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The following article appeared in Left Business Observer #57, February 1993. It was written by Doug Henwood, editor and publisher. It retains its copyright and may not be reprinted or redistributed in any form - print, electronic, facsimile, anything - without the permission of LBO.


Paying for health

Seventy years ago, no one worried about medical bills. Doctors were no match for disease and their fees reflected it. By the 1930s, scientific progress and a depression had changed that: unpayable bills became an obsession of both patients and providers. Faced with radical notions like national health insurance (NHI) and consumer-owned medical cooperatives, private hospitals invented Blue Cross and state medical societies, Blue Shield -- financing schemes designed to sustain provider control. Those moves calmed the waters. After World War II, unions, purged of their radical elements, gave up the struggle for NHI and settled for their private welfare states. Any remaining sentiment for public health insurance was snuffed in the anti-Red mania.

Though health costs receded as a political issue, billions in new insurance dollars and the curious economy of medical technology -- it's the only kind that gets more expensive with time -- fueled a mighty inflation. Health care costs rose almost twice as general inflation during the 1950s, and nearly as fast in the 1960s. Agitation for NHI returned. Instead, the Great Society gave us Medicare for the old and Medicaid for the poor.

Billions more were fed to the medical-industrial complex, which knows how to spend it, meaning more inflation, and intensified agitation for NHI. Nixon responded with a new policy -- competition and corporate medicine. Henceforth, subsidies would be available to create health maintenance organizations (HMOs), and firms were to required to offer insured workers the option of joining one. Though early HMOs were organized in the spirit of medical cooperatives, the spirit of Nixon's HMOs was rationalization and cost-control.

The idea of NHI was killed in the rightist putsch of the late 1970s, but medical inflation didn't. Reagan's response was to promote HMOs, competition, and corporate medicine, and to begin paying Medicare's hospital bills at a fixed rate per diagnosis, rather than writing a blank check. It slowed hospital inflation, but non-hospital costs rose more quickly instead. Bush was only able to offer trivial, now forgotten schemes -- vouchers for the poor and tax breaks for the non-poor.

Now the Clintons are taking on health care finance. Before picking on their likely proposal, managed competition, a tour of the present mess.

Spendthrift Sam

No country comes near U.S. spending on health -- 12.4% of GDP in 1990, up to 14% in 1992 -- but no country gets so little for its money. Canada, #2 in the Organization for Economic Cooperation and Development (OECD), spent three-quarters as much the U.S.; Britain, half as much.

Only Turkey (35%) covers a smaller share of its health spending with state