* Medicare & the CHP
05 Aug 1994
There was a piece on MacNeil/Lehrer earlier this week about Medicare. It was
a report-in-the-field piece instead of a round table discussion. It listed
all of the benefits of Medicare and then finally got around to its faults.
And what were its faults? That it costs $200G/year (yes, billion, only
slightly less than the DOD)? That it squanders money on useless procedures
and simultaneously denies necessary procedures? That it encourages doctors
to commit fraud? No, the only listed faults were that some people did not
get all of the health care they wanted. And since Medicare works so well,
we obviously need the CHP!
The obvious question this completely fails to address is: at what cost?
There are lots of bad ways to waste money in the effort to dispense more
medical care than people really want (given some alternative use of the
money). As bad as Medicare is, the CHP would be much worse. Medicare, for
the most part, merely redistributes cash. The CHP would bring everyone in,
leaving no free market to keep the machine running; it would price fix
insurance rates, outlaw purchase of medical procedures privately, ration the
supply of doctors, ration test equipment, etc.
One of the claims about Medicare is that it has an overhead of only 4% (and
therefore the CHP would save money since insurance cost overheads run
5-10%). This is profoundly misleading. Medicare has low overhead because
it does nothing but write checks. Until recently ('86 or so), it simply
payed all submitted claims. The processing overhead is low, but the waste
and fraud overhead is high. Insurance company costs are in part high
because they don't pay for nonsense (and investigation takes money). In
part, they keep doctors honest. In part, they force consumers of medical
care to be cautious under the threat of not being covered for unnecessary
conditions. If the Medicare approach really had lower *net* overhead, an
insurance company would spring up that simply offered to pay all bills for
all procedures. That doesn't happen for the obvious reason. Real Medicare
overheads are higher than those of private insurance.
Reagan (or those in his cabinet who were awake) tried to fix this in various
ways. One approach was price fixing. That is, Medicare will only pay a
certain amount for a given procedure. This price is almost always less than
the real cost. The effect is that doctors either refuse to treat Medicare
patients or they perform unnecessary procedures in order to make back the
profit they lost by the price fixing. The government responded to the fraud
aspect by implementing DRG's. For a given diagnosis, only certain things
can be done. Obviously, this doesn't work either. The fraud just happens
via a bogus diagnosis. Also, people with serious complications cannot get
the care they need since the money for their DRG category has run out. This
latter problem is systemic to rationing systems. Providers refuse to treat
the sickest since it will bust their budgets sooner. I'm surprised the
government has not (yet) forced doctors to accept Medicare patients.
And, no, these previous two paragraphs are not in contradiction. Medicare
fails in both directions, it encourages consumers to consume an irrationally
large amount of health care (where they can get it) and it encourages
doctors to chisel on treatment where necessary.
If the CHP were only this bad, it would be a disaster as everyone were
brought under the system.
On a related note, there was a straight news piece in the 7/31 Chronicle
titled "In Oregon, rationing works". How was it they determined that
rationing worked? They found some people who got more care after the system
was expanded. Well, of course, the recipients of transfer payments always
like being given more money at someone else's expense. But, that's not a
measure of success.
A more interesting jab, particuarly from Mitchell, is that the people who
are opposed to health reform now are the same (ideologically) who were
opposed to social security and Medicare. His challenge is to find a
Republican who will state his/her opposition to those programs. Using two
huge failures to justify a monstrous third is obviously not a game that I'm
trapped by. But, it is a good trap for those in office. On the face of it,
they must embody a contradiction that $500G of socialism (FICA + Medicare)
is good and more of the same would be bad. The reality is much uglier: once
a particular group enjoys the largesse of exploitation, they are willing to
fight to the death politically to maintain their exploitation. When a
program is being proposed, it is not always obvious who will benefit and
opposition becomes conceivable. If the CHP ever comes to be, it will become
impossible to rid ourselves of it, no matter how obvious its failures.