Government regulation is justified by several assumptions, which must be accepted before government regulation makes sense:
One strong candidate for government regulation is the health insurance industry. Driven by market forces and a quest for profit, the insurance industry has a vested interest in denying access to healthcare.
Insurance companies use two primary methods to calculate risk: community rating (everyone in the population shares the risk and the premium is calculated based on the average risk) and experience rating (premiums are adjusted according to the risk that a subset of the population will experience illness). In a quest for higher profits, insurance companies are increasingly using experience rating systems, a practice which undermines the very underpinnings of insurance: shared risk. Experience rating breaks down community.
The practice of underwriting (excluding pre-existing conditions or high risk people from coverage) is central to the inadequacies of our health insurance system. Driven by the profit motive, underwriting is more serious than simple exclusion of individuals.
The way that underwriting often works is that a health insurance company will announce that it is now accepting applications for a new "group" insurance policy. The group is limited to, maybe, 25,000 people, who cannot have any pre-existing conditions. This begins all well and good, with the premium rate reflecting the relative good health of the group. All group members enjoy low, affordable premiums. A year later the group has aged a year, and some have gotten sick. The premium is therefore adjusted for the new level of risk based on the new average age and health of the group. The following year the same thing happens, and the premium is raised again. This is not the heart of the problem, however. As the group ages and more and more members of the group get sick, the cost of the group insurance continues to go up. Healthy members of the group are free to leave the group to sign up for a new group, which, of course, is only accepting healthy individuals and offers a lower premium than they are now paying. Loss of healthy group members reduces the average health of the original group and spreads the financial burden of supporting the sick individuals among fewer and fewer group members, and the premiums begin to skyrocket. Those participants who have gotten sick are not free to leave the group for their pre-existing chronic illness locks them into the group. This process continues until the premiums become unaffordable and even the sick individuals leave the group for lack of ability to pay. They are then left sick, uninsured, and uninsurable. I see this practice of group insurance, along with experience ratings and underwriting, as the critical flaw in our private insurance system. A strong argument for government regulation may be made based on the requirement to ensure equity in access by regulation of the health insurance industry, including mandatory community ratings and forbidding the practice of underwriting (paraphrased from HR Clinton).
There are many possible manifestations of government involvement in our healthcare system, including expansion of Medicaid and Medicare, regulation of the health insurance industry, and tax credits/deductions for health insurance provided by employers. Expansion of existing programs has certain advantages, including that the bureaucracy is already in place, but has cost and increased bureaucracy as its primary disadvantages. Tax credits as a way to encourage employer based health insurance, although a workable solution in many ways, does little for the non-working poor or for those with reduced access for reasons other than lack of insurance, such as lack of transportation. Regulation of the health insurance industry was discussed previously.
Critics of government regulation point out that government regulation is inefficient and proven in other markets to be a failed perspective. They charge that government regulation stifles innovation and slows the introduction of new technology. Further, the phenomenon of "capturing" of a regulatory agency by the regulated industry is well documented and there is no reason to believe that government healthcare regulators will not fall prey to this phenomenon.
Many competition proponents propose that antitrust laws be used to break up the monopoly power of physicians, hospitals, and other healthcare institutions. I think that approach is overly harsh. All that is needed is modification of the practice acts for various allied health professionals to allow these professionals to be in private practice, to accept patients without physician referral, and with government mandated third party insurance reimbursability.
Although at first look this free market solution may seem untenable for several reasons, close inspection of the history of our present physician-based health care monopoly reveals that the rational is the same as that used by physicians to justify their own monopoly and that there are, in fact, precedents for such a model in our healthcare system.
In the late 1800's, allopathic physicians were competing with midwives, barber-surgeons, bloodletters, and others for the delivery of healthcare. About this time Louis Pasteur discovered the microbial basis for disease, and science was all the rage. Taking advantage of the perceived superiority of scientifically based medicine, the fledgling AMA succeeded in securing the State's right to license physicians, a first and critical step in the creation of our present physician monopoly. By setting standards of practice physicians were able to prevent the more ignorant and unscientific approaches to healthcare from having access to the public, and in many ways that was an improvement over what was then a free-for-all that included many dangerous, scientifically unfounded, and questionable practices. This near monopoly was granted on the grounds that physicians met the requirements for independent practice: advanced education in medicine, ongoing certification and training, a strong scientific basis for their work, a valid clinical model, a willingness to accept professional liability, and a professional ethic (Bauer 94). In the late 1800's they were pretty much the only game in town.
Allopathic doctors were not the only practitioners who could lay claim to the requirements for independent practice in the late 1800's. For that reason allopathic physicians were not able to eliminate all other providers of health care. Of these, optometry is the best example. It is because optometry existed in the late 1800's, and laid claim to all the same prerequisites of private practice the physician did, that optometrists were allowed to remain in private, independent practice. Today it does not require a physician's referral to see an optometrist, and it is this accident of timing that is responsible for the existence of this little piece of free market competition in the healthcare market.
Today there are dozens of "allied health" professions, such as physical therapy and physician's assistant, that meet the prerequisites of private practice. However, because these professions evolved after the institution of the physician healthcare monopoly these new allied health professions have been systematically oppressed by the physician monopoly.
One method used by the physician's monopoly to oppress the allied health professions is economic, via control of the third party payment system. Doctors vehemently opposed health insurance until they realized that by creating BCBS, a health insurance program began by physicians and for physicians, they could control the health insurance industry and control not only the consultation and delivery of healthcare but also the payment of same. By so doing physicians created a unique, multilayered monopoly that institutionalized a non-competitive price structure and has been virtually unassailable since it's inception. It was through controlling BCBS, and with it 80% of the health insurance market, that physicians were able to suppress the private practice of allied health professionals by economic strangulation. Simply put, even if a State allows a nurse practitioner the right of private practice, if third party payment is not available the private practice is effectively quashed.
The other principle method the physician's monopoly exerts its power is through the State licensure boards. The healthcare industry is unique from all other regulated industries in that physicians sit on the very boards that regulate their industry! This is unlike all other regulated industries where independent, impartial board members look out for the public good. There is a logic for this. Physicians argue, probably correctly, that lay people do not have the expertise to make decisions about healthcare policy. Ensuring that the Practice Acts of the various States require physician referral before allied health professionals can see a patient is another way that physicians maintain their monopoly. This policy is known as the "gatekeeper" function of physicians.
Today there are many allied health professions (physical therapists, nurse practitioners, physician assistants, etc.) that are ready and able to compete directly with physicians for the healthcare dollar. They meet all the requirements for independent practice that physicians initially used to justify their monopoly, and they are trained to know when a medical condition is beyond their ability to treat. Modifying insurance reimbursibility criteria and the respective State practice acts will allow these professionals to compete directly with physicians, lowering healthcare costs in several ways:
