Reagan, Deregulation and America’s Exceptional Rise in Health Care Costs

Though shifting more responsibility to the investor-owned private sector seemed to backfire as a cost-control measure, it was consistent with broader deregulation in the 1980s.

“We need to see the medical sector as part of the broader gestalt of American society at the time,” said John McDonough, professor of Public Health Practice at the Harvard Chan School of Public Health. President Carter was “obsessed with broad public and private health care cost control, and Reagan abandoned that, with the exception of Medicare,” he said.

The 1980s deregulatory agenda was evident in states as well. Many abandoned health care price and capital investment controls. Managed care — in the form of health maintenance organizations — was the free-market replacement to government regulations. Investor-owned, shareholder-driven, for-profit companies became common in health care for the first time. They focused on revenue and profit maximization, not cost control.

“‘Greed is good’ was more than a catchy movie line — it was the Me Decade’s dominant theory,” Professor McDonough said. “No other advanced democracy embraced deregulated health care markets in the way that the U.S. did. It swept through health care as it did every other part of the U.S. economy.”

Further explanations for why the nation fell behind in health care outcomes, starting in the 1980s, are harder to come by. Mr. McDonough pointed to the Federal Trade Commission’s 1978 decision to allow direct-to-consumer advertising of prescription drugs. And the first signs of the obesity epidemic began to appear in this decade, but not enough to explain that decade’s remarkable cost explosion.

Stuart Butler, a senior fellow in economic studies at the Brookings Institution, added that underfunding of social services relative to medical care probably played a significant role in both health care spending and outcomes. “I’d like to see more experimentation with investments in nonmedical sectors we know also affect health,” he said, “but we’ll need to track these carefully to find what actually pays off.” These include housing and education, for example.

Gail Wilensky, senior fellow at Project HOPE, an international health foundation, and former director of the Medicare and Medicaid programs under President George H.W. Bush, agreed that the United States spends too much on health care and too little on other social services. Firearms and illicit drugs also contribute to early deaths. However, she pointed to one hopeful example. “The U.S. was unusually successful in smoking cessation, relative to other countries,” she said. “If we could replicate that success in other areas, like obesity reduction, we might close the gap in health care outcomes.”