Obamacare: History, Economics and Praxeology
by Ethan Glover, Sat, Dec 07, 2013 - (Edited) Sat, Dec 07, 2013Edit: This is a paper written for an American Government college course. If it feels rushed and incomplete, that’s because it is. I found it very difficult to cover this subject in the five-page limit, went beyond that, and still could not cover everything. For that reason, I realize this is low quality and apologize.
The Patient Protection Affordable Care Act has been created and pushed under the claim that we are in a “health care crisis”. This is not the first health care crisis the United States has gone through. Roughly 100 years ago the United States was going through a crisis. This one, however was based on the concern that health care costs were too low. In the late 19th, early 20th century, the primary source of healthcare for the average American was the fraternal society. These were voluntary mutual-aid societies that functioned only for emergency care. In 1920, 25% of all Americans belonged to some kind of fraternal society. There were many different societies targeting specific groups like women, blacks and religions. One of the things that helped to destroy these societies was the cultural idea of “hyphenated Americans” stressed by Teddy Roosevelt. Roosevelt used this term to speak against independent cultures and instead tried to convince people to become assimilated under the American system. The culture of the time can not be ignored when considering why these highly targeted systems of insurance fell. Overall, the idea of the hyphenated Americans only had a small, holistic effect. It is only one of many considerations that can be looked at when looking at national healthcare. The PPACA, or Obamacare is an issue of economics, which is a praxeological science.
Fraternal societies worked uniquely different than regular market insurance. Members would pay a monthly fee to contribute to the “lodge treasury”. When people needed money for medical care they would simply take the money out, and it would act as a self-help insurance. Lodge members would of course audit each others activities as a way to make sure the treasury was not being abused. For instance, going to the doctor for a check up or something minor probably did not warrant taking that money, which was meant for emergencies, not check ups and colds. The most common coverage type was “lodge practice”. This was when the society would contract particular doctors on a retainer basis rather than on a per visit basis. From that, doctors would simply work as needed. Because this was a private interaction if the doctors services were unsatisfactory, he could be penalized, and the contract may be terminated according to the terms of the contract. The average cost of this lodge practice was $1 – $2 per year per person. According to the Bureau of Labor Statistic’s Inflation Calculator this was about $10 – $25 in today’s terms. The average days salary of the time could purchase a full year of healthcare. The contracts doctors made with fraternal societies were so popular that competition for them was very heavy. They offered steady pay rather than the fluctuating pay that comes from per visit charging.
Unfortunately, some doctors made the claim that this fraternal system was bankrupting the medical profession, and that it was a blow to dignity to have to fight for the “lower class” customers. Doctors believed that the uneducated should not have the ability to decide what care should cost and whether or not doctors are doing a good job or not. These claims were more than likely due to the competitive nature of the contracts. After these complaints, the British government decided to put a law into effect that would create physician panels in which they would decide on what standard fees for particular care should be. Eventually, taxes were put into place that would pay for board approved health care. This created the problem of fraternity members having to pay both taxes and for their lodge treasuries. The taxes eventually created a monopoly on healthcare and pushed the fraternal societies out altogether.
The United States took a slightly different approach to this “health care crisis” than Britain. Instead, the AMA (American Medical Association) was created. The AMA passed sanctions on any doctor who signed lodge contracts and put stricter regulations on licensing. The claim of these acts was that it would raise the quality of medical care. The results were that the number of physicians fell, the amount of competition in the industry fell and the price and fees rose. The final blow against fraternal societies, ironically enough, came from the National Fraternal Congress. This organization that represented fraternities lobbied to have laws set for the minimum price of fees they could charge. The lobbies were successful, and any competitive advantage the fraternities had left were gone.
Years later, the United States is once again in a “health care crisis” and solutions have again been put up to the government. Obamacare has been controversial since it was first put up to a congressional vote. The decision to have it passed came down to the Supreme Court, nine experts on constitutional law. It was passed by a 5-4 vote, giving more evidence that such decisions come down to personal judgment, opinion and politics. The Supreme Court claimed that Obamacare is a penalty, not a tax. In the strict sense, and according to the Oxford English Dictionary, this is true. However, both are defined as compulsory payment. With Obamacare, people are being forced to purchase private products whether those products are any good or not and whether it is in those people’s best judgment or not.
Another point that needs to be made is that healthcare insurance is not the same as being healthy. Studies such as the Health Insurance Experiment conducted by RAND shows that the existence of free healthcare does not improve health. Many studies have reflected these results. It can also be safely said that 80-90% of health problems are “user chosen”. That is a result of smoking, a lack of exercising and living sedentary lifestyles. The United States population is generally unhealthy, obese, sedentary and addicted to unhealthy behavior, sugars and fats. This provides perfect grounds for politicians to grab votes. When the nation is overall unhealthy, creating health programs and promising better health or cheaper healthcare is a great way to maintain or get political positions through vote.
It was during World War II that Franklin Roosevelt instituted Executive Order 9328, which said private companies may not give raises. This hurt the company’s ability to compete on the market for workers, so they began to offer benefits such as healthcare. To this day, this has become fairly standard, and many people’s wages go directly into healthcare. This has removed people away from their problems and instead into a dependency of someone else taking care of such things for them. Making the decision to not buy health care, especially before getting sick, is, and should be a personal gamble. Not buying health insurance means you may have to depend on charity, and that is not to say it would not exist in the absence of government programs. Roughly sixty years ago it was not uncommon for doctors to work on charity or to donate a day a week to pro bono care. There were also collective agencies and churches that could be donated to that would provide much more care than such agencies do now.
Then there is the issue of preexisting conditions which is a subject that gets surrounded by emotion, this emotion seems to push out the economics. When companies are not allowed to refuse people for preexisting conditions it not only defeats the purpose of insurance, but it allows people to take advantage of the system. There is no incentive to buy and contribute in the first place when care is guaranteed. This means that costs get pushed onto people who are merely trying to do the right thing, and it drives healthcare costs up. Thanks to this, less people are willing to buy in the first place, or it makes them more likely to cancel, and the cycle continues. Unfortunately, Obamacare does not solve this problem by forcing people to buy in. The act fines people if they do not have healthcare, but as of now, the fines are much lower than paying for the insurance to begin with. If the system is to be sustainable, the already high fines, must be much higher.
Moving on, one of the claims against Obamacare that is most often dismissed is that it is a socialist program. There is no reason to immediately put negative connotations on “socialism”, but that being said, the act is socialized medicine. The Oxford English Dictionary defines socialism as the state or collective regulation of the means of production, distribution and exchange for the common benefit of all members of society. The only debatable part of this definition is what is the “common benefit” and if such a thing exists. When people are forced to pay for private products and those who are not able to do so are subsidized, this is by definition socialism due to the central planning nature. Socialized medicine has been in place in places like Canada to a greater degree and according to the countries residents this has lead to people utilizing hospitals more often for small reasons such as having colds. Waiting for care can mean months on a list and entire days in the waiting room when in contrast, fifty to sixty years ago, Americans could simply walk into the doctor and get care on the spot. It could be said that with socialized medicine people pay for it in not only taxes but in hours of waiting. On an empirical basis, hospitals can charge the government more than what they can charge private citizens, but when you add in lost time, this can be devastating to a persons income. It is hard not to point out that solutions do not come from using the force of the state to act like fixing complex social problems comes down to saying, “Everyone should do what I say or you will be arrested.” Central planning did not help the Soviet Union. It did not help China and the Khmer Rouge. It has led to problems with the U.S. dollar and the Euro; and it can be seen in the abandoned cities in China, built brand new by the government to manipulate the economy. Central planning means politics takes over prices and instead appeals to the instincts of self-interested majorities. It is only natural for people to attempt to sacrifice others for the sake of themselves when given the opportunity and that is what voting and central planning does. The funding source for Obamacare and keeping it going has not been outlined, just as was done with Bush’s prescription drug program; instead it is put onto future generations on a promise from the past.
In looking for something to compare current health care and Obamacare with, we can look at animal care. According to the University of Minnesota Veterinary Clinical Services, a knee replacement for a dog can go as high as $5,000. KneeReplacement.com notes that for a human, it can cost $45,000 – $70,000. In Canada, a person can get an MRI scan for their dog the same day while it can take months to wait for one for themselves. Both of these facts can be said that they are because the veterinary industry has been left up to the free market. Between 1998 and 2004, the price of laser eye surgery, an operation often not covered by health insurance, has dropped 40% from an average of $2,200 per eye to $1,350, according to Marginal Revolution. When it comes to laws, doctors often do what has become what is known as “defensive medicine” because of the tort system. They do extra and unnecessary tests that can drive up the cost of healthcare by 3-10% of costs. Malpractice insurance has been a major additional cost to healthcare among the already long list of items.
It is very difficult to cover something like Obamacare in five pages, a limit that has already been surpassed. In the beginning it was noted that economics is a praxeological science. That is, the study of human action and human choice. Unfortunately, this is often ignored and government economists assume that formulas a models can be built to explain the individual choices of 300 million different people. Obamacare, by the laws of economics, must harm most people while benefiting a select few. I believe we will see this in the upcoming years and it is unfortunate that people must once again feel the effects of trying to force systems that they think will work for them on people who do not agree and can not benefit in anyway. We can look at simple past and current systems that have done a much better job than any forced, public system. When people are given a real choice, not forced to make pre-approved choices, they are better able to provide for themselves. It creates competition which drives down prices and limited regulations allows for a greater number of doctors and healthcare plans to fit more people and to service more people.
- Long, R. T. (1994). How Government Solved the Health Care Crisis.
- New York Times (1915, October 15). ROOSEVELT BARS THE HYPENATED.
- Buereau of Labor Statistics (n.d.). Inflation Calculator: Bureau of Labor Statistics.
- Beito, D. (1994, May 1). Lodge Doctors and the Poor.
- RAND Organization (2006). The Health Insurance Experiment.
- Byellin, J. (2011, April 8). Today in 1943: FDR freezes prices, wages, and employment.
- Oxford English Dictionary (n.d.). Oxford English Dictionary.
- University of Minnesota (n.d.). Total Knee Replacement.
- Knee Replacement Cost (n.d.). Total Knee Replacement Cost.
- Tabarrok, A. (2004, November 23). Seeing is believing (in the free market).