Health Reform and the Legal-Economic Nexus

By Langbert, Mitchell; Murphy, Frederick | Journal of Economic Issues, June 1995 | Go to article overview
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Health Reform and the Legal-Economic Nexus


Langbert, Mitchell, Murphy, Frederick, Journal of Economic Issues


In this paper, we interpret the health system's litany of problems, including high costs, lack of access, inequality, and reform's repeated failure, in terms of institutionalist theory about the legal-economic nexus. The litany of problems is indeed intractable. With respect to costs, for example, in 1993 health expenditures in the United States were 14.4 percent of real per capita gross national product, 40 percent more than in Canada, which has the second highest level of spending.(1) Nevertheless, mortality rates in the United States have been worse than average for the industrialized world. Some reasons are that a relatively small part of the population is responsible for a large share of health spending; that administration costs are higher than other countries; that entrenched and inefficient third-party financing methods stimulate demand, encouraging unnecessary care and excessive spending; that 37 million uninsured Americans are likely to delay care and face more expensive and less effective emergency care; and that providers have overinvested in technology.

These can be interpreted as empirical consequences of the legal-economic nexus, which Samuels [1989] defines as the interaction of law and economy to distribute wealth among interests in accordance with a collective bargaining process that reflects history, custom, and ideology as well as economic power.

Our claim is that although President Clinton's 1993 health reform bill aimed to placate traditional health interests, its failure ensued from a fragmentation of power that evolved out of large corporations' and insurance companies' cost containment programs. These programs have shifted costs from large to small firms. In 1994, small business lobbies responded by stalling reform. But corporate cost containment efforts themselves have responded to traditional health lobbies' earlier success in inhibiting reform; the system's evolution explains reform's failure.

The History of Health Reform

Two themes emerge from the history of health reform in the United States. The first is the ability of vested interests to frustrate reform proposals. The second is their use of direct ideological appeals in doing so.

The earliest important push for reform took place in the 1910s, when the American Association for Labor Legislation (A.A.L.L.) drafted a model health bill that favored a decentralized system of jointly managed and locally regulated health insurance trust funds [Numbers 1978).(2) Despite initial support from the leadership of the American Medical Association (A.M.A.), rank-and-file physicians opposed the proposal because they feared encroachment on their professional autonomy. With the approach of World War I, the physicians identified national health insurance with kaiserism in direct public appeals.(3) Private insurance companies, the National Association of Manufacturers, and Samuel Gompers's American Federation of Labor, which feared encumbrance of collective bargaining, joined the assault, and the A.A.L.L.'s proposal was defeated [Skocpol 1993].

In 1926, the Committee on the Costs of Medical Care (C.C.M.C.), endorsing group practice and private insurance, made a modest attempt at health reform, and the A.M.A. again opposed it [Starr 1983]. In fact, the A.M.A. opposed private and public health insurance, calling insurance "socialism and Communism-inciting to revolution" [Weeks and Berman 1985]]. Then, during the Roosevelt administration, the A.M.A. aborted a third attempt at health insurance reform [Hirshfield 1970]. In this campaign, the A.M.A. reversed its earlier opposition to private insurance in order to preempt support for public insurance ["Progress of Plans for Economic Security" 1935]. When the Roosevelt administration's proposal for national health insurance was released in 1938, the A.M.A., joined by state and local medical societies and individual physicians, again lobbied strenuously, and Roosevelt backed down.

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