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More Central Planning: The Failed Panacea for Health Care Reform

A rebuttal to The New Republic's latest prescription for health care reform

Ronald Bailey
June 8, 2011

Callahan and Nuland perfer to see "a centrally directed and budgeted system, oversight in the use of new and old technologies, and price controls.” They are like fiscal homeopaths in reverse. Instead of treating the patient with attenuated versions of the substance linked with an illness, they want to increase the dosage massively. If their prescription doesn’t kill off American medicine, it will certainly end up killing a lot of patients. 

There is another way. One of the chief causes of our current health care malaise is the increasing centralization of the health care budget. In 1965, the health budget of the federal Department of Health Education and Welfare totaled $1.9 billion (about $14 billion in today’s dollars). Then Congress approved legislation establishing Medicare and Medicaid whose costs have increased exponentially since then. Medicaid enrollment increased from 18 million Americans to 68 million now and costs state and federal governments nearly $400 billion last year. Similarly Medicare enrolled 19 million Americans at a cost of $10 billion. Today nearly 48 million Americans are receiving Medicare coverage at a cost of more than $500 billion. If government agencies were able to rein in health care costs, they have had nearly 50 years to prove it. So much for the effectiveness of centralized budgeting.

Government agencies have also never been much good at picking new technologies. In fact, there’s pretty good evidence that health care industrial policy such as the federal certificate of need programs which limit health care capital and new technology expenditures have contributed to higher medical costs. And price controls have been a disaster everywhere they have been tried.

On the other hand, we do in fact know what works when it comes to restraining prices, encouraging innovation, and increasing consumer satisfaction—competition in markets. Markets are superb at gathering widely dispersed information and resources from millions of people and firms and then distilling that information into prices. Here's a partial list of what needs to be done: Allow physicians to sell their services in any form that they choose, as group members, health maintenance organizations, fee-for-service, etc. Nurses and other health care professionals should be encouraged to compete with physicians for primary care services. Insurers should be allowed to compete across state lines offering a wide variety of policies tailored to the perceived needs of various customers. Pharmaceutical and medical device manufacturers could be encouraged to work in tandem with physicians integrating the latest research findings quickly into therapeutic regimens without having to wait for the permission of hypercautious Food and Drug Administration bureaucrats. Consumers looking out for their own health and insurance needs would be vigilant about the costs and benefits of treatments, ensuring that medical progress remains economically affordable.

Callahan and Nuland are right that “the inadequate, inequitable, and financially insupportable system that has been jerry-built and constantly band-aided during recent decades will no longer do.” It’s way past time that the failed policy of centralized medicine be jettisoned entirely.

Ronald Bailey is Reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books. This column first appeared at

Ronald Bailey is Science Correspondent

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