Health care has not been federalized

One point that will greatly surprise pundits looking at health reform is that, under it, health care has not been federalized.

Insurance rates and coverages are still being regulated by states, not the federal government. The "insurance exchanges" promised under the legislation will be run by states.

Which means a lot of the reform action is moving quickly to the states.

Georgia is the state where I live. Lawmakers this week made an agreement under which hospitals will be taxed to increase care given under Medicaid.

But under that agreement, lawmakers also said they won't pass any "bills harmful to hospitals" for three years.

There are two sides to any market, buyers and sellers. Under our system of markets and state regulation, buyers have had little power in that market.

Hospitals have had most of it.

Hospitals have a variety of business models. Some are non-profits. Some are for-profit chains. And some are owned by doctors.

It is hard to say no to a doctor. It's hard to do it when you're in the room with one, especially a hospital room, and it's especially hard for a policymaker to do it.

That's why the "managed care" revolution failed. Insurers could not say no to doctors and hospitals without lawyers, and these conflicts became so expensive the insurers gave up.

For costs to be contained someone must have the power to say "no." In Europe, which Republicans hold up as a model of what not to do (even though they cover everyone well for a fraction of what we pay to not cover everyone) the government says no.

European drug makers, device makers, and cure providers of all sorts must prove that their stuff not only works, but is cost-effective compared to other approaches, before they can be paid from the common pool.

It's managed care, only it's managed centrally, and it's done based on rules, not cases.

We have a similar system, but it's a state system. Each state decides what insurance must cover. Some states cover a lot of things. Others cover very few things. Whether something is covered in a particular state is based on politics. A powerful lobby can get prayer covered, or chiropractic. Weak lobbies may leave necessary procedures uncovered.

It depends on who has the ear of the state regulator. Some states, like Georgia, elect their insurance commissioners. Others appoint them, either with or without legislative approval.

The point is that this system was not touched under the bill that actually passed. Until there's a firmer hand on the buyer's side of the health market, costs will continue to rise. Even if everyone is covered.

This post was originally published on Smartplanet.com