Medicare’s Broke, and For-Profit Medicine is the Answer

Pink piggy bank smashed into several pieces reports that a new Medicare bill will increase net federal health care spending by $102.8 billion over the next decade, according to the Center for Medicaid Services (CMS). That includes a $210 billion gross spending increase on Medicare, countered by higher Medicare premiums in Parts B and D that will bring in $55 billion more and cuts to Part A.

Even so, the CMS actuary has charged that even with the billions in increased spending, the bill won’t be a permanent fix to the physician payment problem.

“We anticipate that physician payments rates under H.R. 2 would be lower than scheduled under the current SGR formula by 2048 and would continue to worsen thereafter,” the report concludes. ”Absent a change in the method or level of update by subsequent legislation, we expect access to Medicare-participating physicians to become a significant issue in the long term under H.R. 2.”

Basically, this means that Medicare is going broke. Either doctors will have to accept less money, or the budget deficit and/or taxes (payroll, income, other federal taxes) will have to go even higher. And actually, doctors and hospitals will get less money regardless. This at a time when the economy fails to grow as in the past, and could sputter at any time into yet another recession.

The basic problem is that the government is trying to act as a free market. But it cannot intelligently or rationally do so.

We keep looking for bureaucrats and politicians smart enough to solve the problem. There are plenty who are willing to claim they can, but they never do, because they cannot substitute for a marketplace.

In a marketplace, supply and demand help determine the course of events over time. As demand goes up, prices will go up, but more doctors will enter the picture and more hospitals/clinics will be built, thanks to the profit motive. This drives supply up and, correspondingly, prices down. That’s how it would work in a free market for medicine, if we had one.

Unfortunately, most people find a free market for medicine distasteful. They don’t feel that medicine should be about profit; it should be about medical care.

What a ridiculous idea. You don’t say, “The manufacture of houses shouldn’t be about profit; it should be about good houses.” Why not both?

By removing the “stench” of profit from medicine, we leave it to Congress and the Center for Medicare Services to try and mimic what a free market would do much more efficiently and responsively, as we have seen with computers, automobiles, air travel and even gasoline.

In a market, prices generally go up as demand increases. However, in a market there is a profit motive. Yes, profit is the thing we are taught to hate, particularly with medicine. But by restraining (and ultimately removing) the ability of doctors and hospitals to make profits, you alter the supply and demand ratio. This leaves Congress and other political entities holding the bag, trying to figure out how to meet ever-increasing demand at lower and lower costs.

This is more than mathematics and economics. This is very real, in a down-to-earth kind of way. Doctors and hospitals are increasingly dependent on a failing, bankrupt national health program. This is not in the interest of patients. You can blame politicians all you want; but the real problem here is that we have substituted politicians for the marketplace. It doesn’t work and it’s not right.

The central concern in Congress is saving Medicare money. But Medicare is inherently uneconomical, because it offers “free” care to all elderly, upon turning 65, as an entitlement. Unlike private insurance, Medicare recipients will be lining up for care regardless of whether they paid premiums all these years, or not. There was no market to determine what premiums should have been. There were only politicians under pressure to keep taxes low while promising the moon. That’s the difference between private insurance, which must answer to the marketplace, and a government-mandated entitlement, which poses as a Santa Claus for adults.

Government-mandated entitlements tell you, “You’ll get all the care you need, regardless.” What can be wrong with that? Of course it’s a popular idea. But everything costs something. And unlimited entitlements cost a hell of a lot more than something. The cost of all this “free” care are the budget deficits, reduced pay for doctors and the inability of the public programs to keep up with literally infinite demand, particularly as the American population ages and baby boomers are ready to cash in on the benefits.

The American desire for always-improving quality medical care is on a head-on collision course with the nature of socialized medicine, which Medicare always was. Something has to give.

The only conceivable solution is to open up the private marketplace to compete with and — ultimately — replace Medicare, which will surely be done by the time today’s 20-somethings reach 65, if not a whole lot sooner.

In fact, soon-to-retire beneficiaries will likely live into their 80s and 90s. How happy do you think they’ll be with the budget cuts and doctors payment cuts that will inevitably come for Medicare in that time? How willing can we expect the younger generations to be in coughing up billions more in taxes to pay for Medicare? Particularly when they almost certainly will never have socialized medicine in old age themselves?

We never should have curbed or outlawed profit in medicine. Profit is the engine of motivation as well as the natural, rational price controls that can only come about via supply and demand. Profit is our friend, and if we had stuck with a free market in medicine, we would not face the daunting challenges yet to come for Medicare.


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