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Medicare was born in 1966 when the war in Vietnam
was escalating relentlessly, costing the lives of more than 15,000 American
soldiers during the year. When the war threatened to divert funds from
President Johnson's "War on Poverty," the President stuck to his
contention that it was possible to have both guns and butter. The Vietnam War
drew to an end in 1973 when a cease-fire agreement was reached and American
troops were withdrawn. The war on poverty has dragged on ever since and
Medicare has grown manyfold.
In the footsteps of President Lyndon B. Johnson,
President George W. Bush now stands his ground that we may have both guns for
Iraq
and butter for his society. Last year, upon his urging, Congress added
another Federal entitlement program - the first major addition in a
generation - Medicare for prescription drugs. It does not begin until 2006
and then phases in over a number of years before becoming fully effective. And
on July 15 of this year, Health and Human Services Secretary Tommy Thompson
announced that Medicare's regulatory body sanctioned the treatment of obesity
as a disease, which Medicare regulations had heretofore denied. The new program
will allow Medicare henceforth to pay for obesity treatments including diet
pills, weight-loss activity, and "stomach stapling." It is likely
to become a popular and expensive staple of Medicare, given the ubiquity of
obesity throughout the United
States.
We may have our doubts about Congressional Budget
Office (CBO) estimates of present Social Security liabilities of $7.2
trillion and Medicare liabilities of $37.6 trillion. We may take exception to
other estimates of total unfunded liabilities amounting to some 6.5 percent
of gross domestic product and the prescription drug expansion increasing
long-term liabilities by one percent, and the obesity expansion probably
adding one to two percent. But it is indisputable that Medicare benefits
constitute costs that are borne primarily by taxpayers. They pay well over 80
percent of costs of hospitalization, extended care and home health services, physicians'services, and other essential medical services
and supplies for members 65 years of age and older.
A massive benefit system such as Medicare is a heavy
stress and strain system. Separating the beneficiaries from the bearers of
the costs, it is hated and loved. It is political war without end with many
victories and defeats. It is unlikely that future taxpayers will willingly
and promptly square the account. They will be loath to double and triple
Medicare levies in order to meet the benefit obligations. In all probability
they will want to imitate us and not only shift the inherited liabilities to
their offspring but also add some of their own.
Social Security and Medicare levies presently still
cover current expenditures. But the day is bound to come when benefit
expenditures will exceed tax revenues. The levies will have to be raised or
the U.S. Treasury will have to finance the deficits. It probably would add
these deficits to its own.
All along, the demand for Medicare services is bound
to accelerate with the array of services offered at bargain rates. In a free
and open medical market the supply would readily adjust to the rise in demand
by way of soaring prices. But it is scarcely conceivable that the legislators
and regulators who created the benefits and boosted the demand will allow
medical doctors, hospitals, and all other providers to boost their charges. They
will want to manage and hold back the costs by way of various price and fee
limitations and other regulatory constraints. But, as every student of
economics is fully aware, any price held below market levels is bound to
cause shortages. The size of the spread determines the severity of the
shortage.
A shortage of service may not be readily
discernible; it first makes its appearance as a
deterioration in the rendition and quality of service. Patients may
have to wait long hours for treatment as the ratio of doctors to the ever
rising patient demand declines. The average time doctors get to spend with
patients gradually declines. Shortages of nurses and other staff depress the
morale and strain the relationship between doctors and patients. Medicare
paperwork and bureaucracy waste time and effort, raise costs, and aggravate
the shortage. Legal costs may soar as doctors always run the risk of
violating countless Medicare rules and regulations. Appalled by the
conditions, many physicians seek early retirement.
The legislators and regulators who administer and
supervise the system will do everything in their power to withstand the
visible decline in service. They may confront the providers with growing
contentiousness and assertiveness; their rules and regulations may multiply. But
they may also support the industry with favors and
subsidies of many kinds. They may encourage and assist medical education and,
above all, encourage immigration of young doctors from poor countries. Immigration
of medical personnel promises a ready inexpensive solution to the decline. More
and more doctors speaking with foreign tongues and accents will take care of
the patients.
President Johnson's guns-and-butter policy led to
painful social and economic upheaval. Soaring budget deficits together with
Federal Reserve easy money introduced the unprecedented phenomenon of both
rising prices and rising unemployment. In August 1971 President Nixon finally
froze all prices, wages, and rents. He devalued the dollar in December 1971, further
in 1973, and again in 1974. Surely we cannot see what the future may bring,
but the lamp of experience may guide our steps. It casts dark shadows on
President Bush's guns-and-butter policy.
Dr Hans F. Sennholz
www.sennholz.com
Dr. Sennholz is President of
The Foundation for Economic Education, Irvington-on-Hudson, New York and a
consultant, author and lecturer of Austrian Economics.
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