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Bad Medicine
by
Sheldon Richman,
November 2003 (Posted April 9, 2004)
It’s a good thing that President Bush is a conservative advocate of small government. Can you imagine what his Medicare-expansion proposal would be like if he favored big government?
At this writing and despite roadblocks, it appears Congress will pass a bill to enact a monumental expansion of Medicare, the government’s health-care program for retired people, and that President Bush will sign it. According to Sue Blevins, president of the Institute for Health Freedom, Medicare is already the largest buyer of medical services in the world. It will get much bigger — a lot bigger than President Bush and members of Congress predict.
The bill that the president will sign will enlarge Medicare to include coverage for prescription drugs. It will most likely effect that coverage by subsidizing retirees’ purchases of private prescription-drug policies (while staying in traditional Medicare) or by enrolling them in managed care, such as Preferred Provider Organizations. (The likely plan would limit the alternatives to traditional Medicare to three low bidders per region.)
Democrats and Republicans are on board, although some obviously see this as only the beginning. Sen. Edward M. Kennedy (D–Mass.), who supports the plan but who also supports full socialized medicine, says, “We’ll expand it over a period of time.” In Kennedy’s eyes, Bush and his fellow Republicans must be, in Lenin’s famously apt phrase, “useful idiots.”
Medicare expansion may sound like an innocuous proposal. Surely in a rich country such as the United States we can afford it, right? But it’s not so simple. For one thing, any such plan requires some people to be forced to subsidize others. That’s a mark against it right from the start. Congressman Bill Thomas (R–Calif.) says the objective of the legislation is to “provide access to affordable prescription drugs.” “Provide access” can only mean that money will be taken from one group to pay for other people’s drugs. How else can government “provide access”? It’s not as if politicians spend their own money. (How many of them, I wonder, personally help the low-income elderly to buy prescription drugs? The drug companies, on their own, give away or heavily discount drugs to low-income people. That doesn’t get much publicity from the drug-company bashers.)
Aside from the “legal plunder,” as Bastiat would call it, involved in such compulsion, what if the real price of the Medicare plan is the crippling of each individual’s medical freedom and the destruction of the pharmaceutical industry, which has provided myriad life-saving drugs that often obviate more costly surgery and hospital services? That is what’s really at stake.
This is no exaggeration. Regardless of how the government provides the coverage, a bureaucracy will gain the power to set the terms for the sale of medicine. When insurance companies and managed-care organizations are dependent on government checks, government officials can take charge.
We already have an indication of what kind of burdens to expect. In 1997 Congress passed a rule to penalize doctors who accept private payment for services covered by Medicare. If a retiree wishes to pay with his own money and keep the matter out of the government’s records, the doctor can comply — but only if he stops seeing Medicare patients for two years.
Why was this obviously crazy rule passed? No doubt the authors would say it was to prevent fraud. But anyone who gives this a moment’s thought will see that fraud can be discouraged without taking away people’s freedom to engage in such an innocent activity as buying medical services outside the view of the state. One gets the eerie feeling that the politicians and bureaucrats don’t want people to do that.
The fruits of reform
It is a sure bet that when Medicare is expanded, participants will not be able to buy prescription drugs out of their own pockets without penalty to their doctors or pharmacists. More freedom will bite the dust.
Another result will be the withdrawal of retirees’ drug coverage through their employer retirement programs. There are already indications that this will happen. Why would companies want to pay for this retirement benefit if the government will make the taxpayers do it instead?
This is just the beginning of the malignant consequences. Since the elderly vote in large numbers, the political dynamic will favor keeping the cost of the program to them artificially low. This will stimulate demand because the closer a price is to zero, the more of a product will be consumed. Medicine is no different. Congress has given itself a $400 billion 10-year cost limit for drug coverage, and we all know how serious Congress’s self-imposed limits are.
But that will turn out to be dramatically below actual costs, just as Medicare’s original estimates were way off. (As Blevins notes, the first projection of the 1990 cost of Part A hospital coverage was $9 billion. The actual cost was $66 billion.) When the price of the program eventually goes through the ceiling, we’ll see a host of restrictions on what drugs the elderly can buy. A program touted as liberating will end up constraining. Freedom to choose one’s treatment will be further restricted.
If the elderly won’t be paying the full cost, someone else will have to. That’s the current generation of workers. Raising the payroll tax (that is, the tax on labor) will reduce living standards and discourage hiring. It will be little consolation that when the affected workers retire the next generation of workers will be similarly punished.
Medical price controls
If hiking the payroll tax isn’t enough, the government can always put price ceilings on drugs and drug coverage. There is no more efficient way to destroy productive activity than by imposing price controls. They have already been used to contain the Medicare budget. Predictably, doctors are retiring early or closing their practices to Medicare patients. (These price controls raise prices to non-Medicare patients — a double whammy: high payroll taxes and costlier care.)
When government holds drug prices below the market-clearing level, shortages will result and the nominally private providers of coverage, unable to make a profit, will leave the market. (Hear Kennedy’s voice: “The private sector has failed!”)
What’s more, the development of new drugs will be stultified. It takes hundreds of millions of dollars to bring a new drug to the market. No one will make that investment without the prospect of an attractive return. If prices are controlled for Medicare participants through ceilings on insurance premiums and managed-care fees, pharmaceutical companies may try to recoup their losses by raising prices for non-Medicare patients.
Obviously, the interference with the drug market will harm the American people, but it will help those who want the government to take over all medical care. The medical “reforms” of the past few decades have been setting the stage for the socialization of medicine. Each time a regulation failed to make things better, another was passed, with private enterprise taking the blame. When it’s clear that no one is satisfied with this effort to provide drug coverage, the advocates of socialized medicine will demonize the pharmaceutical and insurance companies and declare that it’s time to turn everything over to benevolent government. That will be the final knell for medical freedom in the United States. (Where will the Canadians go to escape their socialized system?)
While all this bogus reform is going on, the legitimate ways to bring down the cost of medicine go neglected. From the way people talk, you’d think the current problems stem from an existing free market, but nothing could be more wrong. There’s been no free market in medicine for many years. Dubious patent laws interfere with competition. The Food and Drug Administration grossly raises the cost of developing new medicines. And government control through licensing and prescriptions cartelize the entire medical profession. If the reformers were really interested in lowering medical costs for retired people and everyone else, they’d be addressing those issues instead of paving the road to medical serfdom.
Sheldon Richman is senior fellow at The Future of Freedom Foundation, author of Tethered Citizens: Time to Repeal the Welfare State, and editor of Ideas on Liberty magazine. Send him email.
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