A Brief History of the Great American Healthcare Scam

Even before the COVID-19 disaster, the American healthcare crisis felt so patently absurd, so coeval with a very 2016 flavor of political cynicism, that many Americans might be surprised to recall just how old the debate over reform really is. The first call for universal coverage arrived during the 1912 election, when rogue Progressive Party candidate Teddy Roosevelt campaigned on a national system modeled off those already available in Europe.

Less surprising to many Americans: He lost.

The fight for universal healthcare has since been less an uphill battle than a century-long stalemate. The first legislative efforts at reform reached state senates in the late 1910s, only to be trounced by cries of “Bolshevism.” The American Medical Association blocked resurgent campaigns to lower costs and expand coverage in the 1920s. The AMA and the Red Scare continued to haunt reform efforts, pegged as “socialist,” throughout the twentieth century, successfully thwarting proposals by FDR and Truman in 1933 and 1949, respectively. It was not until 1965, when Johnson passed Medicare and Medicaid, that strong national sympathy for the elderly and the poor seemed, at least temporarily, to trump anti-socialist sentiment, private interests, and the AMA’s political clout.

The outrageous and ever-increasing cost of American healthcare is now a morbid national joke. Total healthcare spending amounts to over $10,000 per person per year, more than two-and-half times the 2018 OECD average and 30 percent more than Switzerland, the runner-up. The major difference, of course, is that Switzerland’s universal, public-private hybrid system is famous for offering prompt and quality care, while the American system is merely infamous. The US is home to the some of the highest quality healthcare in the world, but many cannot afford it. Studies have shown that inflated costs vis-à-vis peer nations can be primarily attributed to administrative overhead (e.g., filing claims), high physician compensation, and high cost of services. Also of note: The US alone makes do with a voluntary, employer-based system.

Healthcare reform has always sat uneasily in the American consciousness. It’s tempting to frame the problem as a failure of politics: Democrats, who for so long gestured toward universal coverage, became alarmed when leading 2020 candidates pledged single-payer solutions. On the other end of the spectrum, Republicans continue their cynical flirtation with ACA repeal. Less well examined, however, is the cultural history—the cultural values—that has led the American public to tolerate unaffordable care for so long. Every inequality on display in this pandemic has its roots in our belief in the profit-driven, in the American valorization of the right to get rich.

Somehow, hospitals, overcrowded, with no spare beds and an overworked staff, are actually losing money treating patients with COVID.

The history of American healthcare is defined by a lack of government intervention and was shaped, like many industries, by the entrepreneurial spirit of the industrial age, the national “duty to get rich.” As far back as the nineteenth century, when other developed nations were laying the groundwork for nationalized care, Americans were treating health as just another business. An illustrative comparison: In 1883, when Germany mandated compulsory insurance for industrial workers, the most salient actor in the American healthcare system was the snake-oil salesman of the Old West.

This was a postbellum age of rapid wealth accumulation: Rockefeller was drilling oil, Carnegie laying rails, pioneers had just emerged from the mirage of the Gold Rush. It was also an era of great gullibility; by the 1920s the Brooklyn Bridge had been “sold” to multiple parvenus. Self-fashioned pharmacists were early exploiters of this American naïveté. An itinerant caste with little to no medical training, they roamed the capital-crazed, under-regulated nation, congregating at medicine shows out West, that frontier of American scammery. Advertising via fliers and pin-ups (“Minard’s Liniment: The great internal and external remedy for man or beast.”), and often performing from the stages of covered wagons, they regaled crowds with cures for venereal diseases, tuberculosis, cancer, afflictions of all sorts. Ambrose Hunsberger, later named chief of the Pennsylvania Pharmacists Association in 1924, captured this heyday in American medical fraudulence in an article titled “The Practice of Pharmacy Under the Volstead Act”: “There was no method of protecting the public from fraud . . . and the credulous citizenry of the young nation was beguiled by every description of fakir and charlatan into buying their fantastic panaceas.” If the snake-oil salesman was an expert con-artist, his benefactor was a lack of government oversight.

Snake oil itself was a scam twice over. When the first wave of Chinese immigrants came to lay the Transcontinental Railroad (for about half the wages of white counterparts), they brought with them ointments derived from the Chinese water snake, whose high levels of omega-3 fatty acids lend it anti-inflammatory properties. Capitalizing on the reputation of this genuine palliative, American salesmen starting peddling knock-offs, many of which were not derived from snakes at all, let alone from the Chinese water variety. Hunsberger’s charlatan was born.

Snake oil. Photo: Flickr/Jagrap
Snake oil. Photo: Flickr/Jagrap

The snake-oil salesman’s fantastical treatments, marketed as “patented medicines,” were usually nothing more than trademarked liquid courage. Lydia Pinkam’s “woman’s tonic,” a popular remedy for menstrual and menopausal complaints, was 19 percent alcohol. Hostetter’s Bitters, prescribed for dyspepsia, clocked in at 32 percent. (So much for the Volstead prohibition on the sale of booze.) Through the turn of the century, over-the-counter medicine remained an exercise in rebranding and repackaging morphine and liquor. Coca-Cola, America’s greatest national export aside from McDonalds and Hollywood and war, made its illustrious debut as a health tonic laced with cocaine. (“Tired? Then drink Coca-Cola.”) Fitting, then, that the soda counter first appeared in the American pharmacy. All of these swindlers operated entirely within legal guidelines, and arguably even filled a market gap; the mass production of real patented medicines lagged behind the sale of nostrums.

The snake-oil salesman exemplifies a fundamental axiom of American capitalism: One reserves the right to strike out on one’s own, no matter the perils posed to others. “I say that you ought to get rich . . . It is your Christian and godly duty,” evangelized Baptist minister Russell Conwell in a famous and widely disseminated sermon; he suggested that Americans begin by digging for diamonds in their own backyard. This kind of rabid individualism shocked visiting French diplomat Alexis de Tocqueville. In fact, he coined the term individualism to describe it. Tocqueville was fascinated by how Americans, having bought in to the illusion of radical meritocracy, “acquire the habit of always considering themselves as standing alone, and they are apt to imagine that their whole destiny is in their own hands.” Regulation has since become synonymous with interference—in particular, with the right to get rich.

Like a tree whose roots deform around an inconvenient rock, democratic institutions have morphed to accommodate our preference for unadulterated “freedom.” This is starkly apparent in our legal system, where the public holds a peculiar role as mediator between legislators and the courts. Tocqueville, in particular, found it curious that an American judge cannot opine on the consequences of a law until the people bring it to his or her attention. The public’s role in interpreting and enforcing legal code explains, in part, how the US evolved into such a famously litigious society (and why malpractice insurance is often framed as such a burden for American doctors); the one tool consumers do have in challenging industry and corporate activities is lawsuits.

Industry regulation by threat of suit can be a crudely efficient way to control the quality of products and services, sparing legislators time and corporations a good deal of red tape. But as a consumer protection stopgap, it works only where broad-strokes regulations already exist. Under our current system, neither the government, nor the market, nor the public holds the power to control healthcare costs. Citizens can’t sue for expensive care.

Leading up to the 2020 election and before COVID-19 put a halt to almost every conversation not immediately aimed at preventing one-hundred thousand deaths, our most recent iteration of the healthcare debate settled into its usual stalemate, with disunity over how best to expand coverage on the left, and promises to dismantle the ACA on the right. It also fell into the same sinkholes: obsessions with market-based solutions and individual choice. Republicans—and moderate Democrats—never tire of trotting out against single-payer the virtues of laissez-faire, or scare tactics about “taking away” insurance. But American conservatives who argue against market intervention ignore the fact that the government already subsidizes the healthcare industry. Along with agriculture, oil, and mortgage-backed securities, healthcare and pharma are arguably some of the foremost beneficiaries of government support. The pharmaceutical industry, especially, reaps substantial benefits from government-sponsored research. Private companies often acquire promising compounds produced in university labs, nonprofit institutions that rely heavily on government grants. Doctors and scientists develop new treatments in clinical trials supported by university hospitals and the National Institute of Health. Taxpayers, therefore, already subsidize private pharmaceutical research and development. And this isn’t necessarily a problem; it is in the public interest to support medical innovation, an admittedly risky and high-cost endeavor. But why shouldn’t we demand a rebate once drugs and services come to market? Furthermore, in a true free market, not only would corporations forgo subsidies, but patients would have the opportunity to “shop” for care, substituting overpriced services with cheaper alternatives. In reality, the price of a procedure or prescription is hidden until receipt of service, and most insured patients never even see the final cost billed to insurance. Meanwhile, as with so many public-private partnerships, the government’s role is hidden from view, while private corporations who benefit from government policy are free to exploit the system to fill shareholder pockets.

Early Democratic debates were equally focused on corporate profits, and rightly so. Sanders committed to Medicare for All (Warren qualified), a single-payer option rooted in the idea that healthcare is a human right, and profit has no place in the distribution of health services. But in fixating on the rhetoric of “eliminating private insurance,” debate moderators masked the primary purpose of a single-payer system: regulating costs.

To be fair to the moderators, nearly every healthcare system used by peer nations does in fact incorporate private insurance in some way. In Canada’s single-payer model, private insurance can be used to cover specialty procedures not included in the public option; in the UK, it operates as a supplementary purchase to secure shorter wait times and same-day appointments.

What all these systems have in common, however, is that the government can directly influence the cost of services, either by imposing cost constraints on the private sector (Netherlands), or by consolidating purchasing power; it's harder for profiteers to scam individuals when consumer interests are aggregated in a single payer. Yet Biden recently said that he would veto single-payer legislation over concern that funding it will require raising taxes on the middle class. Instead, he supports “Medicare for all who want it.” Augmenting existing public options, as Biden proposes, may look less expensive on the surface, but with no clear mechanism for influencing costs and premiums, it is also less likely to ensure affordability.

The waste of life and money that can result from a fragmented healthcare system was made most recently and abundantly clear by bidding wars between states for ventilators and other supplies. Trump could have coordinated these purchases nationally—a single-payer system. Instead, by encouraging states to outbid each other, he not only transformed American survival into a kind of Hunger Games, but drove up the price for essential goods. The end result is that, in the middle of a crisis, private manufacturers reaped enormous profits from a direct transfer of taxpayer funds. If Biden is looking for an escape route from what he perceives to be the politically damaging proposition of raising taxes to fund Medicare for All, he’d do better to highlight the egregious waste incurred when healthcare is priced in a distorted market where providers and producers can choose the “highest bidders”: manufacturers can choose the richest state; hospitals can choose patients with private insurance. Concerns over “eliminating private insurance,” meanwhile, could be addressed through a single-payer system with a supplementary private option.

Biden might also adopt the irrefutable logic that industries subsidized by public funds ought to be subject to regulations that serve the public interest.

Trump’s two-trillion-dollar stimulus plan includes bailout loans for small business, the airline and hotel industries, and also for hospitals, many of which—and one really cannot overstate the irony—are losing money explicitly because they are being used more than ever. Part of this is due to increased costs associated with treating the virus. But hospitals also make a substantial proportion of their revenue on elective surgeries, which they’ve had to cancel in order to make room for COVID-19 patients. In other words, revenue streams are so dependent on charging patients with premium insurance too much for surgeries they do not absolutely need (think life-quality enhancing, not life-saving) that canceling these procedures to make room for critically ill patients is a significant hit to the business model.

This would be a good moment to recall that one of the things that enraged Americans about our last bailout (of banks) was the idea that under-regulated private industries have a disproportionate claim on public funds. If airlines and banks, “too big to fail,” can draw on government funds in a crisis, shouldn’t they be required to operate in the public interest? If hospitals are being bailed out, shouldn’t they? Have we not been having that same debate about the healthcare industry for the past hundred years? Are we laughing yet?

A doctor friend recently reminded me that politicians don’t like to raise the topic of regulating costs for precisely the same reason hospitals don’t like to run out of ventilators: in rationing limited resources, some patients will die. The nation can only afford so much healthcare, and certain treatments might be deemed too expensive to cover on public plans. But private insurers already make these same decisions every day. They are never easy decisions to make. And our outrage over refusing to cover, say, end-of-life treatments that extend lifespans by three to six months at price tags in the hundreds of thousands of dollars per patient seems ludicrously overblown when juxtaposed against our silence on pre-pandemic morbidity and loss of life. The COVID-19 crisis has thrown into relief the inequality and barbarism of American life in many ways, but one of the most egregious is our prior complacency about everyday morbidity, including our default rationing of healthcare along class lines. The fundamental neglect that is the byproduct of American get-rich-quick schemes is, in a way, our number one national disease.

This is a country built on profiteering scams. Healthcare is no exception. Perhaps America’s most brilliant marketing campaign was conflating lawlessness with freedom. As a result, the debate over healthcare has unfolded rather like a never-ending Western, where corporate bandits ride into town, extort protection money, and citizen complaints go unheard because there is no sheriff—and after the bandits, they can’t afford one besides. What a relief it would be to see the 2020 debate unfold along a far less exciting storyline: regulating costs.

My doctor friend is correct that the Republican ploy of spinning cost-regulation into “death panels” nearly killed the ACA. But it would be truly depressing to watch Biden fail to control the narrative thus: How does a knee surgery that costs $2,000 in Germany ring up at $14,000 in the United States? How can hospitals go out of business by saving lives? In the post-pandemic world, when we are not focusing on recession and mass unemployment and climate change, we should be focused on healthcare—on celebrating those workers who brought us through an unprecedented crisis, and on aiming our suspicions at a healthcare system that had to be bailed out precisely because it was doing its job.

Jessi Jezewska Stevens is the author of the novel The Exhibition of Persephone Q, which was published by Farrar, Straus and Giroux in March.