Medicare is the American version of "central payer" for everyone over
65, a segment of our population which consumes a disproportionate
amount of medical services. Medicare is popular because it seems like
a good deal, so much so that politicians like Bernie Sanders want to
extend it to the whole population. Unfortunately Medicare has a fiscal
problem in that every day it is substantially adding to our
dangerously high national debt and is rapidly heading toward
bankruptcy.
CMS, the agency that runs Medicare, has been trying hard to get out
from under this financial difficulty by imposing increasing amounts of
new regulations which thus far have added to costs rather than
reducing them. The reality is that if the program is to continue in
its present form the solution must reside in some combination of
either major increase in taxes and fees, serious rationing of
services, or substantial reduction of payments to providers, the same
devices that are used in other advanced countries with government
controlled medical care. Understandably politicians are reluctant to
do any of these things, which would be highly unpopular and in many
ways counterproductive. Americans have been enjoying life on their
credit card but eventually we're going to reach our limit.
Medicare's fiscal problems are well known even though they are too
unpleasant to be talked about much. Less obvious is that Medicare
through its regulations has been adversely affecting the nature of
medical practice for decades but in recent years there has been a
regulatory firestorm which is having major bad consequences for
patient care. I would contend also that Medicare, through its dominant
influence, and government intrusion generally in our healthcare
system, has been a major factor in causing inflated medical prices,
which mostly hurt the poor, as well as disruptions of services
including distortions in distribution and impedance of innovation.
Thus we have a system which was designed to make medical care less
costly and more accessible causing the exact opposite effect.
But first let's examine the fiscal problems. CMS sets the price paid
for every single medical item, large and small, and allows payment
only for those which it deems to be necessary. Why then its economic
troubles? The answer is the same one that has always caused centrally
controlled economies to be consistently outperformed by the free
market. It's the conceit that somehow a central committee of experts
can make economic decisions for individuals better than they can make
for themselves.
The free market works to distribute goods to their best uses and keep
prices as low as possible. Consumers seek around for what satisfies
them for the best value. They behave differently depending on how the
bill is being paid. If you send your teenager out to buy himself a
pair of jeans you can give him your credit card or you can give him a
$100 bill and ask him to bring back the change or you can give him the
same bill and let him keep the change. In either case the result will
probably be serviceable clothing but a world of difference otherwise.
From the producer's standpoint the competitive market makes them work
to produce things that people want at a price they are willing to pay.
Whoever succeeds best will gain market share and prosper. Whoever does
not will fail.
Some contend that medical care is different, that it's too highly
technical for individuals to make their own decisions. But we purchase
high tech things like cars and computers all the time without knowing
the details of their inner workings. And in fact patients also make
medical decisions all the time, including those that are critically
important. Except sometimes in emergencies they decide when and in
what way to interface with medical care providers, and whether or not
and in what way to follow their recommendations. If I recommend a test
or procedure is the patient obliged to accept? Of course not. The
patient, like the consumer in every other area, is the final
decision-maker. And in fact it is the patient who makes the economic
decisions as well, but in the context of a distorted system bad
results follow. When offered items at no or little cost there is no
incentive to decline except where there is risk or pain involved.
Those who jump to the "central payer" idea will accuse me of being
hard-hearted, of having no sympathy for the poor and unfortunate. On
the contrary! It is they who are unwittingly favoring high prices and
restrictions, not just for the poor, but for everyone. Medical goods
and services are not free. Doctors and nurses and technicians will not
work without being paid. Likewise hospitals and nursing homes and
medical equipment must be paid for. The question is how to pay. In the
central payer scheme I give my money to government bureaucrats to take
their share, then parcel it back out, while regulating the providers
and restricting my choice. When I pay directly and control the funds I
select what service suits me the most and the market works to lower
prices. I buy insurance, not for ordinary costs but for unlikely and
unforeseen circumstances because in such cases I want the money I
spend on insurance to provide generous coverage. Yes there are those
who through misfortune or lack of foresight or indolence are unable to
afford basic care and for whom society should provide. Other than that
the intervention of society does more harm than good.
But if the truth be told it is not the unfortunates who are the chief
interest of central payer proponents. In such a highly commercial
society as ours is we should be immune from ads that claim to give us
items that are "absolutely free". But the idea that someone else is
paying is a siren song that is too sweet to be resisted. The
government will arrange things so that "the rich" will pay more and I
will pay less, the rich being anyone with an income larger than mine.
The link between this arrangement, high taxes and restricted services
is papered over as much as possible. But what is completely lost sight
of is the tremendously destructive effect of eliminating market forces
which bring down prices and reward efficiency and innovation. I've
tried to give some examples from my personal observations in previous
posts and I'm going to continue doing that.
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