How Should Medicare Pay for Medical Care?

There are basically five possibilities. To compare them, let:

S = each unit of service, or a package of services

P = the price of each unit of service, or the price of a package of services

Then the government can:

  1. Dictate every service it will pay for and the price it will pay for each of them (fix S and P), leaving providers to compete only on amenities, including waiting times.
  2. Dictate S, but leave providers free to compete on P, say, through a system of competitive bidding.
  3. Dictate P, but leave providers free to compete on what S they will provide for that price.
  4. Initially fix S and P, but leave providers free to opt out, substituting different bundles of S & P as long as government’s cost goes down and quality of care goes up.
  5. Initially fix S and P, but allow patients to opt out, managing a portion of the funds directly and making their own purchasing decisions.

Alert readers will recognize (4) and (5) as NCPA solutions, (3) as the Rivlin-Ryan plan, and (1) as the status quo. But I’m getting ahead of the story.

Under the current system (Method 1), Medicare establishes a list of about 7,500 physician tasks it will pay, and sets the price for each of them. These prices differ, however, for every city, town, and hamlet in the land. So that in fact there are millions of prices that Medicare is administering every day.

One important drawback of this system is that it’s in no one’s interest to curtail spending. Every provider maximizes profit and every patient maximizes utility by exploiting the reimbursement formulas.

Method 2 essentially describes what we do under the Medicare Advantage plan program. Technically, the government requires private plans (mainly HMOs) to provide a basic set of benefits and offers a risk-adjusted (varied by expected health costs) premium for each enrollee. Plans offer additional benefits, however, amounting to Medicare, Medigap and Part D coverage all rolled into one. They are also free to vary the additional premium paid by the enrollee. In this way, they are competing for patients, at the margin, based on price.

Method 3 is the voucher idea proposed by Rep. Paul Ryan (R-WI) and former CBO Director Alice Rivlin. Yet it’s not as radical as some would have you believe. It was previously proposed by a Medicare reform commission established during the Clinton administration. Basically, Medicare would offer a risk-adjusted premium payment (just as it does under Medicare Advantage) but the plans would be free to repackage the benefits they offer for that premium. They would compete to offer the most attractive S, for the P government is paying.

Method 4 is the NCPA idea of allowing providers to repackage and reprice their services, the way providers do in a normal market. This method has the advantage of allowing doctors, hospitals and other supply-side entities to profit every time they discover ways to eliminate waste and inefficiency.

Attempting to get a government agency to accept new contract terms is always going to be a poor substitute for catering to consumer needs in a market place, however. That’s why Method 5 needs to be combined with Method 4 whenever possible. If seniors agree to pay for all primary care in return for a Medicare deposit to a health savings account, for example, the entire primary care sector could be revolutionized in a short amount of time.

Comments (56)

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  1. Vicki says:

    Nice parsing of the lay of the land.

  2. Devon Herrick says:

    There has been some talk of allowing balanced billing in Medicare to reduce the shortage of physicians willing to treat Medicaid patients. It would be even better to allow seniors to control all the funds used to pay for primary care since balanced billing by itself would distort the price of medical services somewhat.

  3. Ken says:

    Method 1 (the way we do it now) seems like the worst way.

  4. Simon says:

    Determining the right mixture of government production and provision for any good or service has been the $64,000 question for the past 100 years. In health care, plans 4 and 5 are a novel step for enabling patients to dictate what goods and services they want/require. It will be imperative that information transparency between the patient and the provider is maximized to receive the most benefit.

  5. Tom H. says:

    Ryan approach is clearly the best.

  6. Marx or Smith? John, you have tied our medical market problems to private property rights. It is clear that if either providers or customers loose their property rights so will the others. Nations and systems fail to the degree they are not free and private.

  7. Fran Kelleher says:

    How do you factor in the Medicare beneficiaries who have decreased capacity? The most expensive (duals) are often institutionalized and these are the least able to act as “consumers”. I am watching my parents who still live at home in their early 80s become less able to make rational decisions, especially in crisis points, while not yet to the point that one of us kids has to take over as their agent under power of attorney. Dad in particular is rational & able to communicate one day, while confused or unable to speak well on other days. This is not a population where “consumer choice” is best suited as a mode of distribution of services.

  8. I would add physicians organized in such a manner to decide, “Within the bounds of good medical practice.”
    So as to have every generation pay for its own benefits, have HSAs begin at an early age as a tax credit and accumulate tax free throughout life. Upon death can be passed on, but taxed.

  9. Fran,
    True! True! I am getting old as well. But whatever arrangements we make for the marginal cases dare not spoil the whole system for everybody. In software development we “fork” into two different paths in this situation. Perhaps there should be a fork between those who are able and those who are unable to make practical decisions. But the special cases cannot dictate the conditions for all cases. And a healthy health care market will absorb problems like these with less pain than a broken market which does not serve the incapacitated well either.

  10. Fran Kelleher says:

    Thanks Charles. Part of what I would like to convey is that the Medicare population, versus employed persons, are far more likely to be in the “not able to decide” and thus forcing consumerism on Medicare is less likely to be a good way to go. Also, my experience is showing that people don’t fall totally into either “can decide” or “can’t decide” . My family elders have spent a lot of time (years!) in gray zones where there capacity to make decisions waxes & wanes. They resent having others of us even in the family make decisions when they are able to, yet clearly need LOTS of help on other days. Reality is much messier than theory here.

  11. Frank Timmins says:

    Fran, I don’t think this is about who is “able” to make decisions on price or service. If a person reaches a point of needing help with “rational” decisions that person can still get it from relatives or other parties. In the present Medicare system is this problem dealt with in a way that is superior to what John Goodman suggests?

    You accurately remind us of one of the problems of aging, but should we seek solutions that penalize those elderly who can make their own decisions. Mentally disabled people need advocates working in their interests regardless of the financial model being used for health care.

  12. Pete Pettersen says:

    Fran & Charles, I am one of those seniors (aged 72) and work full time educating and marketing Medicare products to people eligible for Medicare (obviously).
    I am working with people on disability at age about 54 and seniors who line dance and take one generic pill at age 92. As an insurance agent, education is so critical for people of all ages. The unfortunate thing is that CMS has decided that all people on Medicare are to enroll when eligible and then during a 6-week period at the end of each calendar year. That puts about 47 million people all having to make decisions during Thanksgiving and in the past over Christmas holidays.

    I agree that some seniors need special assistance just as do millions of under age 65 people. Why do we force all seniors to get help during a 6-week period?


  13. Fran Kelleher says:

    Frank and Pete,
    Frank, I agree that those who CAN should make their own decisons — and I am a big fan of HSAs for them. In my Ph.D. dissertation I came down on the side of HSAs WITH gov’t paying into them for those that are disabled / extreme poverty who can’t. The point I was trying to make is what Pete aludes to: even HSAs and a competitive market place — which are best for most — aren’t right for everyone! I think we make a mistake and set ourselves up for easy criticism when we make blanket statements that imply they are. To be taken seriously we should recognize that we need some mix of options for the subsegments of society who can’t participate competitively as we would all like.
    I’m not going to beat a dead horse, but I think this conversation would be better received in the broader society if we admit that it is a good, but not perfect solution, and don’t act like all 90 year olds can line dance and make good market place decisions when they are sick.

  14. Frank Timmins says:

    Fran, I agree on several points you make. There most certainly be options because one size never fits all. And of course “this” is not a perfect solution (there are none). No matter what we do there are going to be some problems, and some people are going to make out better than others. That being a given we cannot alter, let’s err toward whatever solutions that takes bureaucrats farther away from our lives.

    I am curious though as to what options would remedy the reduced mental capacity problem in terms of making health care decisions.

  15. Fran says:

    Hi Frank,
    Those with reduced mental or physical capacity to compete will tend to lose out in a competitive structure to those fully abled (capitalism assumes a level playing field). Where the playing field isn’t level and can’t be leveled, there would need to be in place an advocate and/or resources to be assigned for these people if we want to be a humane society. This is often called a safety net. Right now, we have Medicaid, Medicare and the VA systems, but with doctors allowed to opt out of taking Mcaid & Mcare, and social workers woefully inadequate in numbers, it doesn’t really work for these people.

    Having worked in hospital adminstration and health insurance, I can tell you that there are a significant number of people who need care and who don’t have family or their family is unable/unwilling to care for them. (e.g. retarded children who outlive their parents) Are we as a society are simply going to say “too bad, it is survival of the fittest.” I am concerned when the very issue for which people will supposedly compete (healthcare) is the issue that would keep them from competing effectively (health status). Because they are a minority of the populations people act as if the system doesn’t have to explictly deal with them. Yet they require more care than most people, making them a much larger part of the healthcare system — the 5% of institutionalized who account for 50% of Medicaid costs. It is an ethical issue that I think we who support HSAs and market price competition need to address & include with proposals if we want society to take us seriously.
    As I said, I am happy to let those who can compete and are given adequate information to take vouchers or HSA funds and go into the market place on a competitive basis. We just can’t ignore those who need significant amounts of care who aren’t in this privilaged class with able bodys & minds.

  16. Frank Timmins says:

    Fran, it is not the beneficiaries that are “competing”. It is the providers of medical care who compete for the business of these folks. This fact does not eliminate or create additional burden for the beneficiaries or their advocates. It simply makes more options available and enhances quality of care all the way down the line.

    Whether or not an advocate need be assigned to a person with reduced capability has nothing to do with the economic system in which the medical community works. I don’t mean to be dogmatic, but this is not a fine point.

  17. Aaron Ginn says:

    Option 5 sounds like the Social Security Reform Bush wanted to implement. “Hands of My Medicare!” I can see the signs now!

  18. How do you address the situation of persons whose medical needs excede their ability to pay under whatever system?

  19. steve says:

    The large majority of my patients who have had valve replacements cannot remember which one was replaced. Most cannot remember all of their meds. Cognitive dysfunction is much more prevalent than realized in the elderly, especially when confronted with a new problem. Since we now have smaller, more mobile families, lots of the elderly I see as patients have no immediate family available to help. This will be a big problem, and not just a special case. It could be overcome, it would just require some standardization so that people can more readily understand and compare what they buy.


  20. Method 6:
    Actuarily calculate out of the total Medicare budget the per enrollee value of routine medical services consumed per year, then set up HSA type of accounts, and move 80% of that amount into the funds, and allow seniors to shop across state lines for medical care.

  21. Robert Kramer says:


    That is risky unless there is some oversight of physicians billing practices. I am in New York for 5 days, but I will call you and explain more fully my reasons for this opinion.

    Dr Bob Kramer

  22. Lowery Thompson, MD, FACP says:

    Hi John,

    Another option: 1. Establlish 745 diagosis:treatment pairs.
    2. Rank order those pairs from most important to least important
    3. Estimate cost of each diagnosis treatment pair based on the MEDPAR database and other available data.
    4. Each year decide how far down the list one can go and stay withing budget.

    This list describes the Oregon Health Plan

    I will value your response. Thanks Dr. T

  23. Charles Johnsen says:

    After having destroyed the community, fraternal lodge, and church hospitals I grew up with, gov has replaced with them with non volunteer “charity.” This is fascism. Period.

    Make a list of diagnosis:treatment pairs? Who is this god with such wisdom and power?

    The simple algorithm of the willing buyer and willing seller agreeing on price is the natural way, the free way, the self-correcting way, the flexible way, and the easiest path to changing conditions and knowledge.

    Planned economies are from the 1860’s. Markets and freedom are the future. Or there will be no future but “1984.”

    Better for the poor, better for the rich, better for the young, better for the old, better for patients, better for doctors, better for the future. Not better for political hacks and speech writers.

    Free markets are not the best way to order and pay for medical care, they are the ONLY way.

  24. Lowery Thompson, MD, FACP says:

    No God, Just data plus the wishes of the people; read about the Oregon Plan; I would not object to a totally unsubsidized free marker for medical care, but how would our American society react to the medical needs of those without means to pay?

  25. ralph weber, MediBid says:

    Churches took care of the poor LONG before insurance companies were invented by doctors and hospitals.

    Remember that when you study the creation of Blue Cross and Blue Shield, they were invented by hospitals, and doctors so that they could get paid more.

  26. Charles Johnsen says:

    1. No data set gathered by officials will ever have even a fraction of the information bundled into a price. When a physician uses a scalpel he or she has no clue about the price of fuel for the Lake Michigan barge that brings iron ore. But the price of that tool does know, including the price of every other input and use and price of money, and knows it all very quickly. Meanwhile a board or committee takes a year to examine and argue politically over very shallow data before it publishes and enforces by law hopelessly out dated ideologically driven information.
    2. “Wishes of the people” is a smoke screen for majority rule economics, the sworn enemy of private property, freedom, and wealth. Instead, price and markets are about the wishes of the person, one at a time. Collectively we are idiots. With our own money, our own bodies, we are at least not ruining the lives of others with poor choices.
    3. We react to the medical needs of those without the means to pay in two ways: a. Get out of the way of a free market to balance needs and costs and bring them down to affordable levels. Okay, rich guys get better docs and rooms than poor guys. But gov solutions can only make them equal, which will give both the same care as the poor guy at the same price as the rich guy. The incentives in a system that puts the voter above the patient doom us. b. Let American charity and religious values take over and help the needy, not only with medical care, but with food and housing and work and renewed character and generational healing. This includes a return to the modern principles of our Constitution that prohibit Congress from destroying our economy. In freedom poverty is a temporary condition.
    For thousands of years we have managed to care for one another voluntarily, and that was at its peak in pre Progressive America. Since gov involvement in this formerly voluntary and private system, things have gotten worse for the poor. Gone are are community hospitals, the fraternal lodges, the family physicians, the charity fund raising drives, the church pantries and charities and hospitals. Most of all, the willing spirit of Americans reaching into their pockets to help a neighbor in distress is fading away under the oppression of the central government. Nineteenth Century, old fashioned ideas like the Oregon Plan are killing our golden egg laying goose.

  27. ralph weber, MediBid says:

    Colectivism and totalitarianism do not work when it comes to healthcare

  28. Lowery Thompson, MD, FACP says:

    Hello, Should we abolish all of the current private and public insurance systems as well as revoke EMTALA? Until people are spending their own money directly, the free market is at least less responsive, if not unresponsive.

    When voluntary charitable health care does not meet the medical needs of a few or of many, should they simply be allowed to languish and die as happens in many 3rd and 4th world nations?

    I would hope that we can find a balance between the Libertarian and Communitarian approaches to healthcare.

    On a related note, should all roads be toll roads?

    Cheers, Lowery aka Dr. T

  29. Ron Bachman says:

    I like the Ryan-Rivlin plan best with some added changes allowing for Medicare HSAs. What I do not understand is the newest Ryan plan that follows ObamaCare reductions for 10 years and then reduced Medicare even more after that. Obama took a hit among the voters for ObamaCare reductionso f $500B, why go further and earn the wrath of those voters Republicans just won over? (Many of them are Tea Party activists that helped the GOP in 2010 gain historic victories and are poised to do the same in 2012.)

  30. Frank Timmins says:

    @Charles Johnson

    Great post. Well said.

    @Dr. Thompson, with regard to medical charity, we don’t have to rely completely upon local community and religious based charity. Realistically I don’t think anyone is proposing that there should be no tax supported care for the indigent and elderly. What we are trying to do is re-establish a system that not only rewards excellence but is cost effective as well. That is not possible in a centrally planned and administered system. It seems incredible that so many intelligent people cannot understand this.

  31. Lowery Thompson, MD, FACP says:

    Hi Frank (and John), Well stated Frank. I favor a 2 tier system. One tier would be free market: no insurance private or public; direct out of pocket cash payment for medical services.

    The other tier would be for those unable to pay cash for health care. It is less clear what the qualifications would be for the indigent/elderly care; poverty level? 4 X poverty level? bankrupcy?

    What criteria do you propose for people to be eligible for the charity/elderly care.

    Again our nation must find an acceptable Libertarian/Communitarian compromise which allows an unsubdized free market medical economy to decrease costs and at the same time protects those simply unable to pay (The least of these, our breathen)

    Cheers, Dr. T

  32. Frank Timmins says:

    Dr. T., I think the acceptable Libertarian/Communitarian compromise is actually for there to be no compromise at all, simply because there should be no conflict. I’m not sure I know what a “communitarian” is, but I do know what a “Statist” is and that is who the fight is against IMO.

    We need to find the best way to enable everyone to participate in the market system to the greatest extent possible. If the desire of the “communitarian” is to make sure that everyone has access to reasonable health care there is little or no conflict. IMHO the best approach to accomplish the goal is through the tax credit/voucher system. Where the credits cease and the vouchers begin is the question.

  33. ralph weber, MediBid says:

    “In any compromise between food and poison, it is only death that can win. In any compromise between good and evil, it is only evil that can profit.”
    — Ayn Rand

  34. Lowery Thompson, MD, FACP says:

    Hi Frank, A communitarian is one who sometimes places the needs of the community above personal needs. For instance, I would willing pay taxes to support the voucher system. The tax credit/voucher system universally applied to healthcare is a reasonable solution. I am well aware that individuals are really only vested in their out of pocket healthcare costs and are relatively indifferent to the actual or total cost. Your are certainly correct that where the credits cease and the vouchers begin is the key question. For a starting point of discussion, what about 2.5 times the federal poverty level?
    Cheers, Dr. T aka Hey Doc

  35. Charles Johnsen says:

    A communitarian is willing to have OTHERS pay taxes to support the voucher system. ALL government “charity” is first bullying.

    “The least of these, our breathen[SIC]”? To equate the voluntary, person to person Christian virtue of charity with a by force, non voluntary government redistribution scheme is a vile slander.

    Third, cost sharing is different from risk sharing. One is a scheme to protect doctor’s income and the other is insurance. Car insurance does not pay for oil changes. If it did, oil changes would cost ten times their current price.

  36. Lowery Thompson, MD, FACP says:

    Hi Charles, You are correct.Insurance for cost and/or risk sharing raises the cost of the situation covered.
    People respond to the market force of direct out of pocket expense, not total cost.

    What is your proposal to risk share in terms of healthcare?

    Cheers, Dr. T aka vile slanderer

  37. Charles Johnsen says:

    Hi Dr. T. Thanks for the good humour. I am sometimes [SIC] too serious.

    As for risk sharing, there are many non force ways of laying off the risk of high cost medical care. Family, community charities, fraternal organizations (which were almost mutual insurance companies with a monthly dinner), personal wealth accumulation, and insurance companies that paid on diagnosis rather than on billings. We do not think of these any more because the internal imperialism of government has destroyed many of the voluntary and private associations of Americans. We were once so good at it and now hardly know how to put together a poker game without a professional casino.

    To make this truly “risk” sharing, any company offering such a service must be allowed to price according to health, age, and risk factors. Yes, genetics–and this said by a person whose family is crowded with type I diabetes.

    Physicians should offer “maintanence contracts” that offer a package, with various levels of price and service, of exams, routine office visits, phone consultations, prescriptions, and diagnosis (up to to a point). All of the benefits stop at a level where risk insurance takes over. This gets much more complex very fast, just like a natural market, but, also like a natural market, is based on a very simple rule: Government butt out of our lives!

    If this sort of freedom is to work, we need a constitutional amendment: “Congress shall make no law regulating medical care, medical risk insurance, food or drug manufacture and sale, or personal diet.”

  38. Lowery Thompson, MD, FACP says:


    Thanks for the information on risk sharing. Is anyone in congress proposing such an amendment? Cheers, Dr.T

  39. bob hertz says:

    In the year 2000, there were 39.7 million persons on Medicare.
    During that year, 12.4 million persons over age 65 were admitted to hospitals;
    and Medicare Part A paid out $108 billion for inpatient care.

    In the year 2009, there were 45.9 million persons on Medicare.
    During the year, 15 million persons over age 65 were admitted to hospitals;
    and Medicare Part A paid out $193 billion in medical benefits.

    This was a great triumph for the many consultants who show hospitals and clinics how to maximize Medicare reimbursements. It was not a great triumph for the taxpayers.

    Medicare needs to go onto a real budget. It should have one fee for a day in the hospital, and the fee would be budget-driven, and have no respect for a hospital’s costs. Almost three-fourths of Medicare spending either happens in a hospital, or shortly after hospitalization.

    As for private charity, which I agree should be greater —

    I have never seen a study that fully compares the lives of seniors before and after Medicare. I have read a few interviews with doctors who were around for both eras. My impression is that without Medicare, seniors spent a lot more time in physical pain than they do today, from their hips, knees, stomachs, hearts, et al. Charity did not reach all of them, I fear.

    Bob Hertz- The Health Care Crusade

  40. Charles Johnsen says:

    Of course outcomes are better in 2011 than they were in the 1960’s! This is NOT because of Medicare! This is because of freedom, which is another word for science, and our dedication to profit and progress (like marriage, ya can’t have one without the other).

    Look, charity is what we are talking about in any case. Medicare and Medicaid are forced charity, not voluntary charity. The difference is the same difference between the 19th Century statist schemes some are so in love with and the clearly evident future, which belongs to freedom.

    As for a “real budget” for any government program, that is just fantasy. As long as majority vote rules instead of economic reality, all government schemes will spend more and get less. After the clear evidence of failure for the last 150 years of socialist pipe dreams, why are we so stubborn, so trapped in the past, that we cannot embrace the future? We will either be free or we will drift back into slavery.

  41. ralph weber, says:

    You bring interesting facts to light. I suspect that the high incidence of hospitalization on Medicare is due to the low reimbursement levels for physicians visits. Interestingly enough, most countries that have government medicine also have a high degree of hospitalization. If you carve out the American population which is privately insured, this sample represents one of the lowest incidence of hospitalization in the world.

  42. ralph weber, says:

    Please explain what you mean when you say that the Medicare budget should have no bearing on costs. Are you suggesting that private hospitals should serve the government at a fiscal loss?

  43. bob hertz says:

    To Charles Johnson:

    As for seniors getting relief from pain, I still think that Medicare has been vital, for one reason — it gave doctors the assurance they would get paid. Before 1965, all doctors gave out charity care, but each doctor had to set some kind of limit. In some places I think there were charity-needing patients that frankly, no one ever got to.

    To Ralph Weber:

    I believe that at some point (it may be soon) Medicare will have to put a cap on expenses. The Paul Ryan plan does put a cap on government spending, which is why it is so unpopular. My problem with the Paul Ryan plan is that it relies on the participation of the private insurance industry, which I have worked in for 30 years and which I feel is un-reformable.

    My counter-proposal also puts a cap on Medicare. It would work something like this for Part A.

    1. We set a national budget, say $200 billion for inpatient spending.

    2. We add up all the hospital beds in the USA.

    3. We assume that each bed will be occupied by a senior citizen for 150 days a year.

    4. This produces a total of 100 million bed-days.

    5. $200 billion divided by 100 million equals $2,000 a day.

    6. Every time a Medicare patient is hospitalized, the hospital gets $2000 a day.

    (ICU care, heart surgery, pneumonia, psychosis, does not matter. No outliers, no upcoding, no padded bills, etc.)

    We would need a way to audit for excess hospital days. We would also need to have price controls on super-expensive drugs, which is long overdue anyways.

    My view is that if a hospital cannot make ends meet on $2,000 a day, then that hospital is overbuilt, over-mortgaged, over-equipped, overstaffed and may be paying its doctors and administrators too much money.

    If some hospitals then choose not to participate in Medicare, I am not sure we would miss them, given how many empty hospital beds there are in most of the USA.

    Germany has run its hospitals this way for several decades, incidentally.

    Putting a lid on Medicare will not be fun. My method puts more of the hurt on medical professionals than on patients.

    Bob Hertz

  44. Charles Johnsen says:

    Bob Hertz,

    Your command and control ideology stuns me. I admit that I have radically libertarian ideology. And sometimes I push the rhetoric past polite discourse. But your ideas and policy recommendations are irrational except in that world that prizes equality and stability over all other human, rational, and economic values.

    First, do you have any evidence that Medicare made any difference at all in anyone’s freedom from pain? Site it please. And when you do find some measure of improvement, I promise the effect will be tiny compared to other non government factors (greater wealth of seniors, better medications, more physician knowledge, etc, etc.)

    The very idea that docs like Medicare (and Medicaid?) because they do not have to eat the costs of the poor is bizarre. Many years ago the doc passed on his costs to his other patients, we all knew that, and actually were glad we have a doc in our town. Of course, I am speaking about small town America, not the misshapen ant hills we call cities were no such community of young and old, rich and poor, preachers and drunks existed. As soon as Medicare started paying the docs the rest of us stopped caring about the poor, or the doc. Now you and others will be yanking away even this poor substitute for good will and community. I mean gov programs.

    In fact, in modern urban settings I would suggest that physicians do not accept patients who cannot pay for their services. Instead, ask us, the paying patients, to volunteer a contribution. And yes, I get to take that dollar for dollar off my income taxes. We will blow your cheap $200 billion out of the water.

    You propose rationing. Soviet style rationing. Like FDR, you pull numbers out of your hat and assume that twenty years from now nothing will change in medical technology, personal wealth, or the health of aged people, or even how long we live! This attitude shows a despair of progress, science, freedom, and America getting better. Markets are flexible and innovative. Law, which is what you propose, is static and rigid and kills innovation. Law works for crime and contracts enforcement. But only a free market can adapt to the future and open up possibilities.

    You want price controls on super expensive drugs? Who decides what “super” means? The parents who have to sell a car to save their child? Or you? Besides, at least part of the high costs of medical care, especially drugs, is due to the FDA, the third biggest mistake we have made as a nation.

    Do you know what docs and hospitals will do with your $2000 a day flat rate? Got a hang nail? We got a bed. Got a stubbed toe? We got a bed. Got a cold? We got a bed. Got some serious cancer? Well, how about we send a nurse to your home and give you a shot? I am telling you, it is this kind of nonsense in American politics that requires we make all government charity programs unconstitutional. Because given this power to play God, there will always be a dumber idea waiting in line when the current foolishness fails.

  45. Frank Timmins says:

    Great post Charles

  46. bob hertz says:

    As far as Medicare making seniors better off……..

    I said at least twice that I only had anecdotal evidence of this trend.

    However —

    The small towns of the American South were certainly not a place where charitable medicine was sufficient. Black people were denied care, and this is documented. In fact the original Medicare legislation was contested for months by Southern congressman who wanted to preserve segregated hospitals.

    In many ways that the blunt instrument of federal power brought the South into a more prosperous 20th century. Conservative white southerners such as Zell Miller admit to this quite openly.

    I realize that this is not a full answer to your disagreements with me.

    I am perhaps over-reacting to the number of ‘conservatives’ who complain about big government — but who grew up in a VA-funded house, went to college on the GI bill, got a good job with a company that relied on government contracts, and whose parents are self-sufficient due to Social Security. This may be putting you into a false category, for which I apologize.

    Finally — the idea of giving hospitals a fixed amount of money each year — sometimes termed a global budget — should not be automatically dismissed. It is the way that all medium to large sized cities in America pay for their fire departments, and we have flourished despite that little bit of ‘socialism’ for many years.

    I admit I am attracted to the idea of paying for health care through taxes rather than user fees. Granted, my income is not large — so taxes are a better deal for me. Maybe it does come down to self-interest on both sides.

    Bob Hertz

  47. Charles Johnsen says:

    I am not a conservative but a radical for liberty, reason, and the Judeo-Christian faith’. My involvement in the Civil Rights struggle of the Sixties was deep and professional. I am not wealthy, not even close, and must still work full time at 67 to pay my bills and provide medical coverage for my wife and myself that does not make my physicians eyes glass over.

    How dare you tie my passion for freedom to racism! It was the Democratic Party that fought integration. It was government that enforced separation. It was public schools that kept us, and still keep us, apart. I like states’ rights but those rights are aimed a limiting federal government power. The minute states rights are taken to mean the state has the right to oppress or segregate, they have lost their moral rights.

    Sure, I take my SS dole. When a thief offers even a small % reparations, I am going to take it. But SS has been a awful failure! It drives a wedge between the generation that owns the capitol and the generation that works. It has a pitiful payout and profit. It took billions of dollars out of the capital markets and slowed down our growth and productivity. It provided funding at the federal level for damaging programs for fifty years. It makes a false promise that able bodied people can “retire,” and invention of labour unions to cut the supply of labour. Not one single world religion promises a retirement on this planet. If old people are “self-sufficient” it is not because of SS but because they have saved and worked for many years. And then there is this: by encouraging older people to quit working we lower our productivity as a nation, take useful people out of the wealth creation business, and ruin their health as they sit down and stop moving.

    The federal distortions of the housing market have hurt us all big time and the VA is no different. I want to support vets, maybe more than you do, but I resent the idea that we can dodge payment for their services with federal schemes to distort the market place. Colleges are another example of gov scheming gone wrong. Every time the congress raises benefits for going to college, the colleges raise their rates and professor salaries.

    Fire departments? That’s all you got for a successful gov program? Well, okay. I’ll give you fire departments.

    Taxes are not a better deal for you either! Think about the corp income tax or the withholding tax on large salaries. Who writes the check to the gov? The corporation! Where do they get their money to pay those taxes? From their stockholders? From their CEO’s bank account? No! From their customers. From you. All of this progressive and corporate tax is a shell game designed to make you think like you do–that you are getting something for nothing.

    Forget it. You are being had and for some reason want to make it even worse.

  48. ralph weber, says:

    I agree with Charles

  49. Goldbar says:

    I applaud Mr. Johnsen for his passion and love of liberty, he and the rest of the correspondants for their good intentions. Period.

    1. Some of the allegations of fact made supra are incorrect, and we can not make a plan to change the future system based on false assumptions. Philosophical predilectionsa are no substitute for knowledge of how things came to be as they are today.
    For instance, Community based health care odels and and FDR are willy nilly categorized with Stalin. 200 million Americans can drink a beer at dinner because FDR a=bolished One of those allegations has to do with the disappearance of a cetain class of hospital. I worked a religious hospital back in the 60s. It no longer exists because the governing body sold it to a for-profit corporation. That phenomenon, not Medicare, is the reason why small hospitals of the religious and fraternal sort disappeared. Community hospitals disappeared because they did not have the financial strength or the will of bankers to equip themselves with the latest devices, let alone to build the structures to house such devices.

    2. It is not the purpose of western medical care to extend rights to people, other than those in need of care. The ‘constitution’ for that development in medicine is the Hippocratic Oath. All of western medicine for the last 300 years was shaped by that oath.

    3. Mr. Johnson brought up the Judeo Christian society. The only Judeo Christians I ever met (and I have spent a good deal of my life meeting clergy) are the Jews For Jesus.

  50. Goldbar says:

    Sorry, I in advertently hit the publish button while redoing a section of my post.

    FDR released Americans from the shackles of Prohibition, a system imposed upon the country by Republicans and Democrats who followed the dictates of the prohibitionist KKK. FDR also liberated Southerners who were unable to purchase, own, or handle firearms under KKK promulgated gun control laws. Far from being a Stalin, FDR extended freedoms by enforcing the US Constitution in sections of the country and world that had been unfree for centuries.

    Besides that, it is a logical fallacy to categorize other persons in an controversy in a manner that is intended to degrade, disparage, or undercut that other person or her arguments. Oddly that unreasonable person calls for a reasonable medical care system. If you want reason from others, first be reason for them. But, if you want a crappy political system, just keep calling people names. That’s the way it works.

    I thought a couple of the comments ignored the way medicine was practised in ‘the good old days’. For instance, those who object to government medicine could help the rest of us by explaining their objections to the way that socailist medicine has operated in our military, naval, and veterans hospitals since the Spanish American War. Was Dr. Walter Reed, who conquered Yellow Fever at the risk of his own life, really a Red? Would we all have been better off with the freedom of early deaths from Yellow Fever epidemics?

    4a. I don’t know with whom I am dealing here, a few followers of Smith, Rand, or Hayek, I expect. We all have our various tastes in ethical approaches. Ayn Rand proposed a system of Consequential (teleological)(ends justify means) Ethics. Consequential Ethics has been out of favor in the Western World since Christianity overthrew the Greco-Roman world view in the days of Theodosius I and his grandson Theodosius II. The emperors instituted Rule Based (deontological Ethics. Therefore, any appeal to a ‘more free’ antecedent medical system in the Western World of Judeos and Christians is an historical error. Also, if the appeal is Randian, and thus consequential, it must appeal to the future and forget the past. After all, the consequences of our actions are forever in the future.

    The difficulty with mapping Smith or Hayek onto America’s medical system is that both the Smith and Hayek Utopias depend upon people making rational decisions in their ‘best interest’, whatever that is. The best interest is a slippery critter as any family court judge will tell you. For instance, a bank robber’s best interest is in getting away with the loot, which would be a very bad outcome. I admit, this is an extreme example to set against the propositions of some other correspondants, but as others have been extreme in earlier posts, I demonstrate my admiration for them by following their methods.

    4b.It was mentioned above by some of the correspondants, that many people are unable to make rational decisions. This is not quite true. In the last 20 years, modern medicine has proven conclusively that people do not make decisions based on reason. Ever. The faculty of decision making is a chemico-emotional one. Therefore the basis for Hayek and and the entire Chicago School of Economics is airy fairy. Sic Semper Tyrranis Chicagois.

    Against the Hayek assertion that government leads to enslavement, we live in a republic governed by democratically elected officials. If it is the will of the people to adopt communitarian solutions to the threats in their lives, who the hell is Hayek to dispute their choice? It’s their right. If followers of Hayek want anarchy, then let them elect the officials who will enforce it at gun point. In the meantime, it makes no sense to have libertarians making policy, as they are only a small minority of Americans, and as a people we do not tolerate fussy, prissy, dictatorial minorities for long.

    5. Mr. Johnsen correctly observes that the changes in medical practice have had a salutory effect on the people who experience pain. And who doesn’t? A good deal of the improvement has come through the development of an astonishing array of pharmaceuticals, the great majority of which came out of government owned university labs or private labs supported through government grants (welfare for doctors). In fact, under the old anarchic medical ‘system’, the rate at which wonder drugs came onto the market was nearly stagnant: 1860s Morphine, 1880s Aspirin, 1910 Salvarsan (from a government owned university), 1920s Insulin (from a government owned university). Since the 1960s under the new system of government involvement in health care, we have gained the heart bypass, the pacemaker, stents, effective ulcer meds, lithium and prozac and descendants, erythromycin and descendants, and Nuedexta. Thanks to government intervention in pharmacy we have drugs to deal with everything from anthrax to erectile disfunction to psoriasis to herpes zoster. The great med schools, Minnesota, Pennsylvania, Harvard, Johns Hopkins, Texas, etc are all government owned or government supported institutions. The odds are that you owe government a debt of gratitude if you are alive today and over the age of 60. Let us never forget that the basis of freedom is life, and in extending our lives, government involvement in medicine has been an extraordinary liberator.

    6. The medical care industry designed in the 1990s is meant to produce profits (hardly socialism) rather than desirable health outcomes. If the real objection to government taking a role in health care is an objection to taxes, then the best practical solution (medical anarchy being impractical) is to find ways to keep medical costs low. As 45% of the national health care bill is the cost of insurance, and as medical insurance only pays out about 60% of the revenue collected from premiums for patient care, it is clear that an immediate 18% savings on the national doctor bill can be had just by eliminating insurance companies’ non-care expenditures, like jet planes, golf courses, billion dollar ceos, billion dollar industry lobbyists, etc, etc, etc.

    Next, both significant monetary savings and better health can be achieved by converting to the Mayo Model of team structured health management. The costs for this model are heavily front-loaded, reflecting the cost of initial capitalization and training. However, the savings down calendar can be in the 9% – 25% range depending on how disfunctional your present health system is. I’m sure Mayo will be happy to enlighten you about their system.

    There has been a lot of ideo-ilogical argumentation about medical tort reform. Mr. Johnsen and I are concerned for private property. If we can all agree that our bodies and our health are the most fundamental of properties we own, I am sure we would all agree that damage to a person’s body, as property, by an act of malpractice ought to be repaid in full. When someone accidently breaks your window, they owe for the entire thing, not just for a maximum of $10. If it is so for pasltry goods, let it also be so for our precious bodies. Let us control the number and seriousness of malpractices instead of making the victims suffer. The Mayo team approach is excellent in this area, but we also need to weed out those practitioners who are making these costly, painful, and murderous errors. I don’t have the statistics at hand, but it is a small % of practioners that do the great majority of the damage, and we need a better system for ‘weeding’ these paople out. Savings in this area could be as high as 1/2% in the Upper Midwest to 4% in the Deep South, where juries tend to give generous awards.

    In conclusion, when considering how we are to improve our medical care system, let us beware of arguments that are based on erroneous assumptions and romantic ideas about Utopian societies. Beware arguments that confuse liberators with dictators, and saving money with the purpose of health care.

    We are not a mere heap of individuals. America is a collective adventure. We are a nation, and nations choose policies to shape the work that the people want accomplished. In a republic that is staffed by democratically elected officials, the citizen is not entitled to live an unrestricted life. Nations do tax, thus proving that there is not an unconditional right to money. Nations choose how to spend the money they collected through taxes. If freedom means freedom from taxes, it must also mean freedom from America, for which I applaud you and urge you to exercise that freedom ASAP. But for those of us who want to stay here, and who enjoy the freedom of life and improved health, the dollar cost is high. Freedom isn’t free, but life is better than money. Money can be replaced. And, we have the power to create efficiencies that will lower America’s health care costs by a third or more.

    Thank you for your patience with my overly long post, and thank you for your passion and commitment to creating a better, more free world.

  51. Rick Weber says:

    @ Goldbar:
    “Beware arguments that confuse liberators with dictators, and saving money with the purpose of health care.”

    I’m in complete agreement with you there, but I have some points I disagree with you on. I will limit myself to three of them.

    1) That something happened under one situation does not mean it would not have happened under another situation. And given the tendency of government to destroy wealth even as it provides some things we value (e.g. through rent-seeking, the dead-weight loss of taxation, etc.), there is good reason to believe that what good the government has done came at too high a cost. What little the Soviet government did for its people is a good demonstration of good things that cost too much.

    2) Irrationality is the most damning argument against centralization of power. We don’t have a perfectly rational, benevolent, hyper-intelligent bureaucrat/philosopher-king to give power to.

    3) The Chicago argument for freedom lies on the idea of homo economicus, but the Hayekian argument does not (Hayek is far from being in the Chicago School). Hayek’s most important insight is that information is disbursed and often tacit. Because of this, Hayek argued that a socialist state cannot rationally allocate resources for the good of the general populous (however it can allocate resources in a way to increase the well-being of a malevolent tyrant).

  52. Charles Johnsen says:

    Last first: I did not refer to a Judeo-Christian religion but to a society. Europe and America and soon all of Africa are parts of a culture and civilization whose roots and values are biblical. This is where science, private property, and personal freedom come from. Would you rather I said “biblical society?”

    Second, my praise to those who follow the revised Hippocratic Oath. Thank you. You have been an example to us all and I, for one, am glad to pay my physician what he asks because I believe he takes this Oath seriously. But, you knew this was coming, do not force me to pay for others who use that oath as an excuse not to pay for services. When the costs of medical care for those who will not or cannot pay is laid off on those who do pay without their knowledge or assent, that is wrong. Physicians do not give away free medical care. The costs are just shifted, without consent, to others, by taxes, insurance, or overhead costs to the patient.

    Why did the community hospitals go away? Yes, economic forces took them out. Same thing happened to family farms which gave way to county sized corporations. Rather better for us all, don’t you think? My problem is not with that but with the physician and government driven drive to fund all health care by third parties. be they “insurance” or “welfare.” Even today, as we speak, the little medical business is growing again. Everywhere there are minor emergency clinics and often they are the first line of care for people. This will break the back of the “insurance is for hangnails” industry.

    When I praised the old model of community funding I admit I was nostalgic. Today we would be better off if all medical care, goods and services and institutions, were for profit. What we need are not free docs and rooms and drugs but voluntary (free in a difference sense) organizations that assist the poor with paying their bills–and not just for medical care. We must keep away from medical care as a right at all costs or we will end up like Europe, a society disappearing before our eyes.

    Ya, FDR and Stalin do have a connection. It is not strong and FDR often invoked the Name of Christ Jesus in his speeches. But both were Fascists. FDR a little one compared to Stalin, but still too much into command and control. Look at his awful Four Freedoms crap! He was our worst president. Some tried to be even worse but they were not effective.

    I am sorry but my ideology is not a “philosophical predilection.” That is just a high class insult. I came to these ideas after a life time of concern for the poor and troubled and for those without a voice at all: the unborn generations who will not know freedom and wealth unless we back off this relentless drive to control everything and everybody by law and regulation and taxation.

  53. Charles Johnsen says:

    This will be my last post on this subject. The topic has drifted far from John’s original question.

    Insults ARE American politics. I oughta know. For fifty years of my life libertarian and constitutional ideas have been called “mean spirited,” “anti free speech,” “war hawks,” “racist,” “anti women and children,” etc. The worst was calling American conservatives Fascists or Nazis when the reality is that no political group is further from Fascist or Nazi than American conservatives. (Yes, there are “progressives,” the American word for Fascist, in the Republican Party. Do not confuse conservative with the flawed but only practical vehicle for their views: the GOP.) Of course we insult each other! Go to the lunch room of any factory or retail store in America and hear the digs and jabs American men give each other every day.

    One last general observation.

    Europeans are divided politically into right and left. From the American perspective (outside of the media, universities, and Congress) there is little difference between them. Both attempt to modify and change human behavior and social conditions through naked political and military power. The communist (international) Fascists argue with the socialist (national) Fascists over details of majority rule or dictator, no private property or heavy handed regulation of private property, etc., but agree on authoritarianism and a Platonic politics of philosopher kings and serfs, even if they are well fed serfs.

    The real and historic divide in human politics is between those who describe natural reality and those who attempt to create their own species and planet. Do we construct our language, culture, society, and human personalities? Or do we explore the universes of possibilities in the ecology of language, culture, society, and human personality? Are we living in a world of our own design? Or are we living in a natural world of biological and spiritual opportunities?

    An illustration is the price mechanism of the world markets. Left alone, this simple algorithm of “2 coins.” “1 coin.” “1 and half coins.” “Done!” is smarter and faster and better informed and more fair than any conceivable organization, person, computer, or centrally programmed algorithm. This is a network in action, the old salesman’s route problem, that is most natural and most intuitive. The Platonic way has some superman picking prices out of the air with little or no current information and fixing them for all time no matter what new discoveries or network relationships come along. The price mechanism comes to us without our decision, bundled like free software with the gift of language and the division of labor.

    I believe that any distortion of price by rulers for any reason, no matter how pressing, is evil and irrational. If I volunteer to give the half coin to my neighbor, charity is done, good it done, but not at the cost of ruining truth for everybody else. Yes, a controlled or government subsidized price is a lie and violation of free speech.

    This works for both Creationists and evolutionists, for Bible believers and atheists. The natural relationships between people, even flawed people, come either through creation or evolution. Some, like me, see both sources of freedom and responsibility. Either way, these rights and properties are ours naturally and by birth. Denying this leads to violence, poverty, and oppression. Intent has nothing to do with it.

    You see, this in not Utopia! Utopias are designed and imagined and idealized. What the “left and right” of the 1860’s tries to do is Lamarckian because it believes it can undo nature or creation by majority rule or some other form of oppression.

  54. Goldbar says:

    Just a few comments on Mr. Johnson’s posts.
    1. Mr Johnson confused conservatives who choose on the basis of tradition, not reason, with rationalists. See Parkinson’s Law.
    2. “Why did the community hospitals go away? Yes, economic forces took them out.” No, economic forces did not take them out, the hospital boards sold them out. This ‘hidden hand’ malarkey is always trotted out to absolve business types of responsibility for their actions. However when a government does something, anything, they are to blame. The corporate oligopolists and bureaucrats have hidden hands, whereas government leaders and bureaucrats never enjoy such transparency. HAHAHA
    3. Hayek’s model does indeed argue for a rational system – just not the same as Friedman’s. Mr. Johnson wrote, “Hayek argued that a socialist state cannot rationally allocate resources for the good of the general populous (however it can allocate resources in a way to increase the well-being of a malevolent tyrant)”, because most information is tacit. Apparently, Mr. Johnson thinks this tacicity is only a stumbling block to government. I would like to be wrong on this point.

    The modern nation and economy is dominated by corporations who operate as governments do, and sometimes as governments period. If a ‘socialist state; is unable to choose rationally for its people, how can we expect corporations to do better. And yet, ‘conservatives’ slavishly adore corporations and Hayek.
    4. Stalin was not so much a fascist as a Red Czar. The battles of the Reds and the Whites were entirely dynastic and religious in nature. FDR was not so much a fascist as a Wall Street lawyer, the defender of Wall Street against itself. Someone had to take things in hand or the US would have been swept up in the Red Tide.

    5. Churchill, Stalin, Mao, and FDR organized the defense against the Japanese, Italian, German, Rumanian aggressors, and brought them to ruin. Not a bad deal. I’d like to see a clutch of anarchists defeat Tojo. HAHAHA.

    6. Mr. Johnson, like so many Anarchists, Libertarians, and ‘Conservatives’ yearns for a lost golden age of America. I sense from Mr, Johnson’s posts that his golden age was pre-1860. Of course pre-1860, we had President Jackson, who eliminated America’s Central Bank, a bugaboo for Libertarians and ‘Conservatives’, making the Federal Government smaller and less intrusive. He also confiscated 4.5 million acres of private land, and forced the owners to walk to Oklahoma, all of which was very intrusive.

    Apart from the brutality of Jackson, the US sold gold certificates and specie, a % of the value of which was retained by the treasury department, just as the Fed today takes a cut of the interest rate. This government business of selling gold and certificates dominated American finance until 1913 and the institution of the Federal Reserve Bank.

    Further, America owned a huge swath of land in the West – meaning west of the East Coast. The government dominated the major (all primary, in those days)industries through the US Land Bank. The Land Bank made money by selling land it had previously extorted from the Indians for nearly pure profit to settlers. In short, although there is a legend that American government did not intrude in the lives and economies of ordinary citizens, it did indeed, and in a big way. For unless you were homesteading, if you wished to own land,you had to buy it from Uncle Sam (who got the land for an empty promise) using US specie or certificates of which Uncle Sam took a bite. And if you had to pay property taxes, which you would if you owned land, you would have to do so with American specie or certificates, of which Uncle Sam took a big bite.

    In other words, if there ever were a golden age of small government in America’s past, it would have to be pre-1796, and the Northwest Ordinanace.

    Iow, for a nation that has been big government for 215 years, we haven’t yet come close to being Hayek’s, Rand’s, or Friedman’s hell.

    There’s a lot more, but I am pooped.

  55. Goldbar says:

    Btw, It has been engrossing aqnd enjoyable discussing econ, history, and politics with you, Mr. Johnson. Be well, and I’ll see you at the voting booth.

    PS: Sorry for all my typos.

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