America's hybrid health care system is inefficient, but it's the best we've got.
The United States is unique among developed nations in the extent to which it has resisted a government-run health care system. Nevertheless, it has often been said that the United States has the most heavily regulated health care system in the world. What does this mean?
In fact, our health care delivery and finance systems are mixed public and private. Health care professionals practice independently or in groups, while hospitals and other health care facilities are privately owned (although most are at least nominally "non-profit"). About thirty percent of Americans are publicly insured--primarily through Medicare and Medicaid--but public programs are often administered by private insurers. Sixteen percent of Americans are uninsured, but most of the rest are insured through employment-sponsored insurance, heavily subsidized through tax expenditures to the tune of roughly $200 billion a year.
Both our delivery and financing systems are heavily regulated. Moreover, not only are our delivery and financing systems a public-private mix, so is our regulatory system. Hospitals are regulated primarily by The Joint Commission, a private entity founded by and still dominated by physician organizations. Hospitals and physicians must comply with the utilization and payment rules of many different private insurers.
Health care regulatory programs are imposed for many reasons, but four reasons stand out. First, many programs are justified as necessary to address well-understood market failures. The minimum coverage requirement (individual mandate) in the Affordable Care Act (ACA), for example, was enacted to discourage "adverse selection"--the tendency of only unhealthy people to buy health insurance if insurers must accept all applicants. Pharmaceuticals are regulated because few consumers have the information or ability to assess their safety or effectiveness. Second, we regulate because we are using private delivery and financing systems to accomplish public goals. Because the ACA relies on private insurers to cover uninsurable individuals, it prohibits health status-based underwriting. Federal law requires private hospitals to provide emergency care regardless of the ability of patients to pay, because Congress has been unwilling to provide a tax-funded public program to pay for it. Third, regulatory programs exist because we are paying for privately provided care and insurance using public funds, and must ensure that public funds are properly spent. Finally, much of health care regulation is best understood as special interest protection. Restrictive "scope-of-practice" laws, enacted by legislatures at the behest of special interest trade groups, protect the professional privilege of doctors and specialists while restricting public access to less expensive providers, like nurse practitioners and midwives.
Our problems are exacerbated because, as the Bipartisan Policy Center's Julie Barnes pointed out in a March 2012 "America the Fixable" essay, we pay for most health care on a fee-for-service basis. This creates incentives for physicians to provide as many discrete services as possible to maximize payment (a tendency often justified by an asserted fear of malpractice litigation). Moreover, hospitals, laboratories, imaging facilities, and drug companies are often eager to reward physicians for ordering their products and services. Attempts by the fee-for-service Medicare program to control the amount or payments physicians receive to a "sustainable growth rate" were stymied as utilization of services grew rapidly and intensive lobbying defeated attempts to reduce prices accordingly.