Lessons from health care regulation.

Abstract

Regulation may be defined as any governmental intervention, direct or indirect, designed to alter any economic, social or technological aspects of a business, other agency, individual, or group. Regulations are promulgated at the state and federal level by a variety of administrative agencies, some established solely for the purpose of regulating and others that have as­ sumed limited regulatory responsibilities as an adjunct to other functions. There are also many quasi-governmental agencies with regulatory au­ thority. Regulations exist in many different forms, including pricing, licens­ ing, franchising, standard setting, disclosure requirements, interest rates, and prohibition of discrimination, and they affect every sector of the econ­ omy, including health care. Several features of the medical marketplace encourage government regu­ lation. Salient among them is the lack of incentives for major participants in the system to constrain costs. Consumers are insulated from the true costs of their health care by third party reimbursement systems that finance nearly 70% of expenditures on personal health care services (1). Employers, who assume a great portion of total health care costs by providing health insurance for employees, are able to deduct health insurance premiums as a business expense, reducing their tax burden. A study by the Congressional Budget Office indicated that in 1982 the health care tax expenditure from employer contributions to health insurance premiums amounted to $23 billion-$16.5 billion from income tax deductions and $6.5 billion from payroll tax deductions (2). Physicians, who act not only as the providers of care but as the purchasing agents as well, face equally strong disincen­ tives to be cost conscious. Third party reimbursement has diminished the