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Volume 23, Number 11
November 2003

Socialized Medicine in America
Timothy D. Terrell

Thanks to the untiring efforts of Bill Clinton and George W. Bush, Americans have been faced with the greatest expansion of the government into medical care since the 1960s. When these moves are complete, the free market in American medicine will be practically gone. Interventionism will be in complete possession of the field of battle, and the task of the government will be to mop up the remaining opposition.

There are three major pieces of legislation that indicate that socialized medicine has essentially arrived in the United States. A high profile, imminent concern is the Medicare reform now under consideration. The competing Medicare prescription drug bills—a House version and a Senate version—both accept the premise that the government should control medical treatment. Either bill would satisfy the Clinton administration's Medicare administrator Nancy-Ann DeParle, who exulted that in signing the bill, Bush would "preside over the biggest expansion of government health benefits since the Great Society."

But there are other ways in which government is invading medical care. Earlier this year, the Health Insurance Portability and Privacy Act (HIPPA) took effect. This horribly misnamed bill actually destroys patient privacy by allowing government bureaucrats, insurance companies, and others to gain access to private medical records without the patient's consent. Potentially even more dangerous is the Model State Emergency Health Powers Act (MSEHPA), which would grant state governors immense powers in the event of a public health "emergency," a condition that exists when so determined by the governor, of course. We'll take each of these in turn.

Medicare Reform

The Medicare reform would continue a long-term trend in American medical care—the intrusion of federal subsidies and regulation into every aspect of medical care. Over a third of all medical care is administered under federal Medicare and Medicaid programs. The bureaucracy that follows this intervention has added immense complexity and expense to the practice of medicine. There are elaborate diagnostic and treatment codes that require doctors to follow bureaucratic rules for medical care. Where Medicare or Medicaid are involved, a free market does not exist.

The government regulates prices, and it is illegal for the doctor to ask for or receive anything different, even if the patient agrees. Anything less than absolute adherence to the rules, indeed even a paperwork error, can be regarded as a felony charge of defrauding the government. A close enough look at almost any physician's practice would probably turn up some offense—which means that anyone the government wants to prosecute, it can prosecute. In effect, regulatory terrorism is being imposed upon the medical profession.

Medicare is a significant contributor to increased medical costs, by creating a large third party payer. In 1960, the government covered 21.4 percent of personal medical care expenditures. Americans covered 55.2 percent out-of-pocket. Most of the rest came from private medical insurance. In 2000, the government covered 43.3 percent of personal medical expenditures, through Medicare, Medicaid, SCHIP, and other government programs. Out-of-pocket spending accounted for only 17.2 percent of the total.

Over the same 40-year period, total personal medical spending increased by more than ten times, from an inflation-adjusted $111 billion in 1960 to $1130 billion in 2000. Some of this may be attributable to changing priorities, as Americans demanded relatively more medical care as other needs were satisfied in a growing economy. A large part, however, may be due to the incentives that appear whenever a third party is paying for medical care. In 1960, when Americans paid for the majority of their medical care out-of-pocket, they were more likely to watch for unnecessary expenditures. Today, with 83 percent of medical care being provided by a third party, we are naturally less vigilant.

In several ways, the government is responsible for the increase in third-party payment from private insurers as well. Government medical licensing created artificial shortages of medical practitioners, driving costs up so that illness or injury was more likely to produce financial catastrophe without insurance. Subsequently, as Gene Callahan noted in his textbook Economics for Real People, wage controls led employers to offer medical insurance instead of cash payments in their compensation packages. Increasing tax rates have had the same effect.

Employer-paid health insurance premiums are pre-tax while out-of-pocket expenditures are not. Finally, medical costs are bound to spiral upward when medical insurers are forced by law to create cross-subsidies from the healthy to the sick. This merely exacerbates the third-party payer problem, as the relatively healthy are given incentives to make greater use of medical services. (This last sort of attack on the market has come from both sides of the political aisle, as Jeffrey Herbener pointed out in a 1996 article).


On April 14 of this year, the Health Insurance Portability and Privacy Act's so-called "privacy" regulations took effect. This has to be one of the most egregiously misnamed laws to be passed in the last century (right up there with the "Banking Secrecy Act"). HIPPA created a "standard unique health care identifier" for all Americans, which destroys privacy rather than protecting it.

As Rep. Ron Paul has pointed out, this identifier "would allow federal bureaucrats to track every citizen's medical history from cradle to grave." Law enforcement officials and other government agents could examine these records without a search warrant, and the government, rather than the patient, can determine who else should have access. As Ron Paul contended, "it is possible that every medical professional, hospital, and Health Maintenance Organization in the country would be able to access an individual citizen's record simply by entering the patient's identifier into a health care database."


The Model State Emergency Health Powers Act[1] that circulated about state legislatures in the past year clearly indicates how the government could use a "public health emergency" to grab draconian powers. The legislation, which originated at the Centers for Disease Control, would give state governors broad powers to declare a health emergency, whereupon vast authority would be granted to state officials. The governor, public health officials, and other government agents could then detain people who had committed no criminal act, seize or destroy personal property, impose price controls, require individuals to receive a medical examination and/or be vaccinated (regardless of whether the person has conditions that could make vaccination harmful or even deadly), and assume other powers.

Civilian doctors, nurses, pharmacists, and other medically trained people could be conscripted into government service and required to conduct examinations or administer vaccinations. If they refuse, they could be stripped of their license. The military may even be brought in to back up the public health officials.

Many states rejected MSEHPA, but several have accepted significant parts of the legislation. Republican-controlled Florida is one of the worst—in that state the public health department may declare a health emergency with or without the governor's cooperation. Law enforcement would then be at the public health officials' disposal.

MSEHPA is a classic example of the government using emergencies to expand their power. In an atmosphere of general fear and panic, people are less likely to protest. Robert Higgs has pointed out that, in national emergencies, the Constitution is likely to be read very differently, and the freedoms it protects are likely to be significantly curtailed. The "Crisis Constitution," as he puts it, takes precedence as a fearful population grants immense powers to all branches of government. "The great danger," Higgs writes, "is that in an age of permanent emergency—the age we live in, the age we are likely to go on living in—the Crisis Constitution will simply swallow up the Normal Constitution, depriving us at all times of the very rights the original Constitution was created to protect at all times."

With the impending Medicare reform and recently-enacted legislation like HIPPA and MSEHPA, together with the vast structure of subsidies and regulation that has been around for decades, there is now little point in distinguishing between our current system and "socialized medicine." Aspects of a free market are still present, but they are so overwhelmed by government intervention as to be hopelessly crippled. We are not where Great Britain and Canada are now, with limited medical innovation and waiting lists of several years for life-saving, essential surgery. But the distinctions are now more a matter of degree than of principle. If Americans accept the basic idea that the government should control and provide medical care, it will only be a matter of time.


Timothy Terrell is assistant professor of economics at Wofford College and an adjunct scholar of the Ludwig von Mises Institute. He can be contacted at See also Gene Callahan, Economics for Real People (Auburn: Ludwig von Mises Institute), 2002, pp. 180-182; Jeffrey Herbener, "Socialized Medicine, Take Two," The Free Market, vol. 14, no. 7 (July 1996);



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