Halfway competitive markets and ineffective regulation: the American health care system

Since the late 1960s the U.S. has attempted to develop a strategy for controlling the rate of growth of health care spending. During the 1970s this strategy relied heavily on various forms of regulation. Some regulatory programs were partially successful in moderating spending increases, but they generated significant opposition--particularly from powerful provider groups, who successfully convinced Congress and the states to dismantle most of the regulatory structure and to substitute various forms of competitive approaches to controlling spending. Some of these competitive strategies have been successful in increasing the efficiency of subsections of our health system. But they too have produced "losers," and the government has been pressured to enter the system to minimize their losses. The net result has been a political stalemate between halfway competitive markets and ineffective regulation. With the rate of health care spending growth near historic levels, it is likely that the 1990s will bring a return to a stronger role for government regulation. But it is unlikely that we are any more willing to tolerate the negative fallout from regulation today than we were in the 1970s, and therefore we predict that the proportion of GNP going to health care will continue to grow throughout the remainder of this century.