A History of the Socialization of US Health Care

Government spends approximately 50 cents of every dollar that is expended for health care in the United States. It controls the spending of nearly all the rest of that dollar. This is why a comparison of US health care to other socialist health care systems is inapt. The US health care system is socialist. Here's how it happened.

so·cial·ism (sō'shə-lĭz'əm) Pronunciation Key
  1. Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.
Near the beginning of World War II, the Franklin D. Roosevelt administration imposed wage and price controls. As a result, employers looked for other ways to compensate their employees. One of the ways was to provide health insurance benefits.

On October 26, 1943, the Internal Revenue Service, in ruling that this was a legal practice, stated that employees were not required to pay taxes on health benefits provided to them by their employers. Gradually thereafter, employers began to foot the hidden bill for health care costs, and this benefit came to be looked upon by employees as a right. But less gradually, the cost for an employer to insure an employee has accelerated until the average cost for an employee's annual health premium for themselves and their family members is over $10,000.

The main (perhaps unintended) result has been that government makes far too many decisions regarding American health care, resulting in costly diseconomies of scale. This is why your health insurance premiums go up by 10% or more year after year. This is part of the reason why that although you bring home more money than you did last year, you feel poorer.

The least-easy-to-see result of the IRS decision has been an effective penalty on the self-employed and the unemployed. Because while others can get the pre-tax benefit of health insurance, the self- and unemployed must pay the taxes as well. Partially as a result of this, nearly 50 million Americans are without health insurance, and, as employers are stretched further and further to pay for costs that their employees never see, more and more Americans will be priced out of the health insurance market.

Another unintended result has been that employees no longer control or care how most of their health care dollars are spent, because government and insurance companies are the ones that actually pay for treatments that run the gamut from orthodontia to open-heart surgery.
  • An extra night in the hospital for observation?--No problem.
  • Don't know how much that hip replacement surgery costs?--Who cares?
  • Don't really need that cosmetic surgery? Oh well, it's cheap--my health plan pays for it.
  • No anesthesia, because you don't need it? Well, just take it, because it doesn't save me any money not to.
For the actual consumers of health care, it's become like using someone else's credit card.

"Nobody spends somebody else's money as carefully as he spends his own," said Milton Friedman. This is the problem with United States health care. It's not that we should change to a system more resembling Canada's or Britain's or Sweden's (actually it does resemble theirs, and actually they're starting to see skyrocketing costs, and they're changing to become more privately oriented--i.e. less socialistic.) The problem with the rising cost of US health care is that we don't care how much our health care costs.

Government needs to provide a fair playing field for health insurance and health care, by providing for more flexible, incentivized health spending, such as Health Spending Accounts. Government does need to live up to its commitments to those who currently qualify for Medicare and Medicaid, just like it needs to live up to its Social Security commitment.

But other than that, government needs to get out of the way. When it does, health care will cost less for all of us.

Stay tuned for the solution...


  1. I don't mean to be a pessimist but - do we actually have a realistic chance of convincing people of how dire this problem is before it's unsolvable?

  2. I hope we do, even if it's one by one. With Health Savings Accounts, properly administered, there are great incentives that will allow individuals to save money by saving their employer money.

    It's happening out there already (since 2003), but it hasn't caught fire yet, because government needs to make HSA's more flexible.

  3. But wait. It's not just the consumer's decisions that are impacted by government meddling in health care; the health care providers are impacted as well. They are incentivized (by what insurance, Medicare, or Medicaid will pay for) to provide certain services and treatments, and to prescribe certain medications. The decision of what will be covered at what rate is managed by a centralized planning function, not substantially different than the way the entire economy in the USSR used to work.

    Although this is done for cost containment purposes, it limits the provider's flexibility and ability to provide the optimal treatment. But it also incentivizes the provider to hedge their bets and to perform services that may be unnecessary, simply because they can be easily paid for without much question from the central committee.

    These factors work to diminish the overall quality of health care while simultaneously increasing costs. We also get more treatments than we've ever been able to get in the past, but sometimes the treatments are needless or of minimal value.

    These factors also change the nature of the people that are attracted to health care provider jobs -- and not in a good way.

  4. Thank you for your insightful additions to the discussion. I hadn't thought about it quite that way, but a light just went on in my head. You're right.

  5. On a slightly different note, what do you think the impact of such things and the "Great" Former Governor of Massachusetts Mitt Romney's mandatory health insurance policies will do to this?

    I would like you opinion too, but my take is simply that it will only add fuel to the already burning and overtaking fire. It will hurt insurance and cause more problem.

  6. I agree. It was a mistake to require even those who don't want health insurance to pay for it anyway. Someone claimed that we make people have auto insurance, so we should make them have health insurance.


    We make people have auto insurance for what they might do to other people. Health insurance only ever insures ourselves.

  7. Those were my thoughts exactly. Thanks for indulging my somewhat off topic comment.

  8. Frank: You're wrong about health insurance only being for the patient. Emergency rooms have to treat people whether they're insured or not. When a lot of people are uninsured, hospitals lose money and they compensate by ripping off those with insurance or those who self-pay. We ALL pay for the uninsured, one way or another.

  9. It's a good point, but the reason that people don't have good insurance is either because they don't want to, or because government has helped to make it that way. If we get government out of the way, then I think your point will become moot.

    If they don't want insurance, and they can afford it, they should have to pay for the emergency room visit. But as it is, people use the emergency room all the time for things that are only urgent or less than urgent.

  10. frank, people use the emergency room for things that aren't emergencies BECAUSE they don't have health insurance and they don't have a doctor! And then they ignore their bill.

    I don't understand how you think "government" is the problem when in fact government provides health insurance to many of the poor through Medicaid.

    The reason people are uninsured is because some people make too much money to qualify for Medicaid yet make too little to pay for health insurance. My health insurance costs hundreds of dollars a month and doesn't cover everything. Much of the money I pay goes for the insurance company's profit, not for actual health care.

  11. We are talking on different sides of the same issue. You're right that they often go when they have no insurance, but it is government driving up the cost of health care that prices them out of the market. Read "The Cure" by David Gratzer to see where I'm coming from.

    Medicare/aid is unsustainable with its inefficiencies. It will be compelled to be changed by the economic facts of life. One of the best solutions to that is Health Savings Accounts, which are cheaper and incentivize the policy holders to be economical with their health care dollars (HSA's, properly designed, cover emergency, catastrophic, and chronic care needs--just not all the little stuff.)


Post a Comment

Thank you for commenting. If you have a Google/Blogger account, to be apprised of ongoing comment activity on this article, please click the "Subscribe" link below.

Popular posts from this blog