3-18-16 – Government Drives Explosion in Healthcare Costs

Childbirth Receipt 1943

by Mathew Strong

The other day I ran across the following invoice from a hospital. It was to a new parent for the services rendered in their child’s birth with a multiple day stay in their facility. The date was February 2nd, 1943, the hospital was in McKeesport, PA, a suburb of Pittsburgh. It was hand-written, and the total was $29.50. If we adjust for inflation into 2016 dollars, it is still only $403.99!

A nationwide study completed in 2013 stated the national average in 2010 was $9,048 for a normal birth with hospital stay, and $12,739 if a cesarean section was required. So what happened to our healthcare industry between 1943 and 2010? New medical innovation and discovery have picked up in recent years to be sure, as the speed of technological invention has become exponential. But, the only constant since 1943 is government intervention in the healthcare marketplace, creating massive market distortions.

An excerpt from “The History of Health Care Costs and Health Insurance” by Dr. Linda Gorman in 2006 explains this far better than I can.

“By 1945 Blue Cross had captured 59% of the health insurance market. The idea of prepaid health insurance was solidified on the American landscape in 1954, when the Internal Revenue Code codified the deductibility of health insurance payments. The employer deduction significantly reduced the cost of health insurance for consumers eligible for an employer-provided group plan.

The federal government cast the Blue Cross Blue Shield approach in regulatory concrete in 1965 when Congress passed the Medicare and Medicaid programs. Medicare copied the Blue Cross Blue Shield pay-as-you-go approach to health insurance and applied it to almost all Americans over 65. Ironically, at the time, relatively few people were expected to benefit, since for men born in 1950 life expectancy was only 66 years. For women it was 71.7 years. As life expectancy has grown, so too has spending on the two government programs.

Unable to impassively watch as health care spending spiraled upward, federal health care planners imposed an armada of regulations on the manner in which health care was provided to Medicare and Medicaid patients. The regulatory binge in U.S. health care since the 1970s has produced nearly 50 kinds of federal and state health services’ regulations, which by 2002 was costing roughly $340 billion, about 20% of total health spending of $1,560 billion.

More promising recent reforms emphasize a return to consumer-directed health spending in which consumers who spend less on their health benefit directly. Health Savings Accounts made their debut in 2002. Early results from employers offering these and less consumer-friendly arrangements suggest that people spending their own money spend less, have fewer hospital admissions and emergency room visits, and are more meticulous in their use of prescription drugs. As Health Savings Account balances will likely build up rapidly for the majority of people who are in good health, they also provide hope for the fiscal Titanic that is Medicare.

In 2002, the State of Colorado turned conventional wisdom on its head with a pilot program that allowed about 146 severely disabled Medicaid patients to use state funds to hire and fire their own home health aides. Average monthly spending dropped by 21%. Care was better and patients split the savings 50/50 with the state, allowing them to buy needed equipment like voice-activated telephones.

Two clear choices face those who would shape future U.S. health care policy. Continuing to follow old habits of layered regulation, third party payment, and increasing government control will continue the current cost spiral and the recent deterioration in patient care. To protect a bankrupt Medicare program, government involvement will be extended into every nook and cranny of U.S. medical care. The regulatory overload will end private medicine and encourage those who can afford it to purchase their health care abroad.

The other choice is to deregulate, returning insurance to its traditional role as protection against bankruptcy and promoting savings to pay for the higher health expenses that generally accompany old age. Let consumers spend their own money on health care, free of interference from professors with statistical studies and bureaucrats with specific notions of how people ought to behave. This is the choice that has the potential to stop the cost spiral, lower costs, and provide better health care for all Americans.”

{ 4 comments… read them below or add one }

Edward Dubois March 19, 2016 at 11:59 am

I found a South Shore Hospital bill in my fathers army jacket for my brother born in 1951. The total was $102.34 for a six day stay, $100.00 paid in advance. Can you imagine the cost of that now.


Jim Bulmer March 19, 2016 at 4:25 pm

Just to remind the folks from Rio Linda.Throughout the Obama Care debate, the Republicans pointed out in spades that the bill would be a disaster as costs would sky rocket and not one single Republican voted for its passage. They were ridiculed as being mean spirited. Well, here we are 4 years later and guess what??? Costs have soared, the young and healthy want no part of it and all the people with preexisting illness have swamped the system. Thank you Obama – booooooo!!!!!!


Glenn Foster March 21, 2016 at 12:16 pm

Thanks, Matt.
My opinion of the escalating costs of healthcare: 1) More services, more life-saving and life-extending products (generally a good thing), 2) As the excerpt mentions, bills are generally oblivious to the consumer (more likely to consume and less likely to price shop – little pressure to control costs like most goods & services), 3) Regulation – ’nuff said, and 4) Drug use (many in-patient “customers” are non-paying druggies.


Thomas McLinden March 22, 2016 at 11:37 pm

I can personally testify to the wholesale negligence of the Vt Health Connect system having personally fallen victim to it’s incompetence not once but twice. Dealing with the hapless bureaucracy in an attempt to reinstate my coverage cancelled in error, exposed a mind-boggling display of ineptitude, confusion, and helplessness so profound our contacts finally confided with us (over a three month period) that they were unable to enter even a simple change into the system. Being liberated to deal directly again with BCBS was like being delivered from a bad dream. No fully informed electorate would ever vote in favor of such a system


Leave a Comment

Previous post:

Next post:

About Us

The Ethan Allen Institute is Vermont’s free-market public policy research and education organization. Founded in 1993, we are one of fifty-plus similar but independent state-level, public policy organizations around the country which exchange ideas and information through the State Policy Network.

Latest News

VT Left Wing Media Bias Unmasks Itself

July 24, 2020 By Rob Roper Dave Gram was a long time reporter for the Associated Press, is currently the host of what’s billed on WDEV as a...

Using Guns for Self Defense – 3 Recent Examples

July 24, 2020 By John McClaughry  The Heritage Foundation’s Daily Signal last week published eleven news stories about citizens using a firearm to stop a crime. Here are...

FERC ruling on solar subsidies could help Vermont ratepayers

July 21, 2020 By John McClaughry Last Thursday, the Federal Energy Regulatory Commission finalized its updates to the Public Utility Regulatory Policies Act (PURPA), in what the majority...

The Moderate Left’s Stand for Free Speech

July 17, 2020 By David Flemming Harper’s Magazine, a long-running monthly magazine of literature, politics, culture, finance, and the arts, is hardly what you would call a ‘politically...

Trump’s Regulatory Bill of Rights

July 16, 2020 by John McClaughry “President Trump [last May] issued an executive order entitled  ‘Regulatory Relief to Support Economic Recovery.’ The executive order includes a regulatory bill...