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Medical expenses are rising faster than the costs of
any other service. They are climbing at rates that exceed not only those of
inflation and dollar depreciation but even the Federal government itself. In
fact, they are consuming an ever larger share of personal and national
incomes. Some 40 years ago American medical spending was estimated at 5
percent of national income; today it is calculated at some 16.5 percent and
rising continually. Several reform proposals in Congress would boost the
share ever higher.
Many observers offer lucid explanations of the
medical- spending explosion. Some are convinced that the present generation
of Americans, which enjoys a level of income and living standard higher than
that of its forebears, is more mindful of health and wholesome living and,
therefore, is spending a larger share of income on health care. But critics
prefer to point to the ever growing number of Americans who are overweight or
even obese, which may breed physical disorders and afflictions and finally
acquire medical attention. Other observers hold the endless stream of medical
innovations responsible for rapidly rising health-care costs, such as new
drugs and delicate tools for microsurgery. They lay most of the expense
explosion at the feet of technology. But these writers never explain why new
drugs and new tools should raise medical costs threefold and consume an ever
larger share of national income. Technical innovations usually lower the
costs of production.
A few writers believe that the primary reason for
rapidly rising costs of health care is a massive expansion of medical
insurance which foots doctors and hospital bills. They like to use an
inordinate terminology that diverts the reader from the actual causes. They
broaden the concept of insurance to encompass Medicare and Medicaid, which
are government programs providing medical care for the aged and needy, and
then hint at insurance as the driving cost factor. In reality, the number of
Americans with health insurance actually is declining; rising health-care
costs and a declining number of employer-sponsored benefits are steadily
reducing the number of insured Americans. At the present, some 47 million
Americans are bereft of any coverage.
Few observers dare to state that spiraling
health-care costs are the inevitable consequence of a 1965 Social Security
amendment molding Medicare and Medicaid. It
provided a basic welfare program that covers most persons aged 65 and older
as well as all needy individuals. Soon after its passage some four million
patients rushed to seek treatment and some 18 million Americans registered to
have 80 percent of doctor and surgeon bills paid by the new system. By now,
in 2006, Medicare provides health benefits for 41 million elderly and
disabled persons, and Medicaid, a joint federal-state program, serves some 50
million poor beneficiaries. It is the fastest-growing item in most state
budgets and accounts for some 20 percent of total state spending.
The program undoubtedly has saved lives as it has
enabled elderly and poor people to receive medical treatment they were not
able to afford on their own. It has raised the quality of living for many.
But its sponsors completely ignore some undesirable consequences such as the
soaring costs and the rising number of people who therefore choose to forego
any health insurance coverage. Surely, it has saved some lives but also may
have cost some. It has doubled, tripled, and quadrupled many phases of the
health-care industry but also kept other service industries smaller than they
would have been in a free service economy. It has helped administrators of
hospitals and extended-care facilities to embark upon substantial expansion
and has stimulated development of many home-care services. But there cannot
be any doubt that the massive injection of political funds and the growing
role of legislators and regulators have radically changed the very nature and
structure of the health-care industry.
Medicare and Medicaid are political handiwork forged
by legislators and regulators, fashioned by politicians who recast it in
every national election. It is a very popular political issue passed and
argued about without ever being settled. Politicians representing the
beneficiaries are demanding ever more outlays, others speaking and acting for
the people who are forced to cover the deficits are opposing the charges. Facing
ever rising costs, some want to reduce the cost-of-living increases in
benefits, others plan to increase the wages subject to payroll taxation. In
2005 the benefit-politicians raised the maximum earnings subject to Social
Security tax exactions to $ 90,000 with the tax rate at 12.4 percent, borne
equally by employer and employee. In 2006 they raised the maximum to $94,200;
in coming years they will boost it to $100,000 and more.
Medicare and Medicaid stand in the center of attention in every national election as both
parties may seek to outbid each other in promising more benefits. In 2003
Congress was persuaded to add prescription drug coverage to Medicare,
starting in 2006. Most of its costs, estimated at some $700 billion over the
next 10 years, are to be paid by taxpayers. But soaring costs are the least
portentous consequences of the transformation of the health-care industry. This
academic observer is dismayed and disheartened by the role played by politics
in such an important industry.
In a free and unhampered economy businessmen always
seek to adjust their production to anticipated consumer demand; the wishes
and choices of consumers are paramount. When government takes special
interest in an industry, political judgments and motives take preference to
the people's choices. When government on all its levels enters health care,
the industry has to adjust to every dollar spent and every order given. Surely,
there are pains of readjustment but no particular economic crises. People
readily accommodate. While they are not free to choose in the market place,
they may plead and supplicate in the halls of politics. Some courageous
observers may even point to needless expenditures and waste as every
health-care administrator may want to expand and improve his facilities. After
all, they no longer are limited by market orders but only by political
considerations and favors.
Politics is likely to shape the future of medical
care as far as the eye can see. It builds upon popular political ideas, on
old habits and predispositions, even resentment and envy. It inflicts
pain without end.
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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