David Henderson, a Real Economist, lays out how much having the government run things sucks.
Some beneficiaries of Medicare, the federal government’s medical insurance system for the elderly, are finding that doctors are unwilling to accept them as patients. According to a study by Sandra L. Decker of the National Center for Health Statistics, in 2011, 17 percent of doctors would not accept new Medicare patients. The problem: Doctors cannot legally charge more for a service than the amount that Medicare pays, and Medicare often pays a low amount. That’s a classic recipe for a shortage of doctors.
Supply and demand, something that the government has heard of but treats as merely a rumor. Remember the bread lines in the Soviet Union? There was a reason for that.
The problem starts with the Center for Medicare and Medicaid Services (CMS), the federal agency that sets prices for the medical services of Medicare patients. CMS is really a giant central-planning agency. It sets hundreds of thousands of prices. What are the odds that it sets all the right prices? Zero. In fact, with central planning, an organization like CMS cannot ever know what the right price is.
But by God they’re going to set it.
An obvious solution to this problem is to have a free market in healthcare—with no Medicare. But since that is unlikely to happen soon, incremental changes can be made to move closer to a free market. Despite the socialized system of CMS, it’s possible to approximate free-market prices with “balance billing.” In its purest form, doctors would be able to charge whatever they want for their services, and patients would pay the difference between that price and the amount Medicare pays. Today, doctors who accept Medicare reimbursement are not allowed to charge anything more.
This makes a great deal of sense, and so the chances of it happening are close to zero.
As any health economist can tell you, one of the biggest problems with our healthcare system, one that existed even before ObamaCare, is that the majority of what people spend on healthcare is “other people’s money.” One reason we know so little about prices is that few of us actually pay the price of medical care. Instead, we pay nothing, a small co-payment, or a small percent of the price. The main thing I learned in my two years as the senior economist for health care policy with President Reagan’s Council of Economic Advisers is that health care costs so darn much because we pay so darn little for it. Why hesitate to say yes to a $500 test your doctor wants to order if you know that you will pay only $50 for it?
Welfare for sick people, essentially.
Economists of various political stripes point out that a price system, aka the free market, works best when potential buyers get to see the actual prices. But under Medicare, as with much of the rest of the U.S. healthcare system, patients often don’t get to see prices. Or, more exactly, given that health insurers, whether government or private, pay so much of a typical bill, patients don’t get to see the relevant prices. As a result, they spend much less carefully than if they were spending their own money. This problem is especially acute with Medicare, a system in which people are spending mainly taxpayers’ money.
In today’s America, the customer isn’t the patient, it’s the government or the insurance company. It’s like taking your dog to the vet; the dog has very little to say about what happens.