Q&A: What’s up with Medicare?

John R. Graham knows economics and health care. He’s director of Health Care Studies at the Pacific Research Institute and serves with several other public policy organizations. He also writes for a number of blogs on health care economics, aggregated at Free American Health Care. Samaritan decided he was a natural go-to guy to get some clarity about the current Medicare debate.

Q: Could you summarize for us the basic issues currently being debated about Medicare?

John Graham: There is not one problem with Medicare, but at least three.

First, the hospitalization part of Medicare, which is financed by payroll taxes, is a Ponzi scheme. Instead of allowing people to save for our health needs when we are older, the government takes money from working-age people and transfers it to retired people. Because people are living longer and having fewer children, fewer working people are financing more retired people and this causes the fiscal crisis in the so-called hospital “trust fund” (which is not a trust fund at all because it is all lent out to other government agencies, like the Navy).

Second, reimbursement for medical and hospital services is determined by the central government. For example, the government determines relative values for every medical procedure and uses them to assign prices to each one. This is absolutely Soviet-style central planning.

Third, because it is run by the federal government, Medicare rules interfere with states’ regulation of health care, which has traditionally been within their area of competence. I refer to things like licensing physicians and the construction of hospitals.

Mix these things together and you get a real mess. Already, Medicare patients across the country have reported difficulty getting appointments. Politicians, both Democrats and Republican, have said that nothing will change for Medicare beneficiaries who are already subject to the program. However, this is beyond the power of politicians to control. They can set fees and regulations, but they cannot predict how doctors and other providers respond to these actions. And they are responding with increasing frustration and disengagement.

Q: What, in your opinion, would be the best way to approach the problem?

John Graham: There is no perfect solution, but the best way to approach the problem is by overcoming people’s fear of change.

For example, there’s Paul Ryan’s proposal, which transforms Medicare for people who are under 55 years of age today. Politics will always demand a transfer of money from people of working age to retired people (because the latter are more committed voters) but by supporting seniors’ premiums for private insurance, the government exits the price-fixing business.

However, Ryan’s plan is still problematic because it leaves the federal government in charge of the regulatory apparatus, and does not clearly respect the wishes of seniors who would prefer not to buy private health insurance but spend money out of pocket or rely on noninsurance methods of sharing health costs, such as conducted by your members.

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