Matt Yglesias brings up my favorite stylized fact about health care. The rise and fall of HMOs. I was – as you might imagine – an enthusiastic supporter of HMOs.

They seem like a wonderful innovative way for the market to development demand side cost control measure. And, they crashed and burned in the most horrific manner imaginable.

Matt says

But people have spent the past ten years voting with their feet away from this option. You often hear arguments about health care costs invoke the fact that the health care sector benefits from lots of explicit and implicit subsidies, which is true. But those subsidies weren’t suddenly created at the moment the worm turned on the HMO issue.

But, its worse than that. I remember the HMO episode vividly. They became the most hated name in American business. The constant source of material for late night comedians. A plot device anytime a TV writer needed an “evil” entity.

As a result both political parties caved in to popular pressure and went after the HMOs. From the LA Times circa 1998

Faced with growing voter concern about health care, both President Clinton and House Speaker Newt Gingrich on Thursday called for a bipartisan approach toward empowering consumers with a patients’ "bill of rights."

"I don’t believe this is a partisan issue anyplace but in Washington, D.C.," Clinton said during a rally on Capitol Hill with congressional Democrats and two maverick House Republicans.

This slips under my definition of Liberalization Failure. You can point to all the things that are wrong with government controlled health care but when you leave cost control to the private markets the populist backlash is so severe that governments can’t help but make the problem even worse.

Thus you end up with the most costly health care system on the planet.

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