I write in response to Richard S. Bernstein’s article responding to my op-ed in The New York Times, titled "How Did Health Care Get to Be Such a Mess?" Mr. Bernstein takes issue with my argument that the healthcare system’s insurance company model has driven up costs.
The most perplexing feature of Bernstein’s article is that he positions himself as an advocate of market competition.
Bernstein defends the American Medical Association (AMA) for forcing the healthcare system onto the insurance company model, stating, "It’s not like you can blame them for this. Who wants their profession controlled by the government?" What he fails to understand is that the AMA fought competitive markets just as vociferously as they resisted government reform. No less than Milton Friedman has pointed out that licensing laws allow professional societies to limit the number of practitioners in their field, depress competition, and drive up prices. In the case of the AMA, the association acquired complete regulatory control over the healthcare market, backed by its ability to retract the medical license of any physician who failed to conform to its policies.
During the first half of the twentieth century, AMA leaders used this regulatory power to destroy a variety of healthcare arrangements that they feared might challenge their authority. These alternative plans ranged from consumer-run cooperatives to African-American societies that contracted with physicians to care for members. One popular model was the prepaid doctor group. Prepaid groups were often multispecialty, so patients could see their general practitioner and a variety of specialists in one location. They also held down costs because physicians acted as their own insurers and therefore lacked incentive to either ration or oversupply care.
After spending decades demolishing these alternative plans, AMA leaders formulated their own health financing model — the insurance company model. Under this model, insurers were prohibited from reimbursing physicians on a salary or per-patient basis. They instead were required to pay physicians for each and every service they delivered, even within one office visit. While this system initially worked to physicians’ benefit, it also caused costs to skyrocket. Consequently, during the 1960s, insurance companies began implementing cost containment measures that, over subsequent decades, evolved to diminish physician autonomy and put insurance companies in the position of managing and directing how medicine is practiced.
Bernstein sees alternative healthcare plans, such as prepaid physician groups, as historical relics that would have been incapable of keeping pace with modern medicine and organization. Yet just because the AMA crippled these plans, it does not follow that they inherently lacked the ability to develop along with medical care, just as insurance companies, physician offices, and hospitals did. Indeed, during the 1930s and 1940s, some prepaid doctor groups had thousands of patients and owned their own laboratory and ambulatory surgery facilities. A few built their own hospitals but most simply contracted with hospitals on behalf of their patients.
Of course Atlas MD, the modern-day physician cooperative to which I referred in my op-ed, directs its patients to purchase catastrophic insurance. That’s how the system most likely would have developed. But not having insurance companies involved with healthcare until a patient hits a high-level of spending is a significant factor, not only for holding down costs but also for safeguarding physician control over the practice of medicine. Most people want to know that their physician is calling the shots in their care, not an insurance company’s standardized treatment blueprint. Such autonomy, coupled with physician concern for the group’s bottom line, is exactly the type of environment that will spur doctors to come up with innovative ways to deliver medicine more effectively and more cheaply.
Bernstein ends his article arguing that healthcare costs can be brought down if patients ask their physicians a series of questions about whether treatments are necessary and whether they can be performed in the office rather than the hospital. Bernstein’s recommendations amount to placing a Band-Aid on a gunshot wound — they offer little in the face of skyrocketing medical costs that have driven insurance premiums up to over $18,000 a year for the average family. Moreover, insurance companies have asked their policyholders to follow similar recommendations for decades, and all for not. Patients lack incentive to inquire about such alternatives, because their bill is being paid by the insurance company. It’s the physician — the one with the requisite expertise to know which services the patient requires and where those services should be performed — who should be concerned with these matters.
For these reasons, policymakers should consider structural reforms that will incentivize physicians to be attentive to healthcare spending while putting medical practice back firmly under their governance. That doesn’t mean health insurance companies would go away. But it does mean their role would be restricted to underwriting risk and financing catastrophic costs rather than supervising and directing medical care.
Christy Ford Chapin is author of "Ensuring America's Health: The Public Creation of the Corporate Health Care System," an associate professor of history at the University of Maryland Baltimore County (UMBC), and a visiting scholar at Johns Hopkins University.
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