100 Years of Government’s “Managed” Health Care
The term “managed care” entered the common lexicon in the 1990s, when contracted arrangements between physicians and hospitals on the one hand, and insurance entities on the other, became standard means to try to control healthcare expenditures. The origin of the concept is frequently credited to Dr. Paul Ellwood and his influential Jackson Hole Group, who introduced the idea in the early 1970s.
But in my 2-part series on the economic history of American medicine, I examined how healthcare has been “managed” from its inception in the late 1910s, when the Flexnerian reforms and the ensuing medical licensing laws began to influence (and limit) the type of medical care Americans could choose to receive.
Since that time, an ever-growing managerial class of academics, industry leaders, technocrats, and private foundation believers in “systems” and in a “scientific” approach to organizing society has been guiding the various government interventions which have shaped American healthcare as we know it today.
And if we take the Flexnerian reforms of the mid-1910s to be the very first set of interventions giving birth to the system, then the history of American healthcare as it subsequently unfolded is a stark illustration of what economist Ludwig von Mises described in his 1950 essay “Middle-of-the-Road Policy Leads to Socialism.”
In that essay, Mises argued that when the government hopes to avoid the extremes of pure capitalism and pure socialism, and chooses instead to selectively intervene in a sector of the economy to address a “market failure,” it will either fall short of its intended goal or generate new, unanticipated difficulties that are invariably greater than the ones initially confronted. The reason for the failure has to do with an intrinsic deficiency in knowledge, as proposed by Hayek and Mises, to the inability of government to assume entrepreneurial risk, and to other relevant factors as well (political incentives and bureaucratic inertia, for example).
By the time the failures and unintended consequences of the government intervention are recognized, many interests have become vested in keeping the status quo. As a result, the intervention is almost never reversed, but additional government measures are proposed instead. As these generate their own unexpected problems, repeated cycles of intervention in due time bring the sector more and more under the control of government.
That scenario seems to have played out in healthcare over the last 100 years, and the history of our medical system could reasonably be described as a “Misesian” tragedy in five acts as follows: