Preventing Extortion

Roosevelt signs the Tennessee Valley Authority Act The debate about a public health insurance option mirrors the debate
about public power in the 1920’s and 30’s. The arguments then were very
similar to the arguments we hear today.

The principal issue then was whether the federal government should
enter the public power business by investing taxpayers’ money to build
the Tennessee Valley Authority and to harness the Columbia and other
rivers for electrical energy, or whether the sites should be transferred to the
private sector. A second issue was who should build transmission lines
and set wholesale prices when the Federal government built dams.

The answer to the second question was first enunciated on the Senate
floor in the fight over the Wilson Dam in 1920 by Senator John Sharp
Williams of Tennessee. He said, “The government should have somewhere a
producer of these things that should furnish a productive element to
stop and check private profiteering.” Thus was born the yardstick
federal policy which later found its way into TVA legislation through
the efforts of Nebraska’s Senator George Norris. In a 1932 campaign
speech in Portland, Oregon, Franklin Roosevelt referred to his TVA and
other regional proposals as “yardsticks to prevent extortion against
the public.”

Roosevelt’s statement enunciated America’s public power agenda, which
through the years has saved the federal government and electrical
consumers hundreds of billions of today’s dollars. This public
investment provided the electrical energy to build the bombers and the
atomic bomb and was a critical factor in winning World War II.

At the time of the Yardstick Public Power legislation of the 1930’s,
most of the farms and homes in rural America were without electrical
power. Only in the cities could private power companies make a profit
selling electrical energy. With the launching of the New Deal yardstick
pricing, together with publicly owned electrical cooperatives and
public utility districts, rural America was electrified and  private
utilities ended up serving a large majority of rural consumers.

Because we adopted yardstick pricing back in the 30’s, today America
possesses a healthy and balanced mix of private, public, and
cooperative electrical systems.

The public power analogy might be a useful device in combating the
brutal campaign against a federal public health insurance option.
History is repeating itself. We see the same epithets of socialism,
unfair competition, and government interference with private enterprise.

Both America’s constitutional system of government and our free
enterprise economic system are built upon the fundamental notion of
balancing power between institutions. It is only when there is an
imbalance of power within one of the two systems or the share of power
between them that we fail . Recent disasters created by imbalance,
including Enron and California energy manipulation and the collapse of
the American banking system, wiping out our citizens’ retirement
accounts, are painful examples.

Most importantly and perhaps most painful for great numbers of our
citizens today, America trails all developed countries by many years in
fashioning an effective national health services delivery system .

There is no industry that has a more shared and complex mix of
nonprofit, government, and private for-profit delivery systems. Yet we
have a system that is neither cost-effective nor meets the needs of our
citizens, whether insured or not. It is a system that is out of balance.
It desperately needs an effective yardstick.

The imbalance in our system began in 1975 when the Supreme Court gave
the green light to commercialization of medicine by removing medicine
from protection of the antitrust laws. The imbalance was greatly
exacerbated in 1980, when the American Medical Association changed its
ethical guidelines to declare that medicine was no longer a
professional service but both a business and a profession. The other
factor of great influence that has led to imbalance is the dominance of
investor-owned private insurance companies born from the establishment
of employer-based health insurance systems.

Thus began the corporatizing and domination of Wall Street in
organizing and pricing for-profit medical services.  Rather than a
system organized to deliver cost-effective medical services to
patients, today we have a system designed for profit .

Despite the roles of federal Medicare, state Medicaid, members of
Congress health care programs, federal delivery systems such as the
Veterans Administration, and nonprofit group health cooperative
associations, the balance of power in our national health care delivery
system is now largely in the hands of Wall Street-driven for-profit
enterprises. Every medical procedure from putting on surgical gloves to
sending bills to the insurance company has become a profit center. And
the pricing for all the services are set largely in an oligarchical
framework of administered pricing. There is absolutely no competitive
pricing. Have you or anyone you know ever negotiated the price of
medical service?

So history repeats itself. The Democratic party is charged with
formulating another national yardstick policy that will have enormous
consequences for the health and welfare of our citizens in generations
to come. Like Franklin Roosevelt, President Obama is simply leading the
nation to create sufficient power in the public sector to balance
against the private sector and the Wall Street pricing effect. Or in
President Roosevelt’s words, “a yardstick to prevent extortion against
the public.” And, as President Obama stated, “to keep insurance
companies honest”.

The failure of Congress to build in an effective market yardstick for
pricing medical services would cost future generations trillions and
fail to deliver cost-effective medical care to all our citizens. No
amount of regulation will suffice. Only the market mechanism will
provide effective cost reduction to pay for universal coverage.

Jack Churchill is a political economist living in Agness, Oregon.

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mulberry somerset purse blackNateTom LeithRoy M. Poses MDDr.Rick Lippin Recent comment authors
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What prevents extortion of the public at the hands of government? We are not in a healthcare crisis today because of private insurance, it is the impending financial collapse of Medicare and Medicaid dictating that something be done now. We have come to a cross roads where the government is extorting the little remaining piece of our health they haven’t already consumed and destroyed. The analogy is off by decades. The power plants where already built in the 60s and 70s and we are paying a ridiculous price for their government power. The governemnt to keep them up and running… Read more »

Tom Leith
Tom Leith

Jack Churchill writes: > [Medicine] desperately needs an effective yardstick Hasn’t it been argued recently that there are yardsticks: Mayo, Kaiser, Cleveland Clinic, and Intermountain? You could say that the VA is another. Lots of people on THCB hold up every western European country as a yardstick and some few hold up the UK and Canadian systems. There are plenty of yardsticks. There is another yardstick too: we have some few for-profit hospital chains. If we can presume that they’re doing about the best that can be done in the current context, we can look at their EBIDTA and get… Read more »

Roy M. Poses MD

This was a very nice historical analysis. It might be worth also pointing out that it may not be possible to have a true free market in health care, because patients are not consumers. As Kenneth Arrow noted in 1963, patients cannot be steely-eyed consumers. They do not have enough information about the benefits, harms and costs of their possible choices. They have trouble understanding the ambiguity and uncertainty of the medical context. And most important, they may not be capable of the cold cognition the free market model requires, since they may be dealing with choices whose potential outcomes… Read more »

Dr.Rick Lippin

Thanks Jack Churchill-
The analogy you present seems valid and I appreciate the relevant history lesson.
Yes- Balance is the key. In US health care we lost that balance as the unmanaged free market model dominated our nation’s health care system especially in the last 30 years.
I like to say, however, that it is all cyclical. But real people get hurt at the extremes of the cycles.(and some get very rich)
So it is time to rebalance and try to flatten the amplitude of the swings in the future.
Thanks again for your good post.
Dr. Rick Lippin