Before the advent of Medicare and Medicaid and the HMO Act of 1973, the private sector funded over three quarters of the country’s health care expenditures, individuals paid nearly one-half of total costs out-of-pocket and health care inflation was in-line with the consumer price index (CPI).

The introduction of these government insurance programs in 1967 fundamentally changed the way health care was purchased. As the government began to insert more regulation over the health care market and cover a growing percentage of health care spending, total out-of-pocket expenditures fell. Today, out-of-pocket expenses account for only 1/10 of total health care expenses.

The HMO Act of 1973 provided grants and loans to provide, start, or expand a Health Maintenance Organization (HMO); removed certain state restrictions for federally qualified HMOs; and required employers with 25 or more employees to offer federally certified HMO options. The Act gave HMOs greater access to the employer-based market, providing for the rapid expansion of HMOs and was synergistic with Medicare and Medicaid in decreasing out-of-pocket expenses.

In addition, state regulations have increased and now require health insurance companies to cover a ridiculous range of health care services including but not limited to: acupuncture, breast reduction, contraceptives, dieticians, drug abuse treatment, hair prosthesis, in vitro fertilization, massage therapy, etc. and this has had a profound effect on health care inflation. All these policies have had the net effect of changing the way Americans pay for health care services, by precipitating the change from catastrophic medical insurance to “comprehensive” health care coverage.