All Commentary
Monday, April 1, 1991

Medicare: Prescription for a Fool’s Paradise

Salvatore Durante is a dentist in private practice in Brooklyn, New York. He has published several articles on the hazards of government intervention in dentistry, and recently became editor of GP – The Journal of the New York State Academy of General Dentistry. His wife, Dianne Durante, is a freelance researcher.

Suppose I promise you health care like you’ve never had before. When you visit a doctor or a hospital, all you’ll have to do is show a card, and someone else will foot the bill. You’ll never have to fill out another insurance form or wait for another reimbursement to come in. And, I promise, you’ll get the same quality of care you get now, and won’t have to pay more taxes for it.

Would you vote for me? Most people would: Would you get what I promised? No, because it’s impossible to deliver. This is the promise of those who advocate “national health care” or “universal health insurance” (on either the state or national level). In either case, what is involved is extensive or complete government control of health care: control of who pays for services, who provides them, and who receives them.

We have, before our eyes, an example of a very similar system that has been operating now for 26 years: Medicare. This article aims to demonstrate, by a detailed look at Medicare, that such government interference in health care is harmful from the first to buyers and providers of health care, and in the long run is disastrous. Government medicine, on the national or the state level, is a prescription for a fool’s paradise.

To understand the economic principles involved in government intervention in medicine, let us look at something less emotionally charged than medicine. Hats, for instance.

Basic Economic Lessons

Let’s say we all agree that hats are worth having, or even a necessity, and that all Americans have a right to them. We pass a law stating that the government will pay for everyone’s hats, through taxpayer dollars. What happens? First of all, hat sales skyrocket. I’m not particularly fond of hats, but if I can get them for free or below cost, why not?

Lesson One: there is no limit to demand, if those who get the product or use it are not paying, directly or in some way they can see. This is unavoidable. The freeloaders will try to get all they can, and most of the rest of us will want something to show for our tax dollars.

If such a law passed, most hatmakers would be delirious with joy. Everyone wants hats! They expand their shops and produce as many hats as they can. What happens next? The average price of hats shoots through the roof. Why?

There are two reasons. First, of the hats now being sold, the more expensive ones—the ones only a few people could afford before—will now be in much greater demand, since the individual hat-buyer no longer has to pay from his own, limited resources, if the latest style is a platinum-plated beret, anyone who wants one will now get it.

The other reason for the rising prices is competition: specifically, lack of it. New products, such as the first camcorders or the first compact disc players, are usually expensive. Prices drop because more people want to make money from a product: they try to come up with cheaper and more efficient ways of producing it, so they can sell the product more cheaply and grab some of the market. Our unlimited government funding of hats has completely cut out the need for competition. Any hatmaker can stay in the business, no matter how high his prices.

Lesson Two: prices will skyrocket if there’s no limit to how much people can spend on a product. If anyone who wants the product can buy it, price no object, there is absolutely no reason for the manufacturer to try to cut his prices, and no reason for the buyer to control how much he spends.

The government, and only the government, can give people virtually unlimited amounts to spend on a product. In short, it is not the greed of the manufacturer or the consumer, but the mere fact of the government funding of hats that is making hat prices exorbitant.

Next step: the government, and hence the taxpayers, are faced with enormous hat bills. Mrs. Smith may have confined herself to one hat, but Mr. Jones wanted five, and Mrs. Imelda wanted 52 Paris originals. The government knows it can’t continually raise taxes to pay for hats. Assuming it wants to keep the hat program intact, it has two choices: restrict the number of hats any one person can buy, or restrict the price of hats. In political jargon, that means rationing or price controls.

From a politician’s point of view, setting limits on the price of hats is the obvious way to go. There are fewer hatmakers who vote than there are hat wearers, and it’s easy enough to paint the hatmak-ers as greedy exploiters of the hatless. So a new law is passed: no hats may be sold for more than $15, even if the buyer is willing to use his own money. The immediate result will be that the best quality, most expensive hats become unavailable. No more Paris originals.

Lesson Three: you can’t make a silk purse out of a sow’s ear. Good materials and good workmanship cost money. Yes, competition among manufacturers in a free market will cut prices in the long run. However, legislating a lower price for a product is not a shortcut to cheapness. It merely makes those who were selling more expensive goods go bankrupt, before anyone has time to work on price reduction.

We could try some complicated and devious maneuvers to lessen the effect of price controls. For instance, we could slap a $5 tax on shoes and use the money for the hat program. Then we could have a maximum hat price of $15, but still pay the hatmakers $20 per hat. That would mean, of course, that some poorer people wouldn’t be able to afford shoes, and the government would end up subsidizing shoes, too. Even so, price controls on hats will have to be instituted in some form, because demand is so high. Remember that it is government spending for hats that made the demand and the prices so high in the first place: nothing except removal of the government’s money will get the situation back under control. But let’s keep trying.

We’ve now legislated a maximum price for hats. Nevertheless, Mrs. Imelda has bought another 35 hats, and the rest of us are still trying to get our taxes’ worth of hats. Not surprisingly, the amount that taxpayers are shelling out for hats hasn’t significantly decreased, despite our price controls. The next step? Well, of course, restrict the number of hats each person can buy: ration them.

Now what happens? A lot of hatmakers go out of business. They can’t sell hats for more than the maximum price, and they can’t make up for the loss in income through selling more hats. Bureaucrats demand forms in triplicate and slap fines on them at every turn. The best hatmakers soon leave the field in disgust. We are now facing a decreasing supply of hats, if not an actual shortage, because there are far fewer manufacturers.

But hats are a necessity, aren’t they? So we will have to pass a law forcing hatmakers to remain in business, whether they can make a profit or not. However, even a government order can’t make a business run for long at a deficit, whether it’s a hat-maker or a child’s lemonade stand or a bank. The hatmakers will go out of business, one by one.

The government will have to step in and make hats. Given the quality of most government products, you can imagine what kind of hats we’ll get. And given the efficiency of most government manufacturing operations, we won’t be surprised if we’re told we can each have one hat, in our choice of four styles, every other year.

What began as a seemingly praiseworthy law—to provide all Americans with hats—has ended up driving the hatmakers we know and trust out of business, and given us government-produced hats of considerably inferior quality and very limited numbers. This result is absolute, inevitable, and non-negotiable: none of the economic rules above can be avoided, and they can only be temporarily circumvented by allowing the government to interfere in yet more private business.

Lesson Four: what the government pays for, the government has to control. Government funding of hats led to government control of hat prices, hatmakers, and finally everyone who is even remotely connected to hats. The only cure would be to end government funding of hats.

Back to Health Care

Comparing hats to medicine may seem even less appropriate than comparing apples to oranges, but the same economic principles apply, and precisely the same developments can be seen in the 26-year history of Medicare.

In 1965 the government passed Medicare legislation, providing basic medical services to the nation’s retirees. Physicians and hospital administrators were delighted. They built new hospitals and enlarged old ones. They began providing the medical equivalent of the best Parisian hats to all comers. Why not? The government encouraged physicians by asking them just to send the bill to the American taxpayer. Patients, as well as physi cians, no longer had to consider costs. Everyone simply demanded “the best”—price no object. Medical expenditures in the United States were 4.3 percent of GNP in 1952; by 1982 they exceeded 10 percent, and were still rising. In the same period the government’s share of these expenses nearly doubled, from 22 percent to over 40 percent. Here is Lesson One in action: with the government footing the bill for a substantial number of those receiving medical care, there was suddenly an enormous demand for medical services.

At the same time, prices for medical care soared. The legislation deliberately removed any incentive to keep prices low: in fact, removing concern about costs was the point of the program. Many of us can remember that prior to 1965 a few days in the hospital did not threaten to bankrupt the average middle class family. Today, many find the cost of a hospital stay prohibitive, because the rise in medical costs has far outpaced the general inflation rate.

Why? Because of Lesson Two. Prices skyrocketed precisely because the government was providing unlimited funds for medical care. Consumers demanded the most expensive treatment, and medical facilities didn’t have to keep prices low to maintain a competitive edge.

By 1983, Medicare threatened to bankrupt the entire Social Security system. It was clear that something drastic had to be done to control runaway costs. Taxes were raised, of course, but this was not enough. Like the manufacturers in the hat illustration, health-care professionals were (and continue to be) denounced as the greedy culprits who had to be controlled; price controls were slapped on hospitals and doctors. Under this system, called Diagnosis Related Groups, all hospital admissions of Medicare patients are classed in one of 486 categories, and the hospital receives a set fee for the patient, regardless of his length of stay or the amount of care provided. When it was pointed out that this might lead to inadequate treatment and early discharges (“quicker and sick-er” releases), the government responded by imposing further complicated regulations.

The federal government has also set a limit on what doctors can charge patients over the age of 65, and some states now refuse to license doctors who don’t accept the Medicare fee as full payment. Just to receive the government-approved payment, doctors must comply with a bewildering, and sometimes contradictory, array of regulations from several different agencies. The process a doctor is required to go through to obtain payment from Medicare makes filing your tax return look like simple arithmetic, and your doctor does it many times per day, not once a year. Also, a simple error in filing that would result in no monetary gain for him, such as using an incorrect code for a diagnosis, can mean no payment at all on the claim, plus a fine of thousands of dollars.

Not surprisingly, doctors are leaving the profession and the number and quality of medical school applicants are falling. In 1974 there were nearly three applicants for every opening in medical school; by 1986 there were fewer than two. What bright young college graduate would want to get involved with such a mess?

Lesson Three comes into play: you can’t make a silk purse out of a sow’s ear. In this case, you can’t get top-notch, dedicated individuals to enter and remain in the medical profession while controlling their activities and their earnings, and calling them greedy exploiters to boot.

And guess what? Costs are still rising uncontrollably, despite stringent controls on medical expenditures. (Given the fact that it was government funding that made prices skyrocket, and that the government is still funding medical care, the continually rising prices should come as no surprise.) The government is now considering more drastic measures, such as rationing and “universal insurance.” Massachusetts has already adopted such a plan, which led to the exodus of doctors from that state and contributed to its recent financial collapse and tax increase. Similar plans are under consideration in many other states, and even more appalling “solutions” have been proposed. The director of the Hastings Center, a bioethical think tank in Briarcliff Manor, New York, recently recommended that, by law, no one past age 80 or 85 be given access to aggressive life-saving equipment and medication. A medical economist from Tufts University has suggested legally banning all new technology: since not everyone can afford it, no one should have it.

Here, as expected, is Lesson Four: what the government pays for, the government must control. In the very near future, if a physician tells you that your life could be improved with bypass surgery or a hip replacement, you will have to petition the government and take a number. Perhaps your petition will be approved, once all the appropriate government bureaucrats have debated its merits. Perhaps it won’t.

Likewise, every aspect of a physician’s practice will have to be dictated and controlled: most of them are already. He’ll be told whom he can treat, and how, and what payment he’ll receive. His livelihood and his freedom will be in the hands of the same bureaucrats who hold your life and health.

What About Rights?

The final step in the process outlined above brings us to the most important reason that the Medicare and Medicaid programs should not be expanded or imitated, but must be scrapped. In the United States, we recognize certain basic rights: life, liberty, the pursuit of happiness. When those words were written, it was understood that those • were the fights to your own life, your own liberty, and the pursuit of your own happiness.

The “right” to hats or to medical care is fundamentally different from these basic rights. Such a “right” depends on the efforts of others, those who make the hats or study medicine. If we declare that citizens have a right to hats or to medical care, we are declaring that the hatmakers or the doctors are obliged to provide it, no matter what the cost, somehow, and that if they don’t do so willingly, the government will force them to do it.

Although your own life is of enormous value, you can’t use that fact to justify taking someone else’s life, unless he threatens to kill you first. “But the Medicare laws don’t kill doctors,” you say. “They just tell doctors what to do and take away some of what they earn.”

If you locked up a dachshund, forced it to obey contradictory commands, and fed it at unpredictable times and in continually decreasing amounts, you’d have a mob of government officials and animal rights activists at your door. Killing the dog quickly, they’d say, would be kinder than this long-drawn-out torture. The same treatment has been applied to doctors for many years now, and few voices have been raised in their defense.

When you take away a man’s right to think, to act for himself, and to keep what he earns from that action, you make him at best a slave dependent on your goodwill, and at worst a corpse. Thinking for oneself, acting on those thoughts, and keeping the fruits of one’s effort are what allow one to live, whether one is a physician, a teacher, a garage mechanic, or a stockbroker.

One hundred twenty-six years ago we finished fighting a bloody civil war to make slavery illegal throughout the United States. Twenty-six years ago, with the passage of Medicare legislation, we sanctioned it again—not on the basis of race, but on the basis of the dedication and skill and intelligence it takes to become a medical professional.

It is still slavery. It is still immoral. And that is why the Medicare system and all such government programs that interfere with the free market in medicine must be dismantled: not merely because they do not work, but because they require that the men and women who literally save our lives be made into slaves.

The same is true of any government-funded program of medicine, whether based on the Canadian or British or Swedish or Soviet model. Government funding of medicine ultimately results in the enslavement of doctors, and is therefore immoral.

Perhaps you are thinking that violating your doctor’s rights is acceptable, in return for assuring that you and the rest of his patients are able to afford medical care. Think again. What you’ll be getting if you violate his rights is not care from the type of doctor you know and trust. The traditional kind of doctor, who went into medicine for the challenge of using his mind and working independently, will find it impossible to work under such a system, and will gradually disappear.

When the government controls health care, it will attract a new breed of doctor: the kind who is content to work 9 to 5 for a fixed salary, following all the rules in a government code, and is more than happy to let bureaucrats instead of his patients tell him what he~ doing right and wrong. If I must undergo surgery, I want it to be at the hands of someone who can observe the facts of my case and is not afraid to make his own judgment and take action on it—and who will answer to me if he makes an error, not cite his compliance with section 1052, paragraph 13 in some government manual.

Government control of medicine means, in short, that the bureaucrats will be telling you what services you are allowed to have, and when. If what you want is the best care for the most people, any government-funded medical program is impractical as well as immoral.

The Market Holds the Solution

The only way to assure the highest quality of medical care is to return to the free market. You can have choice only if you are willing to take the responsibility of paying for it. For most of your working life, you have probably been covered by a private insurance company. It worked. In fact, it worked incomparably well until the government’s intervention in the health-care market caused prices to shoot through the roof. If health-care providers have to compete for our business again, the prices will go down, precisely as they do for new electronic gadgets.

Today no private insurance company will cover anyone over 65, except as a wrap-around policy for Medicare. Let the private insurance companies get back into the business. Let families and individuals save for their own medical care, if they wish, by reducing the burden of taxation. Let each of us take back into his own hands how much he spends on medical care, when he spends it, and what he gets for it.

What about those who cannot afford even minimal health insurance? There are many, many physicians and hospitals who provide medical care for free. They don’t brag about it, and they are usually ignored when the surveyors collect statistics on the uninsured. Yes, it does mean that the poor would have to ask for charity, rather than receiving care as a matter of “right.” Yes, that would be embarrassing: asking for something in return for nothing usually is. But enslaving doctors and putting the health care of all citizens under the control of government bureaucrats is simply too high a price to pay for avoiding embarrassment.

Today’s most serious health problem is government intervention in the health-care system. Because the government’s spending has driven prices up, we are forced to make do with less care. Because of the controls the government has imposed, we are losing the best minds in the field. The only cure is to return to the system that made American health care the envy of the world: a free market, completely exempt from government intervention.