Wednesday, April 25, 2012

The Truth about the Healthcare Bubble

By Andrew Foy
The US healthcare system is a huge bubble fueled by misguided policies that are sustained by the government's ability to borrow money at artificially low interest rates. When either the policies change or the flow of credit to the US government stops, the bubble will burst.
For some perspective on the magnitude of the healthcare bubble consider that from 1990 to 2007 the cost of all items, as measured by the Bureau of Labor Statistics (BLS), rose by 159 percent while housing rose 163 percent and medical care rose a staggering 216 percent. A recent study by the Kaiser Family Foundation found that between 1999 and 2011, health-insurance premiums increased 168 percent while workers' total earnings increased only 50 percent.Download PDF Over that same time period, government spending on healthcare increased 240 percent while GDP increased 62 percent. The BLS reported that over the last 50 years, the percent of workers employed in private-sector healthcare has gone from 3 percent to over 11 percent and employment has continued to grow throughout the current recession.Download PDF BLS further projects that "Healthcare will generate 3.2 million new wage and salary jobs between 2008 and 2018, more than any other industry," and that "The number of wage and salary jobs in pharmaceutical and medicine manufacturing is expected to increase by 6 percent over the 2008–18 period, compared with 11 percent projected for all industries combined."
As figure 1 demonstrates, healthcare spending increased dramatically when the government (represented by total CMS spending in green in the figure) began subsidizing healthcare for the poor and elderly through Medicare and Medicaid. It continued to increase as legislation, most notably the HMO Act of 1973, and regulatory policy shifted the responsibility of health maintenance from the individual to all of those in his or her insurance pool. This was accomplished through regulations requiring insurers to cover medical services (e.g., office visits, cancer screenings, pharmaceuticals, and a wide range of therapeutic and rehabilitative services) for conditions that were not insurable events but rather part of routine health maintenance. Throughout the expansion, out of pocket spending (represented by the blue line) declined dramatically.
Figure 1
Figure 1
Source: US Census Bureau, The 2012 Statistical Abstract
America's healthcare system today can best be described as what economics professor Thomas DiLorenzo has termed "fascialist." According to DiLorenzo, "Fascialism means an economy is part fascist, part socialist." Fascism is characterized by private enterprise that is comprehensively regulated and regimented by the state, ostensibly "in the public interest" (as arbitrarily defined by the state). A variant of fascism is crony capitalismSocialism started out meaning government ownership of the means of production, but it has come to mean egalitarianism promoted by progressive taxation and the institutions of the welfare state. According to DiLorenzo,
The problems of the American healthcare system are caused entirely by the fact that the government subjects the system to massive interventions, some of which are fascist in nature, while others are socialist.
Under the current system, consumers play virtually no role in shaping the pattern of resource use and the assignment of resource rewards. The outputs being produced, the methods of production being employed, and the rewards being given to the various owners of productivity are not dictated by healthcare consumers but rather by government and industry lobbyists, or the medical-industrial complex. This mechanism is directly responsible for inflating the healthcare bubble and costs have grown rapidly to reflect whatever the system will bear.
Prior to Medicare and Medicaid and the significant regulatory changes that have taken place, the healthcare system actually operated under near-capitalist conditions (it was never pure capitalism). I will term this the capitalist period of US healthcare. During this time, individuals paid for the majority of medical goods and services out of their own pockets and utilized health insurance as a rational tool for mitigating financial risk posed by catastrophic events. Although still a relatively new concept, participation in private insurance plans was growing, and by 1960 nearly 75 percent of Americans had some form of private health-insurance coverage.[1]During this period, rapid advancements were being made in pharmaceuticals, diagnostics, and surgical techniques (e.g., the heart-lung machine, which made coronary artery bypass surgery possible). Furthermore, charitable institutions and hospitals often run by religious groups and fraternal organizations such as the Freemasons, whose mission was to take care of the indigent, abounded. Most importantly, the price of medical goods and services remained remarkably stable as measured against the consumer price index (CPI) for all items.


  1. Our government is really great. The fact the governments supports the healthcare system and stuff is really good.

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  2. I think our government performance is not bad at all. Great thing they've provided data, so that everyone would know how how much they spend on health care. feedback