Article   |   Volume 159, Issue 6

Government as the Crucible for Free Market Health Care: Regulation, Reimbursement, and Reform

Robert I. Field

June 2011

Political debates over economic policy commonly pit the virtues of the free market against those of government oversight. Regulatory policy then becomes an ongoing contest between the public and private sectors, infusing policy debates with a sense that it is necessary to choose between them. On closer examination, this duality is false. On a fundamental level, free-market entrepreneurs and government regulators are not opponents, but are, on the contrary, partners in a common enterprise. Across a range of major industries, one party could not exist without the other.

In no industry is this interplay more important than in health care. A series of government programs, most initiated during the latter half of the twentieth century, literally created the health care system as it exists in the United States today. Hospitals grew to their present size and technological complexity because of funding provided by the Hill-Burton Act and Medicare. Medicare also funds physician training, as well as reimbursement for many physician-provided services. Pharmaceutical manufacturers rely on the National Institutes of Health to support basic biomedical research that leads to the development of new drugs. A huge tax subsidy for employer-sponsored coverage finances, in large part, the health insurance industry. Without these programs, none of these health care industry segments could have approached its present size or vitality. To ignore this dynamic is to ignore the true nature of American health care and to fundamentally misunderstand the opportunities for reform.

The Patient Protection and Affordable Care Act (PPACA) continues and extends this paradigm. It will expand coverage in large part by facilitating broader demand for individual policies, which will revitalize private insurance markets. It will also extend Medicaid, a program that in most states is administered by private managed care plans, to millions more beneficiaries. Far from representing a government takeover or novel incursion into the health care system, PPACA extends the underlying arrangement that has built and sustains the structure of American health care as it exists today. In the American health care system, private innovation and government intervention represent not opposing forces, but rather partners in a common enterprise. Government as the Crucible for Free Market Health Care: Regulation, Reimbursement, and Reform -