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Sept. 4, 2012 - Freedomain Radio - Stefan Molyneux
08:29
2210 How Government Solved the Health Care Crisis!
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How Government Solved the Healthcare Crisis.
Medical insurance that worked until government fixed it.
By Dr.
Rod Long.
Today we are constantly being told the United States faces a healthcare crisis.
Medical costs are too high and health insurance is out of reach of the poor.
The cause of this crisis is never made very clear, but the cure is obvious to nearly everybody.
Government must step in and solve the problem.
Eighty years ago, Americans were also told that their nation was facing a healthcare crisis.
Then, however, the complaint was that medical costs were too low and that health insurance was too accessible.
But in that era too, government stepped forward to solve the problem.
And boy, did it solve it.
In the late 19th and early 20th centuries, one of the primary sources of health care and health insurance for the working poor in Britain, Australia and the United States was the Fraternal Society.
Fraternal societies, called friendly societies in Britain and Australia, were voluntary mutual aid associations.
Their descendants survive among us today in the form of the Shriners, Elks, Masons, and similar organizations.
But these no longer play the central role in American life they formerly did.
As recently as 1920, over one quarter of all adult Americans were members of fraternal societies, The figure was still higher in Britain and Australia.
Fraternal societies were particularly popular among blacks and immigrants.
Indeed, Teddy Roosevelt's famous attack on affinated Americans was motivated in part by hostility to the immigrants' fraternal societies.
He and other progressives sought to Americanize immigrants by making them dependent for support on the democratic state rather than on their own independent ethnic communities.
The principle behind the fraternal societies was simple.
A group of working-class people would form an association or join a local branch or lodge of an existing association and pay monthly fees into the association's treasury.
Individual members would then be able to draw on the pooled resources in times of need.
The fraternal societies thus operated as a form of self-help insurance company.
Turn-of-the-century America offered a dizzying array of fraternal societies to choose from.
Some catered to a particular ethnic or religious group, others did not.
Many offered entertainment and social life to their members or engaged in community service.
Some fraternal societies were run entirely by and for women.
The kinds of services from which members could choose often varied as well, though the most commonly offered were life insurance, disability insurance, and lodge practice.
Lodge practice refers to an arrangement, reminiscent of today's HMOs, whereby a particular society or lodge would contract with a doctor to provide medical care to its members.
The doctor received a regular salary on a retainer basis, rather than charging per item.
Members would pay a yearly fee and then call on the doctor's services as needed.
If medical services were found unsatisfactory, the doctor would be penalized and the contract might not be renewed.
Large members reportedly enjoyed the degree of customer control this system afforded them.
And the tendency to overuse the physicians' services was kept in check by the Fraternal Society's own self-policing.
Large members who wanted to avoid future increases in premiums were motivated to make sure that their fellow members were not abusing the system.
Most remarkable was the low cost at which these medical services were provided.
At the turn of the century, the average cost of large practice to an individual member was between one and two dollars a year.
A day's wage would pay for a year's worth of medical care.
By contrast, the average cost of medical service on the regular market was between one and two dollars per visit.
Yet licensed physicians, particularly those who did not come from big-name medical schools, competed vigorously for large contracts, perhaps because of the security they offered, and this competition continued to keep costs low.
The response of the medical establishment, both in America and in Britain, was one of outrage.
The institution of large practice was denounced in harsh language and apocalyptic tones.
Such low fees, many doctors charged, were bankrupting the medical profession.
Moreover, many saw it as a blow to the dignity of the profession that trained physicians should be eagerly bidding for the chance to serve as the hirelings of lower-class tradesmen.
It was particularly detestable that such uneducated and socially inferior people should be permitted to set fees for the physician's services, or to sit in judgment on professionals to determine whether their services had been satisfactory.
The government, they demanded, must do something!
And so it did.
In Britain, the state put an end to the evil of large practice by bringing health care under political control.
Physicians' fees would now be determined by panels of trained professionals, i.e.
the physicians themselves, rather than by ignorant patients.
State-financed medical care edged out large practice.
Those who were being forced to pay taxes for free healthcare, whether they wanted it or not, had little incentive to pay extra for healthcare through the fraternal societies, rather than using the government care they had already paid for.
In America, it took longer for the nation's healthcare system to be socialized, so the medical establishment had to achieve its ends more indirectly, but the essential result was the same.
Medical societies like the AMA imposed sanctions on doctors who dared to sign large practice contracts.
This might have been less effective if such medical societies had not had access to government power.
But, in fact, thanks to government grants of privilege, they controlled the medical licensure procedure, thus ensuring that those in their disfavor would be denied the right to practice medicine.
Such licensure laws also offered the medical establishment a less overt way of combating large practice.
It was during this period that the AMA made the requirements for medical licensure far more strict than they had previously been.
The reason, they claimed, was to raise the quality of medical care.
But the result was that the number of physicians fell, competition dwindled, and medical fees rose.
The vast pool of physicians bidding for large practice contracts had been abolished.
As with any market good, artificial restriction on supply created high prices, a particular hardship for the working-class members of fraternal societies.
The final death-blow to large practice was struck by the fraternal societies themselves.
The National Fraternal Congress, attempting like the AMA to reap the benefits of cartelization, lobbied for laws decreeing a legal minimum on the rates fraternal societies could charge.
Unfortunately for the lobbyists, the lobbying effort was successful.
The unintended consequence was that the minimum rates laws made the services of fraternal societies no longer competitive.
Thus, the National Fraternal Congress's lobbying efforts, rather than creating a formidable mutual aid cartel, simply destroyed the fraternal society's market niche, and with it, the opportunity for low-cost health care for the working poor.
Why do we have a crisis in healthcare costs today?
Because government solved the last one.
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