Worries about costs drove debates over the future of
healthcare just as they did Social Security. But health care carried
other burdens beyond a potentially bankrupted trust fund: the elderly
who needed expensive long-term care in nursing homes and prescription
drugs; the indigent and working poor unable to afford insurance; the
high price of new technology; and a payment system that fueled
inflation. Access was the other great issue. In the growing ranks of
the uninsured, America reaped the consequences of linking its welfare
state to employment.
The link between poverty and sickness is the reason
why early American health insurance proposals focussed on assuring some
income during periods of illness, what today we would call disability
With the advent of the cold war in the 1940s,
opponents tarred health insurance with the label of socialized
medicine, which further weakened its legitimacy, and business and
insurance interests kept up their attack on the issue.
Despite the opposition's success in blocking a public
and compulsory plan, forms of health insurance with enduring
significance developed in the 1930s and 1940s.
By the 1950s, America had a nascent system of health
insurance that - uniquely among industrialized nations - tied benefits
to employment. By default, public policy had rejected the idea of
medical care as a right of citizenship. Instead, it remained a
consequence of income and class. Nonetheless, progress under private
insurance had been swift and stunning. Between 1940 and 1966, the share
of the population covered by hospital insurance had grown from 9% to
Despite hostility to universal health care, support
developed for subsidizing the medical care of very poor people.
In 1965, Congress approved Medicare and Medicaid.
Those new programs did not give America comprehensive national health
insurance. Instead, they enshrined the distinction between social
insurance and public assistance into medicine, where it remains firmly
anchored. Physicians and hospitals did very well under Medicare. To
prevent their opposition, the program reimbursed hospitals for
reasonable costs and physicians for prevailing charges. This open-ended
funding arrangement built into Medicare unleashed the inflation of
medical costs, which began to soar.
Medicare and Medicaid left the action with an
uncoordinated health care system divided between private insurance for
the employed and well off, social insurance for the elderly, and public
charity for the poor. The system invited cost inflation while it
excluded millions of Americans. It is the most expensive in the world;
has the largest share of uninsured individuals among advanced nations;
and allows a rate of infant mortality in poor neighborhoods that rivals
or exceeds that of the Third World.
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The War on Costs
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