John R. Commons' Contributions to Health Care Reform in the 21st Century

By Paschall, Stephen P. | Journal of Economic Issues, June 2008 | Go to article overview

John R. Commons' Contributions to Health Care Reform in the 21st Century


Paschall, Stephen P., Journal of Economic Issues


Health care in the United States continues to be in crisis. Reform programs ranging from market-driven solutions to universal coverage have been proposed. Almost 100 years ago, John R. Commons and his colleagues in the American Association for Labor Legislation (AALL) proposed a program of compulsory health insurance. Their program failed in the face of opposition by the insurance industry and physicians (Chasse 1994, 1064-8; Lubove 1968, 67; Moss 1996, 72). Nevertheless, there are lessons for health care reform today from the AALL experience and Commons' analysis of transactions, security of expectations and working rules.

Health Care Reform Proposals

The topic of health care reform recalls the 1994 Health Security Act of the Clinton administration which included universal coverage through "regional alliances" with contributions from employers, employees and government (Zelman 1994, 12-5). (1) A current proposal of similar scope is that of Representatives Stark, Dingell, Waxman and Brown with the Medicare for All Act (H.R. 4683). This Act would make health care coverage available to anyone with a social security number ([section]2202(a)) through an expansion of Medicare to those younger than 65 ([section]2203(a)) or, if a person prefers, through a private insurance plan identical to those available to members of Congress under the Federal Employees Health Benefit Program ([section]2204(b)). Costs of coverage would be paid from a payroll tax of 7% on employers and 1.7% on employees ([section]2206 (b)).

President George W. Bush, in his 2007 State of the Union message, proposed a market-driven reform program with special tax treatment for privately purchased health insurance and incentives to states to assist low-income individuals in purchasing health insurance. Additionally, pursuant to President Bush's Executive Order Promoting Quality and Efficient Health Care in Federal Government Administered or Sponsored Health Care Programs, dated August 22, 2006, the administration is promoting the "Value-driven Health Care Initiative" to make individuals more rational consumers of health care by improving information about costs and quality. The administration also supports Health Savings Accounts to increase cost-sharing, which President Bush claims will empower "patients to make rational and smart decisions for themselves and their families ... in which the relationship between the patient and the provider are central, not a health care system where decisions are made by the federal government" (Press Release, Office of the Press Secretary, The White House, April 4, 2006).

Where an industry may be characterized as one with many small firms supplying services to many individual consumers, neoclassical analysis favors market-driven policies designed around concepts of consumer sovereignty and the rational decisions of homo economicus. Institutionalist analysis, the AALL program and the methodology of John R. Commons advise that the choice of policy should be influenced by (i) the relationships between patient and health care provider in the transaction between these parties (the "health care transaction"); (ii) the historical efforts to reduce uncertainty in the health care transaction; (iii) the working rules governing the health care transaction; and (iv) considerations of sovereignty.

Expectations and Working Rules

Commons' analysis of transactions emphasized that parties exchange future rights to the subject matter of the transaction and that such rights "are only expectations" (Commons [1934] 1961, 412). Commons described his concept of "Futurity" as "the principle of expectation" (740). Furthermore, in the absence of secure expectations, he observed that transactions tend to fail (Commons [1924] 1995, 100). Expectations of parties are influenced by the working rules and the behavior of those who enforce the working rules (112). Working rules "go to a fundamental and ultimate principle without which man cannot live in society--the principle of Security of Expectations" (Commons [1934] 1961, 705). …

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