How the Health Care Revolution Fell Short

Abstract

Beginning in the 1970s, some reformers envisioned something like a true revolution in American health care, one that would install "a truly democratic regime based on competition and real consumer choice." This article explains why that revolution never achieved its most ambitious goals. After noting some ground gained by consumers as a result of antitrust enforcement and other reforms leading to the managed-care movement, it considers the complex reasons why modern health plans ultimately failed (1) to effectively integrate the provision of health care with its financing, enabling them to manage trade-offs in the interest of their subscribers; (2) to offer consumers a full range of health care options, including not only expensive, ostensibly high-quality care and coverage but also appreciably cheaper versions of possibly lesser quality; and (3) to earn consumers' trust as their post-revolutionary representatives and allies in the battle against high health care costs and entrenched professional power. The article then turns to an appraisal of the political economy of American health care law and policy to show why the health care revolution never had a realistic chance to empower ordinary consumers. Whereas most analysts believe that health care markets are doomed to fail because consumers are ignorant concerning the quality of care, the article argues that a much greater problem is consumers' ignorance concerning the cost of their health coverage – an ignorance that is not inevitable but is instead fostered by the way government subsidizes health care (either through direct public financing or indirectly through the tax system). The result of this contrived ignorance, at least in the private sector, is a special kind of moral hazard – not the unavoidable kind inherent in third-party health insurance but the "one that operates when employers, government, and the legal system write prescriptions [with hidden costs] which consumers must pay." The article includes an innovative model of majoritarian and interest-group politics that explains not only "over-regulation" – that is, cost-increasing legal requirements that benefit the majority at the expense of the (lower-income) minority – but also "hyper-regulation," which (once hidden costs are counted) diminishes the welfare of the great majority of voters while benefitting only the health care industry and its upper-income patrons. The article then identifies some additional respects in which the American health care system, especially since the successful counter-revolution against managed care, appears to be scandalously regressive. Among other likely sources of systematic regressivity – besides regulatory standards biased against low-income consumers – are the following: employers' tendency to design benefits to serve the interests and preferences of their higher-income employees; providers' tendency to tailor clinical choices according to patient expectations, which may vary according to income; discrepancies in the ability of higher- and lower-income patients to "work the system," especially now that consumers possess extensive appeal rights (e.g., Rush-Prudential HMO, Inc. v. Moran); the probable disparate impact of cost sharing on high- and low-income individuals' consumption of insured services; and the way the tort system distributes its costs (equally) and benefits (unequally, at least insofar as it compensates for lost income). To be sure, empirical evidence is lacking concerning how much more or less care certain income groups consume than they pay for. But the article observes many respects in which the American health care system appears to serve elite interests at the expense of the majority of ignorant consumers/employees/voters, who are not only denied by law the chance to opt for cheap health coverage (with public subsidies ensuring basic adequacy) but often forced to forgo health coverage altogether. The article concludes by speculating about the (mostly discouraging) prospects for restarting the health care revolution, so that the American health care system can finally serve all Americans well.