment and health insurance, which often leaves the unemployed without needed catastrophic coverage. As usual, then, government intervention into the market caused unintended, undesired consequences, but politicians blame the HMOs instead of the interventions that helped create them. Consumer complaints about insurers and HMOs compel politicians to draft new laws and more regulations to curry voter favor. More regulations breed more costs, limiting more choices, causing more anguish—and the cycle continues.

The most obvious way to break this cycle is to get the government out of the business of meddling in health care, which was far more affordable and accessible before government got involved. Short of that, and more politically feasible in the immediate run, is to allow consumers and their doctors to pull themselves out of the system through medical savings accounts. Under this system, consumers could save pretax dollars in special accounts. Those dollars would be used to pay for health care expenses, with patients negotiating directly with the physicians of their choice for the care they choose, without regard for HMO rules or a bureaucrat’s decision. The incentive for the physician is that he gets paid as the service is rendered, rather than having to wait months for an HMO or insurance provider’s billing cycle.

With the cash for the MSAs coming from pretax dollars, most Americans could afford deposits that would cover routine expenses that families experience in a year. Insurance would tend to return to its normal function of providing for large-scale, unanticipated occurrences, and would become far more affordable.

Even now, though, it is possible for physicians to operate outside this crazy system if they make a special effort to do so. Several years ago I had a chance to meet Dr. Robert Berry, who had come to Washington to offer testimony before the congressional Joint Economic Committee, of which I am a member. Dr. Berry had opened a low-cost health clinic in rural Tennessee. The clinic does not accept insurance, Medicare, or Medicaid, a policy that allows Dr. Berry to treat patients without interference from third-party government bureaucrats or HMO administrators. He and his patients can therefore decide for themselves on appropriate treatments.

In other words, Dr. Berry practices medicine as most doctors did 40 years ago, when patients paid cash for ordinary services and had inexpensive catastrophic insurance for serious injuries or illnesses.

Doing so affords him additional advantages as well. Freed from the bureaucracies of HMOs or government, he can focus on medicine rather than billing. By operating on a cash basis he lowers his overhead considerably, thereby making it possible to charge much lower prices than other doctors. He often charges just $35 dollars for routine maladies—only slightly more than the insurance co-pay that other offices charge. His affordable prices enable low-income patients to see him before minor problems become serious, and unlike most doctors, Dr. Berry sees patients the same day on a walk-in basis.

His patients are largely low-income working people who cannot afford health insurance but don’t necessarily qualify for state assistance. Some of his uninsured patients have been forced to visit hospital emergency rooms for nonemergency treatment because no doctor would see them. Others disliked the long waits and inferior treatment they endured at government clinics.

And speaking of poor treatment, those who favor national health care schemes should take a good, hard look at our veterans’ hospitals. There is your national health care. These institutions are a national disgrace. If this is the care the government dispenses to those it honors as its most heroic and admirable citizens, why should anyone else expect to be treated any better?

Americans have been given the impression that “regulation” is always a good thing, and that anyone who speaks of lessening the regulatory burden is an antisocial ogre who would sacrifice safety and human well-being for the sake of economic efficiency. If so much as one of the tens of thousands of pages in the Federal Register, which lists all federal regulations, were to be eliminated, we would all die instantly.

The real history of regulation is not so straightforward. Businesses have often called for regulation themselves, hopeful that their smaller competitors will have a more difficult time meeting regulatory demands. Special interests have helped to impose utterly senseless regulations that impose crushing burdens on private enterprise—far out of proportion to any benefit they are alleged to bring—but since those interests bear none of these burdens themselves, it costs them nothing to advocate them.

When Senator George McGovern retired from public life, he became the proprietor of a small Connecticut hotel called the Stratford Inn. Two and a half years later, the inn was forced to close. After his experience running his own business, former Senator McGovern had the honesty to wonder about the merits of all the regulations that, truth be told, he himself had helped to implement. “Legislators and government regulators must more carefully consider the economic and management burdens we have been imposing on U.S. business,” he said. He continued:

As an innkeeper, I wanted excellent safeguards against a fire. But I was startled to be told that our two-story structure, which had large sliding doors opening from every guest room to all-concrete decks, required us to meet fire regulations more appropriate to the Waldorf-Astoria. A costly automatic sprinkler system and new exit doors were items that helped sink the Stratford Inn—items I was convinced added little to the safety of our guests and employees. And a critical promotional campaign never got off the ground, partly because my manager was forced to concentrate for days at a time on needlessly complicated tax forms for both the IRS and the state of Connecticut.

“I’m for protecting the health and well-being of both workers and consumers,” McGovern went on. “I’m for a clean environment and economic justice. But I’m convinced we can pursue those worthy goals and still cut down vastly on the incredible paperwork, the complicated tax forms, the number of minute regulations, and the seemingly endless reporting requirements that afflict American business. Many businesses, especially small independents such as the Stratford Inn, simply can’t pass such costs on to their customers and remain competitive or profitable.”

He concluded: “If I were back in the U.S. Senate or in the White House, I would ask a lot of questions before I voted for any more burdens on the thousands of struggling businesses across the nation.” That is an important lesson: government intervention into the economy cannot be assumed to be good and welcome and just.

But that is how it is portrayed in too many of our American history classrooms. It is not unusual for American students to find their textbooks telling them that injustice was everywhere before the federal government, motivated by nothing but a deep commitment to the public good, intervened to save them from the wickedness of the free market. Alleged “monopolies” dictated prices to hapless consumers. Laborers were forced to accept ever-lower wages. And thanks to their superior economic position, giant corporations effortlessly parried the attempts of anyone foolish enough to try to compete with them.

Every single aspect of this story is false, though of course this version of our history continues to be peddled and believed. I don’t blame people for believing it—it’s the only rendition of events they’re ever told, unless by some fluke they have learned where to look for the truth. But there is an agenda behind this silly comic-book version of history: to make people terrified of the “unfettered” free market, and to condition them to accept the ever-growing burdens that the political class imposes on the private sector as an unchangeable aspect of life that exists for their own good.

An argument we hear even now is that a hundred years ago, when the federal government was far smaller than it is today, people were much poorer and worked in less desirable conditions, while today, with a much larger federal government and far more regulation in place, people are much more prosperous. This is a classic case of the
post hoc, ergo propter hoc
fallacy. This fallacy is committed whenever we carelessly assume that because outcome B occurred
after
action A, then B was
caused
by A. If people are more prosperous today, that must be because government saved them from the ravages of the free market.

But that is nonsense.
Of course
people were less prosperous a hundred years ago, but not for the reason fashionable opinion assumes. Compared to today, the American economy was starved for capital. The economy’s productive capacity was minuscule by today’s standards, and therefore very few goods per capita could be produced. The vast bulk of the population had to make do with much less than we take for granted today
because so little could be produced
. All the laws and regulations in the world cannot overcome constraints imposed by reality itself. No matter how much we tax the rich to redistribute wealth, in a capital-starved economy there is an extremely limited amount of wealth to redistribute.

The only way to increase everyone’s standard of living is by increasing the amount of capital per worker. Additional capital makes workers more productive, which means they can produce more goods than before. When our economy becomes physically capable of producing vastly more goods, their abundance makes them more affordable in terms of dollars (if the Federal Reserve isn’t inflating the money supply). Soaking the rich works for only so long: the rich eventually wise up and decide to hide their income, move away, or stop working so much. But investing in capital makes everyone better off. It is the only way we can all become wealthier. We are wealthier today because our economy is physically capable of producing so much more at far lower costs. And that’s why, just from a practical point of view, it is foolish to levy taxes along any step of this process, because doing so sabotages the only way wealth can be created for everyone.

Prosperity comes not just from economic freedom at home, but also from the freedom to trade abroad. If free trade were not beneficial, it would make sense for us to “protect jobs” by buying only those goods produced entirely in our own towns. Or we could purchase only those goods produced on the streets where we live. Better still, we could restrict our purchases to things produced in our own households, buying all our products only from our own immediate family members. When the logic of trade restriction is taken to its natural conclusion, its impoverishing effects become too obvious to miss.

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