Tuesday, July 14, 2015

Pre-Medicaid ‘System’ Points to the Moral Alternative to Medicaid: A Free Market Safety Net

On February 5, 2015, the New Jersey Star-Ledger published two articles about Medicaid. The first one, by NJ.com columnist Kathleen O'Brien, asked,  Who will treat the flood of Obamacare Medicaid patients?:

New Jersey's health care safety net for poor families -- called NJ FamilyCare -- was strained even before the Affordable Care Act offered states money to expand Medicaid. The rate it pays doctors is among the lowest, relative to Medicare, of any state in the nation, according to the Kaiser Family Foundation.

As a result, only 40 percent of the state's doctors participate in the program, according to a 2012 survey by Health Affairs.

Yet the network will now have to handle a surge of nearly 400,000 new patients who have enrolled since the beginning of Obamacare in 2013 -- a jump of more than 30 percent, to nearly 1.7 million state residents.

The lesson, usually ignored by proponents of government-financed healthcare, is that health insurance doesn’t equal health care. But a shortage of healthcare providers (supply) is inherently problematic to the artificially pumped-up demand created by government programs. What is the solution to this chronic demand-supply imbalance?

That’s where the second article, also by O’Brien, comes in. O’Brien asks, Before Medicaid, how did doctors treat the poor? Unlike the usual, biased assumptions about pre-welfare state America that portrays America as a harsh, cruel place where people in need couldn’t get help from their fellow man—a favorite narrative of the welfare statists—O’Brien takes a thoughtful look at pre-welfare state America. Here are a few excerpts:

While Medicaid is the primary way to cover the poor, charity care used to be a far simpler proposition for doctors, said David S. Jones, the A. Bernard Ackerman professor of the culture of medicine at Harvard University.

"It was a totally funny system, and they would give this kind of assistance only to those they considered the 'worthy' poor," Jones said. Doctors often donated their services.

Underpinning all these arrangements was the notion that doctors have an obligation to provide charity care. Not only does society expect it, doctors expect it of themselves as well. The American Medical Association even has a "Caring for the Poor" section in its code of ethics, admonishing members "to share in providing care to the indigent."

But the burden of caring for the poor didn’t fall completely on the shoulders of doctors. Doctors themselves figured out ways to spread the cost of charity care by means of their fee structures. O’Brien explains:

In the early 1900s, before health insurance became widespread, a small-town doctor was free to devise his own "sliding scale" fee structure, Jones said. He would charge the factory owner one price, the factory worker a lower price.

The factory owner's high payment would subsidize the factory worker's care. Everybody knew what was going on, Jones said, and saw the arrangement as sensible and just.

The arrangement worked until after World War II, when government and private insurance companies became more involved in paying for care. Now a doctor could no longer charge a wealthy patient more than a struggling one, for insurers and public programs wouldn't allow it.

O’Brien’s article corroborates what the Ayn Rand Institute's Yaron Brook and Don Watkins said in a Forbes column. If you listen to the Left, write Brook and Watkins in America Before the Entitlement State, you’d think that

the world before the twentieth century–before the New Deal, the New Frontier, the Great Society–was a dark, dangerous, heartless place where hordes of Americans starved in the streets.

“Except,” observe Brook and Watkins, “it wasn’t and they didn’t.”

Drawing on work from historian Walter Trattner, Brook and Watkins observe:

By the mid-nineteenth century, groups aiming to help widows, orphans, and other “worthy poor” were launched in every major city in America. There were some government welfare programs, but they were minuscule compared to private efforts.

In 1910, in New York State, for instance, 151 private benevolent groups provided care for children, and 216 provided care for adults or adults with children. If you were homeless in Chicago in 1933, for example, you could find shelter at one of the city’s 614 YMCAs, or one of its 89 Salvation Army barracks, or one of its 75 Goodwill Industries dormitories.

“In fact,” writes Trattner, “so rapidly did private agencies multiply that before long America’s larger cities had what to many people was an embarrassing number of them. Charity directories took as many as 100 pages to list and describe the numerous voluntary agencies that sought to alleviate misery, and combat every imaginable emergency.”

Getting back to O’Brien’s article Before Medicaid, how did doctors treat the poor?, I left these comments, starting with professor Jones’s quote:

"It was a totally funny system, and they would give this kind of assistance only to those they considered the 'worthy' poor, . . .”

I would argue that it was fundamentally a just “system”, precisely because it preserved the charity giver’s moral right to evaluate worthiness; i.e., the moral right to say “no.” When the government nationalized charity care under welfare state compulsion, it took away this private right. This removed the personal connection between the giver and receiver, and consequently the incentive to avoid burdening others with your problems.

Actually, it wasn’t really a “system” at all; just a natural consequence of free market capitalism. Free individuals, freely associating, can and will build private “safety nets.” I found the description of the doctor’s sliding scale for factory employees particularly interesting. Often, we debate government programs as pitting redistribution of wealth against no redistribution of wealth. But the argument in regard to charity is really between legally-forced redistribution and private voluntary redistribution. The moral difference is black and white.

Once government came along and eliminated moral distinctions between the worthy and unworthy poor, the floodgates were opened for an ever-expanding horde of “needy.” First, you get irresponsible people who don’t mind being moochers coming out of the woodwork to flood the system, increasingly burdening productive people in society—a problem exacerbated by the perverted assumption that need conveys an automatic moral “right” to material goods that others have a unchosen duty to provide. This leads to the more insidious problem: Government-enforced “charity” discourages work and upward mobility among poor but otherwise ambitious and responsible people. The result of this moral quagmire is an intensifying downward spiral of increasing dependence on government programs that increasingly burdens a shrinking productive class. Today, this cancer of dependency is moving up the income scale, and increasingly engulfing the middle class (no wonder the middle class is said to be shrinking). This last is a problem even liberals can’t deny, with the Star-Ledger calling it “a problem liberals need to face squarely.” (ObamaCare’s Collateral Damage, 2/11/14)

Welfare state apologists like to portray life before the welfare state as cruel. But this is a false narrative—a fact this article reinforces. Before the welfare state, charity was plentiful for the truly worthy needy. The previous “system” wasn’t overwhelmed because the ranks of the needy was kept in check by the fact that, left to their own responsibility, the vast majority of people are able, willing, and naturally incentivized to solve their own problems whenever hard times or bad luck came along. There was never a time in America when needy people “were left to die in the streets.” Americans in general have never been callous.

The problem is wider than Medicaid. The fundamental problem with the welfare state is not merely that it is not needed. Nor is it that it is too expensive (which it is). The most fundamental problem with the welfare state is that it is immoral, because it relies on forced redistribution, violates the rights of private individuals to determine who, how, when, and in what capacity to engage in charity, and inherently discourages work, upward mobility, and self-responsibility. The practical and moral dilemma is clear: Sooner or later, we’re going to have to choose between a bankrupt dependency society and a prosperous self-reliant society.


Chronic overspending by governments at all levels is the most outward sign of a deeply corrupt system. Everybody acknowledges that overspending is a problem. But to paraphrase a famous saying, “Everybody complains about government deficits, but nobody does anything about it.” But there is a solution. The key to discovering that solution starts with acknowledging the honest truth about life before the welfare state. Then, we can progress toward an honest debate about how to unwind and repeal the welfare state.

Related Reading:

America Before the Entitlement State—Yaron Brook and Don Watkin

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