The Critics of Medicare Were Right

(This one has footnotes)

The First Lady has dismissed health care opponents as ''the same people who opposed Medicare.'' But Medicare is lurching toward bankruptcy. Its opponents were right.

Let's go back to 1965, when Congress passed Medicare and Medicaid.

Most of the elderly already had health insurance. The poor were treated at city, county and charity hospitals. The right to emergency treatment, regardless of insurance, had been enacted under Eisenhower. Medical care was available to only slightly fewer people than now. But medical costs were less than half today's level - 5.9% of the economy.(1)

Since 1965, health costs have more than doubled, to 14% of GDP, and are projected to triple by the year 2000 (2). Government now pays over 43% of all medical costs (3) - and shifts billions more to private insurers. From a 1991 CBO report: Medicare was underpaying hospital average costs by 12%. Medicaid was underpaying hospitals by 12%., and paying doctors 31% less than Medicare rates. (4)

When government underpays, providers shift their costs to private insurers and cash customers.

Mrs. Clinton never mentions how Medicare shifts costs to private payers. Instead, she points to cost-shifting created by unpaid treatment for the poor. But doctor and hospital bills have always recovered the cost of unpaid treatment. (5). What's new is cost shifting by government.

From 1985 to 1989, unpaid hospital care grew slightly, from 5.5% to 6.0% of billing. But government underpayment shot from 0.6% to 5.0% (6) -- the same years private insurance premiums started skyrocketing.

Obviously, runaway private insurance costs are not caused by cost shifts from the uninsured poor. That shift has always existed, as a bad debt, and has remained fairly constant. Excessive medical cost inflation is caused by new and growing shifts from Medicare and Medicaid. Politicians have promised more than they can pay for with taxes. So they force private insurers to pick up the tab.

Eventually, you and I pay anyhow. One big difference: if Medicaid and Medicare were fully funded by taxes, we could all see government's failures. Shift the costs elsewhere, and private insurance looks like the villain.

CBO also reported that 25% of physicians refuse to see Medicaid patients. Other doctors are discouraged by hospitals from admitting Medicaid subscribers, thus forcing these patients into hospital emergency rooms.(7)

The first lady claims people use costly emergency rooms because they have no insurance. But under Medicaid, even many insured patients must use the ER. Then, because Medicaid refuses to pay emergency room prices (8), the difference is made up by private insurers.

Don't blame hospitals. The more Medicare and Medicaid patients they treat, the more they have to increase prices on everyone else. Then, some consumer group will accuse them of price gouging. And preferred provider plans will decertify them. The market hasn't failed. Government health care has failed.

Hospitals do compete on price. But their rewards and incentives are distorted by government cost shifts.

So far, we've considered only Medicare's hidden costs. They also hide taxes. You see some Medicare taxes on your pay sub, as part of the FICA deduction. What you don't see is the hefty subsidy to Medicare from general revenues - income taxes. In 1991, that subsidy was $37.6 billion - slightly over 8% of all personal income taxes. That's up sharply too, from 3% in 1980.(9)

There's more. Take the cost shifting from government health insurance. Add the subsidy from income tax revenues. Then throw in last year's Medicare tax hike. With all that, Medicare will still be broke in 6-8 years.

In 1965, we should have listened to the critics. In 1994, we still can.

The Clinton health plan, and even some Republican plans, share the same fallacy that's now bankrupting Medicare. They create a subsidized entitlement, for a large group of people, most of whom already have insurance. According to Martin Feldstein, former chairman of the Council of Economic Advisors, even a modest income-based subsidy would create a vast new welfare program for 50 million currently-insured Americans.

That's overkill. And it meets the President's favorite definition of insanity ... doing the same thing over and over, but expecting a different outcome.

(1)''The Government's Role in the Health Care Industry: Past, Present and Future,'' Economic Commentary published by the Cleveland Fed, 6/1/94, by Charles T. Carlstrom.
(2)Cited in #1. ''Projections of National Health Expenditures,'' CBO study, 10/92.
(3)Cited in #1, ''Trends in Health Spending, and Update,'' CBO study, 6/93.
(4)Cited in #1, ''Rising Health Care Costs: Causes, Implications and Strategies,'' CBO study, 4/91.
(5)See #1.
(6)Cited in #1, CBO study, 5/93.
(7)Cited in #1, CBO study, 4/91.
(8)NBC News Special, ''To Your Health,'' $17.00 Medicaid reimbursement for ''routine'' care in an ER.
(9)Raw data on subsidy vs. personal income taxes from Tables 510 and 591 in 1993 Statistical Abstract.

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