I’m optimistic that coronavirus won’t be as bad as we may fear. Still, I hope it inspires us to rethink healthcare economics — especially Virginia’s Certificate of Public Need (COPN) program.
COPN is a regulatory process in which anyone wishing to build or expand a hospital must get approval from a state commission. Two things should be obvious, however: 1) Anyone planning to build or expand a hospital is probably capable of figuring out the investment risk without government help, and 2) oversupply or too much capacity is a self-correcting problem (prices will fall, or non-performing hospitals will go out of business, etc.).
The alternative problem of too few hospitals is easy to solve, too. State and local governments can solicit for the investment and provide incentives as needed to secure them.
If we don’t need it, why does COPN exist? It appears to be an outgrowth of the federal government’s impulse for central planning of the economy.
The story has many threads, going back all the way to the Great Depression and with significant ties to WWII. There were several key events:
- In the 1930s private health insurance began to become widely available based on the success of Blue Cross and Blue Shield.
- In 1942 Congress passed the Stabilization Act to combat inflation that appeared to threaten the U.S. economy as America entered WWII. The Act prohibited businesses from raising wages to attract workers otherwise made scarce by the war effort. In response, employers began offering health plan benefits as non-wage compensation. Unions strongly supported this approach.
- In 1943, the IRS created a tax exemption for employer-sponsored health insurance. This caused the market for private health insurance to take off. By 1950, more than half of Americans had some form of health insurance for this reason.
- In 1946 Congress passed the Federal Hospital Survey and Construction Act requiring states to develop hospital facility plans. The Act made federal grants and loan guarantees available to states that met requirements for improving the national hospital system. Amendments and an additional National Health Planning and Resource Development Act followed in 1972 and 1974, respectively.
- In 1973, Virginia codified its first COPN law “to promote comprehensive health planning in order to help meet the health needs of the public; to assist in promoting the highest quality of health care at the lowest possible cost; to avoid unnecessary duplication by insuring that only those medical care facilities which are needed will be constructed; and to provide an orderly administrative procedure for resolving questions concerning the necessity of construction or modification of medical care facilities.”
The role of private health insurance in this story cannot be emphasized enough. What began in the late stages of the Great Depression as a middle class approach to financial security became during WWII a handmaiden to government central planning. FDR had considered including nationalized healthcare as part of his Social Security plan in 1935, but judged that both initiatives might fail if pursued together. The reasons were political. Unions, the Chamber of Commerce and doctors’s groups all supported employer-based, private models for healthcare financing.
But the impulse to plan out the nation’s healthcare system from Washington never waned. Hence, tax-break subsidies and other federal interventions in the private economy emerged. Which — we may now learn — has brought us to a point where we aren’t prepared for an epidemic like coronavirus.
Don’t forget: health insurance is socialized medicine.
The Real Reason the U.S. Has Employer-Sponsored Health Insurance
How We Got to Now: A Brief History of Employer-Sponsored Healthcare
Legislative History of Virginia’s Certificate of Public Need Law