A
Free Market Critique of Medicare
Dr Donald Berwick, Administrator of
CMS in 2010-11 is quoted as saying, "Any
healthcare funding plan that is just, equitable, civilized, and humane must
redistribute wealth from the richer among us to the poorer and the less
fortunate. Excellent healthcare is by definition redistributional." [1]
In explanation he stated, "My point
is that someone, like your health insurance company, is going to limit what you
can get. That's the way it's set up. The government, unlike many private health
insurance plans, is working in the daylight. That's a strength.” [2]
Dr Berwick is representative of a group of medical policy analysts who share
the philosophy that the optimal way to deliver medical care in our society is
by the pooling of society's resources so that they may be redistributed through
government in the most rational way for the benefit of all.
Many who, for humanitarian reasons,
favor a government controlled payment system for medical care see Medicare as
an appropriate hybrid structure that permits government intervention and
control without the stigmata and obvious disadvantages of a total authoritarian
system. Those with this viewpoint often argue for expansion of a Medicare-like
program to the population at large. In expressing this point of view Nation
magazine in June 2011 pointed out that "when faced with a choice between a market-based healthcare system and a
government-run plan, voters overwhelmingly favor the latter. Nearly 80 percent
oppose cutting Medicare benefits and two-thirds support raising taxes to
continue to fund them." [3]
It was not mentioned whose taxes voters wanted to raise and by how much, or
whether they favored a government run system with shortages and rationing.
This essay is a philosophical
critique of the Medicare program using a basic classical liberal economic
analysis. It avoids economic equations, figures, statistics or citations except
occasionally for example. It is not original thinking but represents basic concepts
which are widely held by "conservative" (i.e., classical liberal)
thinkers. It is intended to dispute the thinking behind the development of the
Medicare program. It makes the philosophical case that our present arrangement,
by deviating from basic economic principles is grossly wasteful and inefficient
and does far more harm than good to those whom it is intended to help.
Perplexing
financial problems
There is no doubt that Medicare at
its outset in 1965 filled a need of low income seniors who could not afford
standard increasingly complex medical care. Those indigent seniors, whose
medical treatment was previously relegated to charity hospitals and provided by
doctors-in-training, instead flocked to private hospitals and experienced
doctors. In order to avoid a two-tiered medical system President Lyndon Johnson
and his allies devised a comprehensive plan which included all persons eligible
for Social Security. Funding for a level of service that would be comparable to
the private system for non-seniors was arranged on the model of the Social
Security system but as the years have passed that level of funding has proved
difficult to maintain. In 1994 the income limit for the Medicare portion of the
payroll tax was removed. As of 2013 the percentage of payroll tax on income
over $200,000 will be increased to 3.8%. Premiums paid by beneficiaries for Medicare
Part B are increasing and increasing amounts of the general fund are being
contributed. Despite these progressive changes in the payment structure, as
well as reductions in reimbursements, and increases in regulation designed to
control costs, Medicare has become a major threat to the federal budget and the
country's economy.
According to the 2011 annual report
of the Medicare trustees, "for
the sixth consecutive year, a "Medicare funding warning" is being
triggered, signaling that projected non-dedicated sources of revenues --
primarily general revenues -- will soon account for more than 45 percent of
Medicare’s outlays. That threshold was in fact breached for the first time in
fiscal 2010. " [4]
The Affordable Care Act was designed to reduce Medicare costs by 25%. However,
according to the same trustee's report, "Most of the ACA-related cost saving
is attributable to a reduction in the annual payment updates for most Medicare
services (other than physicians’ services and drugs) by total economy
multifactor productivity growth, which is projected to average 1.1 percent per
year." The
report notes that´" the long-term viability of this provision is
debatable. In addition, an almost 30-percent reduction in Medicare payment
rates for physician services is assumed to be implemented in 2012,
notwithstanding experience to the contrary."
As USA Today pointed out in an
article last year, the demographic burst of the baby boomers retirement, combined with the addition of a prescription
drug benefit in 2006 and rising health care costs generally has created an
unfunded liability of nearly $25 trillion over the lifetime of those now in the
program as workers and retirees. That is the taxpayers' obligation, beyond what
Medicare taxes will bring in or seniors will pay in premiums. This amounts to
an obligation of $212,500 per person. [5]
Basic Economic
Principles
What exactly is the fiscal problem
with Medicare? It has an almost complete monopoly over both eligible
beneficiaries and service providers. Every medical procedure and device is
coded and priced and must be justified by documentation. Yet the more closely the
system has been controlled over the years, the more costly it has become. Paradoxically
it is in fact this system of central control which contains the essence of the
economic based and classical liberal criticism of Medicare, and by extension
the economic basis of the majority of the U.S. medical payment system.
The comprehension of this critique
requires some reflection on basic economic principles. When stated, such
principles appear to be only common sense but they are so intrinsic to our
ordinary economic activities as to be easily taken for granted so that explicit
analysis is required to understand the economic problem with Medicare. Most of
the brief description of basic economic principles in the following paragraphs
is derived from conservative economist Thomas Sowell's book "Basic Economics".[6]
Sowell's writing is very clear so
that several direct quotes are used which are italicized. To avoid a one-sided
perspective I compared the basic principles outlined in Sowell's book with
those described in the 2008 edition of "Principles of Economics" [7]by
Gregory Mankiw from the Harvard faculty which is the most widely used economics
textbook today at the college level. The descriptions of the basic economic principles
in the Mankiw text are highly consistent with Sowell's explanation.
Sowell gives the classical
definition of the science of economics as having to do with the "study of the distribution of scarce
resources with alternative uses".
Scarcity in economic parlance does not simply refer to items that are difficult
to obtain but applies to anything that isn't in unlimited supply, which
includes just about everything in medical care. What the market is in essence
is people competing for scarce resources which have alternative uses. In the
free market what distributes the scarce resources to the most appropriate use
is price. "Because
economic resources are not only scarce but have alternative uses, the efficient
use of these resources requires consumers to make trade-offs and substitutions.
Prices provide the incentives for doing so." An important concept to understand in this regard is that
scarce items are not of absolute value. People have individual preferences and
also value things incrementally. What is of high value to one person may matter
little to another. Consumer choices may involve avoiding an item altogether,
substituting a lower cost item which may give adequate satisfaction or simply
taking more of one item and less of another.
Prices also guide producers and
require them to make trade-offs and substitutions as well. Prices signal
producers what and how much consumers want and thus what and how much to
produce. In a competitive system producers do not set prices arbitrarily but
are obliged in order to make profit and avoid loss to produce things that
people want at a price they are willing to pay. "Most of the great fortunes in
American history have resulted from someone's figuring out how to reduce costs,
so as to be able to charge lower prices and therefore gain a mass market for
the product. "
The concept of incentives is
critical to understanding how the market works. "Incentives matter because most people will usually do more for their
own benefit than for the benefit of others. Incentives link the concerns of the
consumer and the producer together. A waitress brings food to your table, not
because of your hunger, but because her salary and tips depend on it."
Sowell sums up the pivotal role of price in the free market system
thus: "Prices not only help determine which particular things are
produced, they are also one of the ways of rationing the inherent scarcity of
all goods and services. However, prices do not create that scarcity, which will
require some form of rationing under any other economic system. Scarcity means
that everyone's desires cannot be satisfied completely, regardless of which
particular economic system or economic policy we choose - and regardless of
whether an individual or a society is poor or affluent. Therefore competition
among people for these resources is inherent. It is not a question whether we
like or dislike competition. Scarcity means that we do not have the option to
choose whether or not to have an economy in which people compete. That is the
only kind of economy that is possible, and our only choice is among the
particular methods that can be used for this competition."
'Simple as
all this may seem, it goes counter to many programs and policies designed to
make various goods and services "affordable" or to keep them from
becoming "prohibitively expensive." Being prohibitive is precisely
how prices limit how much each person uses. If everything were made affordable
by government decree, there would still not be any more to go around than when
things were prohibitively expensive. There would simply have to be some
alternative rationing method. Whether that method was through ration coupons,
political influence, black markets, or just fighting over things when they go
on sale, the rationing would still have to be done, since artificially making
things affordable does not create any more total output. On the contrary, price
"ceilings" tend to cause less to be produced.'
An important general principle
related to prices and incentives is that "Making anything artificially cheap
usually means that it will be wasted, whatever that thing might be and wherever
it might be located." Shortages
result. "A
shortage means that there are people who are willing to pay the price of the
product but are unable to find it. Price is an integral part of what a shortage
is all about, even though many people mistakenly believe that there is a
greater physical scarcity of goods during a shortage." In other words shortages are the result of wastage and lack
of incentive to produce at a certain price. When price reflects true conditions,
shortages magically disappear.
Another critical concept in the
understanding of economic systems is "knowledge and insight". This
point does not refer to knowledge of academic experts and economic planners but
instead to knowledge at the point of economic transactions, where hundreds of
millions of economic decisions are made by millions of individuals every day.
Such knowledge is not in textbooks or policy papers but is knowledge of local
conditions, available resources and individual needs and desires. "Nobody in any kind of economic or
political system can possibly know the specifics of all these things. The
advantage of a price-coordinated economy is that nobody has to. The efficiency
of such an economy comes from the fact that vast amounts of knowledge do not
ever have to be brought together, but are coordinated automatically by prices
that convey in summary and compelling form what innumerable people want. The
difference between the limited knowledge of a business executive and the
similarly limited knowledge of a government official is that the business
executive is receiving instructions from others via the marketplace on what to
do - whom to supply, and when, while the government official is giving
instructions to others and compelling them to obey. In short, economic
decisions are ultimately being directed or controlled by those who have
specific knowledge in a price-coordinated economy, while those decisions move
in the opposite direction, from those with less knowledge, who are giving
orders to those with more knowledge in a centrally planned economy. The
difference is fundamental and profound in its implications for the material
well-being of the population at large.
The final point is the concept of
"cost" which is not the same as "price". Price is expressed
in terms of money, which has value only insofar as we agree to it. Instead cost
must be considered in terms of the alternative choices of our actions . "In light of the role of
trade-offs and substitutions, it is easier to understand the real meaning of
costs as the foregone opportunities to use the same resources elsewhere.
Because an economy deals with scarce resources which have alternative uses,
every benefit has a cost in the alternative uses that could have been made of
the same resources that created a particular benefit." What we pay for
wasted and misappropriated resources and activities is what of value could have
been obtained with those same resources and activities used otherwise.
The Economics of
Medicare
The Medicare system is designed to
relieve patients of the need to make
trade-offs and substitutions. It is argued that medical care is too important
for this requirement and that consumers of medical services do not have
adequate knowledge to make appropriate choices. In the Medicare system services
provided require proof of "medical necessity" which is determined by
consistency between the procedure and diagnosis codes in accordance with policy
manuals. This process treats the value of medical services as if they were
categorical rather than incremental, that is of absolute rather than relative
need. However, anyone involved in medical practice understands that in the real
world of medical encounters there are very often a variety of diagnosis and
treatment options which have relative importance and value that are readily
amenable to trade-offs and substitutions. In actual practice "medical
necessity" becomes "medically consistent" and virtually anything
agreed upon by the patient and physician is paid for. However despite this atmosphere
of permissiveness the system is accompanied by large administrative costs to
both the payers and payees for such items as billing, coding, oversight and
documentation.
The Medicare system of payment for
everything desired that is medically consistent reduces the likelihood that
important medical services will be omitted because of limited funds or
excessive frugality on the part of the consumer patient. The trade-off cost
however is an untold amount of wasted
resources which could be used for other more appropriate purposes.
Although in the Medicare system
consumers are exempted from price constraints, tightly controlled prices are
used to determine producer payments. Price in Medicare is fixed for the great
majority of medical goods and services by RBRVS (Resource-based Relative Value
System). The prices are set by a 29 member committee of medical
representatives, working in closed session, and taking into account physician
work, practice cost and malpractice cost. Despite its aura of scientific
methodology much of this process, such as the comparison of work involved with
various procedures, is inherently arbitrary. As explained previously it is not
possible for such a system to substitute for the knowledge of specific options,
resources and desires applicable to millions of individuals at the point of the
innumerable medical transactions which
occur every day.
Although price has been removed as a
consideration for patients, it nevertheless remains a strong force in directing
the behavior of producers. Since price is determined from the top down rather
than from the bottom up decisions about what to supply are frequently
mismatched with needs and demands. Shortages occur when prices are set too low.
Prices higher than what the market would determine incentivize to excess
supply. However since patients are relieved of the need to make price decisions
producers are often able to create demand and sell such excess priced items
without the need to make trade-offs and substitutions. Competitive forces which in the free market
work to lower prices and distribute goods where and when they are needed do not
exist in a setting of centrally fixed prices.
The most significant aspect of this
economic analysis of the Medicare system is the determination of its true cost.
This concept is important enough to repeat the passage previously quoted: "In light of the role of
trade-offs and substitutions, it is easier to understand the real meaning of
costs as the foregone opportunities to use the same resources elsewhere.
Because an economy deals with scarce resources which have alternative uses,
every benefit has a cost in the alternative uses that could have been made of
the same resources that created a particular benefit."
Discussion
Political leaders often engage in one stage economic thinking. They
focus on the benefits of expending resources without adequate consideration of
longer term consequences and the lost opportunities that are being given up to
obtain those benefits. "Political thinking tends to conceive of
policies, institutions, or programs in terms of their hoped for results. But
for purposes of economic analysis, what matters is not what goals are being
sought but what incentives and constraints are being created in pursuit of
those goals."[8]
Medicare was designed to provide good quality medical services to all
seniors, including those who could not afford them. The quality of services
were to be distributed evenly and were not to be different from what had been
presently available. President Johnson emphasized that the program would not
interfere in any way with medical care delivery. Achieving these goals would
require pooled funding with indirect payment administered by government
agencies. Payment was initially by "reasonable and customary fees".
Price controls were gradually put in place with Prospective Payment for DRG's
for hospitals in 1983, RBRVS fee schedule for physicians in 1992 and PPS for
Out-patient and Home Health services in 2000.
Indirect payment relieves patients and physicians of the need to
consider prices and thus make trade-offs and substitutions. However this
situation inherently leads to untold amounts of testing and treatment which
often have little or no value such as, for example, tests done as a routine, or
to please the patient by thoroughness, or to provide immunity from liability.
The cost for such waste is in benefits that could be obtained from use of these
resources in other areas including non-medical uses.
Indirect payment requires administrative efforts which includes
documentation to payers, billing and coding personnel, computer systems, and
work to develop extensive billing and coding systems. This cost of indirect
payment is in the lost resources that could be used for other purposes. If, for
a small example, a physician spends 10% of his patient visit time in
documenting for purposes of payment that he would otherwise not do, elimination
of that task by changing to a direct payment method would permit him to see 11
patients in the same time as he usually sees 10, a large increase in
productivity that would have major economic benefit. Or alternatively he could
improve quality by spending more face to
face time with each patient or use the time for some other non-medical
activity.
A price controlled system is intended generally to make services more
affordable and in particular in the case of Medicare price controls were
introduced to control abuses that inevitably resulted from its indirect payment
system. But since it is impossible for those responsible for setting prices to
know the millions of individual local
needs, demands and personal preferences which they are controlling, price
controls have unintended consequences that must be considered as trade-off costs
which is the reason that they are almost universally discouraged by economists.
Prices may be inappropriate due to lack of knowledge of individual
circumstances on the part of those setting prices. However, in many cases
prices may also be set too low or too high in order to make services
affordable, or to achieve savings, or because of historical custom or due to
disproportionate influence of political forces or various interest groups in
the price setting process. Inappropriately low prices result in shortages
caused by wasted use and reduced supply from producers. This factor is
certainly a large element in the relative shortage of primary care doctors.
Prices set inappropriately high incentivize overproduction and overutilization
especially in a setting of lack of price restraint on consumption. Every
hospital administrator understands that economic success has its basis in
high-priced surgical and medical subspecialty procedures and maximizes
resources accordingly.
A system
of fixing prices for thousands of specific sanctioned procedures discourages
competition and thereby often maintains higher prices. In fixing a price
ceiling, a floor is also set, which is why interest groups are always
interested in "a seat at the table".
In 1975, in Goldfarb v. Virginia State Bar the U.S. Supreme Court
ruled that the professions were subject to the same rules of competition—the
federal antitrust laws—as were other trades and businesses. Medicare does what
local medical societies after 1975 were banned from doing, namely fixing
prices. Interestingly in resisting this change it was organized medicine that
argued in the courts that patients did not have sufficient knowledge to make
appropriate competitive choices.
Abandoning
price competition in the market eliminates a major force for achieving benefit
to consumers. Producers of medical goods and services base prices on insurance
reimbursements rather than on projected income and cost and acceptable profit
with an eye on the competition. For example, new doctors starting a practice
cannot consider charging lower prices to attract patients. Changes in medical
technology tend toward increased complexity and price. Rapid technological
advances of the type which lower prices and gain market share such as in the
computer industry are much less frequently seen in medicine. Economists tell us
in fact that price setting tends to reduce quality when an oversupply exists
since producers receive the same price for their product regardless of quality.
Thus there is, for example, little economic incentive to provide patients with
more convenient hours of service, shorter waiting periods or ready access to
providers.
Finally
it should be noted that the system is paid for through a combination of payroll
taxes, beneficiary premiums and general revenue taxes. Indirect payment for
services through taxes produces so-called "deadweight loss", i.e., a
reduction in market economic activity caused by taxes themselves. A higher payroll tax, in particular, produces decreased
employment and productivity because of disincentives both to employers and
employees.
Solutions
Through the years legions of health care planners
have pondered over and written about the frustrating dilemma of rising Medicare
costs which seem to resist all efforts at control. Academic experts continue to
devise new ways to rearrange the system to achieve more efficiency and lower
cost. A summary of the latest ideas from
the Institute of Medicine was recently published in the New England Journal of
Medicine.[9] These include more widespread use of
information technology, state based insurance exchanges, Accountable Care
Organizations, administrative changes in CMS, payment for quality instead of
quantity, bundled payments to replace fee for service, medical homes, emphasis
on preventive care, evidence based medicine, reducing hospital complications
--- in short everything except recognition of the perverse economic incentives inherent
in a centrally controlled system.
In the likely event that political forces maintain
the basic central control structure of Medicare intact, more realistic
political thinkers have advanced the more potentially effective solutions to
uncontrollable cost, namely increase in funding and reduction in services.
Increases in funding are ongoing, with larger payments by higher income
beneficiaries scheduled for 2013 and progressively increasing input from
general revenues. Multiple reductions in provider payments have already been
accomplished and further reduction in services are under serious consideration
such as pushback of the eligibility age as well as a variety of further
cutbacks in provider payments in the Affordable Care Act which will produce
shortages of services and providers as their inevitable effect.
Continuing to increase taxes, especially the
payroll tax, has political limits. Furthermore as pointed out in Mankiw's textbook
of economics the use of taxes to pay for a service is a strategy which has an inherent
problem. As taxes increase the resulting
deadweight loss of decreased market activity and unemployment increase
disproportionately. As pointed out by Arthur Laffer in 1974 this effect may
actually reach the point of diminishing returns.
Specific rationing of services is a major cost
reduction strategy used in other strict centrally controlled systems such as
those of Canada and Great Britain. This approach is strongly advocated by close
advisers to President Obama such as Drs. Donald Berwick and Ezekiel Emanuel. It is somewhat
ironic that a program devised to enhance medical services for seniors is being
used as a tool for cutting back services.
The
process leading toward rationing has been started in the institution of the
Independent Payment Advisory Board by the Affordable Care Act. The IPAB is
mandated to avoid rationing but this is merely a semantic distinction since
their task will be to reduce services when costs exceed a target. This approach
will likely be highly unpopular and may in the end be no more politically
feasible than any other of the Medicare program's attempts to cut costs and
services through the years. Even now a bill to eliminate the board is passing
through the House with significant bipartisan support.
Rationing
services by a committee of experts suffers from the same functional problem as
has been described with price setting. Academic expertise is not the same as
specific knowledge of specific circumstances at the point of care and no set of
regulations will fill this role no matter how detailed. Furthermore regulatory
committees are influenced by special interests and political forces.
Restrictions would more likely apply to smaller numbers of large cost items
rather than larger numbers of low cost items which in fact may be more
problematical. In the free market system
rationing is done by individuals competing with other consumers for
scarce resources making trade-offs and selecting alternatives. Not only is this
method more likely to result in more appropriate satisfaction of individual
needs and desires, but it is much less likely to produce rancor and bitterness.
"All are inherently competing for
the same resources, simply because these resources are scarce. However,
competing indirectly by having to keep your demands within the limits of your
own pocketbook is very different from seeing your desires for government
benefits thwarted by the rival claims of some other group. Market rationing
limits the amount of your claims on the output of others to what your own
productivity has created, while political rationing limits your claims by the
competing claims and clout of others."
This
discussion is not about alternatives to the Medicare program other than to
compare its economic structure and incentives to the efficiency of the free
market. Almost everyone on both sides of the political spectrum agrees that
medical care is important enough that some measures must be taken to provide
for those in poverty, even when the poverty is self-induced. In addition
serious illness introduces an element of inelasticity in demand so that
trade-off and substitution options are limited, although even in this case, it
is generally recognized that considerable chronic illness is self induced and
at least a portion of that might be amenable to economic incentives. How to
address these areas is a matter for a different debate.
The
main idea of the economic based classical liberal critique of Medicare is to
point out that a centrally controlled rather than price controlled system has
inherent costs which are clearly not worth the benefits. Any reform to be effective and which does not
contain the seeds of its own destruction must take basic economic principles
and incentives into account.
Winners and Losers
Dr.
Donald Berwick stated that "Excellent healthcare is by definition redistributional",
the implication, intended or not,
being that in the system he envisions there would be winners and losers. A good way to
look at the overall benefit and cost of the Medicare system is to analyze who
are the winners and losers.
Low
income elderly are winners as was clearly indicated at the inception of
Medicare by their behavior in seeking medical care from private hospitals and
practicing physicians rather than charitable institutions.
What
about the majority of persons of middle or higher income who would by
definition be capable of arranging payment for themselves since they provide
most of the funding for the present
system . According to the American
Enterprise Institute the average Medicare beneficiary gets 2-6 dollars from
Medicare for every 1 dollar that he pays in.[10] This arrangement is clearly a major long-term problem for
society but is it nevertheless good for these other Medicare recipients? This
is difficult to determine since, as has been stated, medical services which
have been made artificially cheap to patients and their physicians will of
necessity be wasted. In a free market system many unneeded services would have
been eliminated by trade-offs or substitutions and thus would not have had to
be paid for. Additionally a substantial portion of the services received are
administrative and also of no medical value.
A
good possibility is that those middle and high income beneficiaries with more
serious chronic illness benefit financially but those who are relatively
healthy are losers since they are paying for a significant amount of services
which they might not otherwise have purchased had they been expected to pay for
them directly. It might be argued that
insurance by nature involves the pooling of resources of many to pay large
losses of a few. But insurance is designed for high risk events requiring
relatively low premium payments. On the other hand Medicare, although sometimes
compared to insurance, is in reality a pre-payment system covering all services
and requiring high premiums and taxes. Even relatively healthy beneficiaries
feel that they have paid and continue to pay substantial amounts into the
system and expect the value of the services they receive to at least approximate
what they have paid for.
Assuming
that political forces preclude the basic structure of Medicare from being
changed, its deteriorating fiscal status will dictate either substantial
increases in revenue or rationing of services or more likely both. However,
even if improvement in solvency is achieved this circumstance would not alter
the economic flaws which produce waste
and inefficiency but would in fact alter the cost-benefit ratio in a negative
direction resulting in a greater percentage of ordinary income persons who
become losers. In addition the rationing process, as experienced in other
countries, tends to impact the minority with illness more than the healthy
majority so that some of those with illness such as those in waiting queues may now convert to being losers.
The
major loser is the society in general in several respects. The absence of price
incentive leads to large amounts of resources being wasted which could be used
for useful alternative purposes. Price setting produces additional distortions. Artificially low prices lead to shortages and
cost shifting toward the private sector. Artificially high prices exist for
some services such as procedures, diagnostic tests and durable medical
equipment which are maintained because of the absence of competitive forces.
Fixed prices in a setting of shortages also reduces sensitivity to customer
satisfaction and results in reduced quality of services generally as well as
decreasing incentive for technological innovation that might improve efficiency
and lower prices. High payroll taxes tend to reduce market activity generally
and decrease employment.
Possibly
the most important overall adverse impact on society of perverse economic
incentives in medical care is the stifling of technology and productivity. Economic history teaches us that great
advances in human welfare have arisen from individuals with new insights into
ways to develop and deliver products that relieve drudgery and raise the
standard of living of millions of people to that formerly only enjoyed by the
very wealthy. Such revolutionary changes do not happen in the kind of system
where economic decisions are made by a few at the top. Profits in our modern
centrally controlled medical care system are made by those who learn how best
to negotiate labyrinthine rules and regulations rather than by those who figure
out how to deliver products that people want at a price they can afford.
Information
technology is an interesting case in point. Computer systems for billing are
ubiquitous in medical offices but systems focused on documentation are having
to be forced on reluctant physicians by subsidies and penalties. Health care
planners wish to have easily manipulated medical data but physicians prefer
instead to spend less time on documentation and want less overhead cost.
Computer software which produced these results would be rapidly adopted by
physicians. Both health care planners
and physicians have their own interests and incentives but what is important is
how these line up with the interests of consumers of medical services. Patients
have little interest in better medical statistics but want providers who can
afford them more time at lower cost. The free market has no need for planners and
automatically links the interests of consumers and producers together.
A
similar type of negative social impact is the restriction of medical services
to the federal budget where expenditures on medical care must now be limited by
taxing power and must compete for government funding against other numerous
areas of federal spending. Limiting medical spending in this manner is just as foolish and counterproductive as would
be complete government control of housing or food or transportation or any
other critical human need. Government planners, limited as they are in
knowledge of local circumstances and distracted by budgetary and political
concerns, cannot possibly understand or competently control the direction in
which medical services should go as well as can the free market.
Other
than low income beneficiaries the largest immediate winners may be politicians,
bureaucrats and the academics and health
care planners who advise them. Such individuals should beware however. Medicare
is popular now because beneficiaries can get whatever is desired with little
trouble at a low direct price. However, if financial shortfalls continue to
develop the price they pay will be in increasing taxation and inevitable
rationing and shortages. When these adverse effects arrive the system will be
less popular but, as opposed to a system regulated by price, complaints will be
leveled at government or whatever scapegoat government attempts to designate.
In
the Affordable Care Act $500 billion is to be saved from Medicare it is claimed
by elimination of waste, fraud and abuse. But these bad features cannot be
removed "from" the system. Waste, fraud and abuse are inherent
"in" the system. In allowing this counterproductive system to go on
and on as it is, ignoring the most fundamental laws of economics, we are
diverting financial and intellectual capital from other more productive uses.
This irrational structure is hurting the very people it is trying to help. As Sowell points out, "Efficiency is more than just
an abstract concept of economists and accountants. It directly translates into
the well-being of hundreds of millions of human beings."
[2]
Robert
Pear. Health Official Takes Parting Shot at ‘Waste’.
New York Times, 12/3/11.
http://www.nytimes.com/2011/12/04/health/policy/parting-shot-at-waste-by-key-obama-health-official.html
[3] Editorial. Medicare for All! The Nation,
6/20/11
http://www.thenation.com/article/161084/medicare-all
[4] Social Security
and Medicare Boards of Trustees. Status
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