Medicate: Prescription for a Fool's Paradise; D. Durante and S. Durante

Would you vote for me? Most people would. Would you get what I promised? No, because it's impossible to deliver. This is the promise of those who advocate "national health care" or "universal health insurance" (on either the state or national level). In either case, what is involved is extensive or complete government control of health care: control of who pays for services, who provides them, and who receives them. We have, before our eyes, an example of a very similar system that has been operating now for 26 years: Medicare. This article aims to demonstrate by a detailed look at Medicare, that such govern~ ment interference in health care is harmful from the first to buyers and providers of health care, and in the long run is disastrous. Government medicine, on the national or the state level, is a prescription for a fool's paradise. To understand the economic principlesinvolved in government intervention in medicine, let us look at something less emotionally charged than medicine. Hats, for instance.

SalvatoreDuranteis adentistinprivatepracticein Brooklyn, New York. He has publishedseveralarticleson the hazards ofgovernmentinterventionin dentistry,and recentlybecame editorof GP -TheJournalof the New YorkState Academy of General Dentistry.His wife, Dianne Durante,is a free· lanceresearcher. BasicEconomicLessons Let's say we all agree that hats are worth having, or even a necessity,and that all Americans have a right to them. We pass a law stating that the gov ernment will pay for everyone's hats, through tax payer dollars. What happens? First of all, hat sales skyrocket. I'm not particularly fond of hats, but if I can get them for free or below cost, why not? LessonOne:there is no limit to demand, if those who get the product or use it are not paying, direct ly or in some way they can see. This is unavoidable. The freeloaders will try to get all they can, and most of the rest of us will want something to show for our tax dollars.

If such a law passed, most hatmakers would be delirious with joy. Everyone wants hats! They expand their shops and produce as many hats as they can. What happens next? The average price of hats shoots through the roof. Why? There are two reasons. First, of the hats now being sold, the more expensive ones-the ones only a few people could afford before-will now be in much greater demand, since the individual hat-buyer no longer has to pay from his own, lim ited resources. If the latest style is a platinum-plat ed beret, anyone who wants one will now get it. The other reason for the rising prices is compe tition: specifically,lack of it. New products, such as the first camcorders or the first compact disc play ers, are usually expensive. Prices drop because more people want to make money from a product: they try to come up with cheaper and more effi cient ways of producing it, so they can sell the product more cheaply and grab some of the marketo Our unlimited government funding of hats has completely cut out the need for competition. Any hatmaker can stay in the business, no matter how high his prices.

Lesson Two: prices will skyrocket if there's no limit to how much people can spend on a product. If anyone who wants the product can buy it, price no object, there is absolutely no reason for the manufacturer to try to cut his prices, and no reason for the buyer to control how much he spends. The government, and onlythe government, can give people virtually unlimited amounts to spend on a product. In short, it is not the greed of the manufacturer or the consumer, but the mere fact of the government funding of hats that is making hat prices exorbitant. Next step: the government, and hence the tax payers, are faced with enormous hat bills. Mrs. Smith may have confined herself to one hat, but Mr. Jones wanted five, and Mrs. Imelda wanted 52 Paris originals. The government knows it can't continually raise taxes to pay for hats. Assuming it wants to keep the hat program intact, it has two choices: restrict the number of hats anyone person can buy,or restrict the price of hats. In political jar gon' that means rationing or price controls.

From a politician's point of view, setting limits on the price of hats is the obvious way to go. There are fewer hatmakers who vote than there are hat wearers, and it's easy enough to paint the hatmak ers as greedy exploiters of the hatless. So a new law is passed: no hats may be sold for more than $15, even if the buyer is willing to use his own money. The immediate result will be that the best quality, most expensive hats become unavailable. No more Paris originals. LessonThree:you can't make a silk purse out of a sow's ear. Good materials and good workman ship cost money. Yes, competition among manu facturers in a free market willcut prices in the long run. However, legislating a lower price for a prod uct is not a shortcut to cheapness. It merely makes those who were selling more expensive goods go bankrupt, before anyone has time to work on price reduction. We could try some complicated and devious maneuvers to lessen the effect of price controls.

For instance, we could slap a $5 tax on shoes and use the money for the hat program".Then we could have a maximum hat price of $15, but still pay the hatmakers $20 per hat. That would mean, of 141 course, that some poorer people wouldn't be able to afford shoes, and the government would end up subsidizing shoes, too. Even so, price controls on hats will have to be instituted in some form, because demand is so high. Remember that it is government spending for hats that made the demand and the prices so high in the first place: nothing except removal of the government's mon ey will get the situation back under control. But let's keep trying. We've now legislated a maximum price for hats. Nevertheless, Mrs. Imelda has bought another 35 hats, and the rest of us are still trying to get our tax es' worth of hats. Not surprisingly,the amount that taxpayers are shelling out for hats hasn't signifi cantly decreased, despite our price controls. The next step? Well, of course, restrict the number of hats each person can buy: ration them.

Now what happens? A lot of hatmakers go out of business. They can't sell hats for more than the maximum price, and they can't make up for the loss in income through selling more hats. Bureau crats demand forms in triplicate and slap fines on them at every turn. The best hatmakers soon leave the field in disgust. We are now facing a decreasing supply of hats, if not an actual shortage, because there are far fewer manufacturers. But hats are a necessity, aren't they? So we will have to pass a law forcing hatmakers to remain in business, whether they can make a profit or not. However, even a government order can't make a business run for long at a deficit, whether it's a hat maker or a child's lemonade stand or a bank. The hatmakers will go out of business, one by one. The government will have to step in and make hats. Given the quality of most government prod ucts, you can imagine what kind of hats we'll get.

And given the efficiencyof most government rii~n ufacturing operations, we won't be surprised if we're told we can each have one hat, in our choice of four styles, every other year. What began as a seemingly praiseworthy law-to provide all Americans with hats-has end ed up driving the hatmakers we know and trust out of business, and given us government-produced hats of considerably inferior quality and very limit ed numbers. This result is absolute, inevitable, and non-negotiable: none of the economic rules above can be avoided, and they can only be temporarily circumvented by allowingthe government to inter fere in yet more private business.

142 THE FREEMAN • APRIL 1991 LessonFour:whatthe governmentpaysfor, the governmenthas to control. Governmentfunding of hats led to government control of hat prices, hatmakers, and finally everyone who is even remotelyconnectedto hats. The only cure would be to end governmentfundingof hats. Backto HealthCare Comparinghatsto medicinemayseemevenless appropriatethancomparingapplesto oranges,but the same economicprinciplesapply,and precisely the samedevelopmentscan be seenin the 26-year historyof Medicare. In 1965 the governmentpassedMedicarelegis lation, providing basic medical services to the nation'sretirees.Physiciansand hospitaladminis trators were delighted.They built new hospitals and enlargedold ones. They began providingthe medicalequivalentof the best Parisianhats to all comers.Why not? The government encouraged physiciansby askingthem just to send the bill to the Americantaxpayer.Patients,as well as physi cians, no longer had to considercosts. Everyone simply demanded "the best"-price no object.

Medicalexpenditures in the United States were 4.3 percentofGNPin 1952;by 1982theyexceeded 10percent,andwerestillrising.In the sameperiod the government'sshare of these expensesnearly doubled,from22 percentto over40 percent.Here is LessonOne in action:withthe governmentfoot ing the bill for a substantial number of those receiving medical care, there was suddenly an enormousdemandfor medicalservices. At the same time, prices for medical care soared. The legislationdeliberatelyremovedany incentiveto keeppriceslow:infact,removingcon cern about costs was the point of the program. Manyofus canrememberthat prior to 1965 a few days in the hospitaldid not threaten to bankrupt the averagemiddleclassfamily.Today,many find the costof a hospitalstayprohibitive,becausethe rise in medicalcostshas far outpacedthe general inflationrate. Why? Becauseof Lesson1\vo. Pricesskyrock eted preciselybecause the governmentwas pro viding unlimited funds for medical care. Con sumersdemandedthe most expensivetreatment, and medicalfacilitiesdidn't have to keep prices low to maintaina competitiveedge.

By 1983,Medicarethreatened to bankrupt the entire Social Security system. It was clear that somethingdrastichad to be done to control run away costs. Taxes were raised,of course,but this was not enough.Likethe manufacture~s in the hat illustration, healthcare professionalswere (and continueto be) denouncedas the greedycu.lprits who had to be controlled; price controls were slappedon hospitalsand doctors.Under this sys tem,calledDiagnosisRelatedGroups,allhospital admissionsofMedicarepatientsare classedin one of 486 categories,and the hospitalreceivesa set fee for the patient,regardlessof his lengthof stay or the amount of care provided. When it was pointed out that this might lead to inadequate treatmentandearlydischarges("quickerandsick er" releases), the government responded by imposingfurther complicatedregulations. The federal governmenthas also set a limit on what doctors can chargepatients over the age of 65, and some states now refuse to licensedoctors whodon'tacceptthe Medicarefee as fullpayment.

Just to receive the government-approved pay ment, doctors must complywith a bewildering, and sometimes contradictory,array of regulations fromseveraldifferentagencies.Theprocessa doc tor is required to go through to obtain payment from Medicaremakes filing your tax return look like simple arithmetic, and your doctor does it manytimesper day,not oncea year.Also,a simple error in filing that would result in no monetary gainfor him, such as usingan incorrectcodefor a diagnosis, can mean no payment at all on the claim,plus a fine of thousandsof dollars. Not surprisingly,doctorsare leavingthe profes sionandthe numberandqualityofmedicalschool applicantsare falling. In 1974 there were nearly three applicants for every opening in medical school;by 1986 there were fewer than two. What bright young collegegraduate would want to get involvedwithsucha mess? LessonThree comesintoplay:youcan'tmake a silkpurse out of a sow'sear. In thiscase,you can't get top-notch,dedicatedindividualsto enter and remainin the medicalprofessionwhilecontrolling their activitiesandtheirearnings,andcallingthem greedyexploitersto boot.

Andguesswhat?Costsarestillrisinguncontrol lably,despitestringentcontrolson medicalexpen ditures. (Given the fact that it was government fundingthat made pricesskyrocket,and that the governmentis stillfundingmedicalcare,the conMEDICARE: PRESCRIPTION FOR A FOOL'S PARADISE 143 tinually rising prices should come as no surprise.) The government is now considering more drastic measures, such as rationing and "universal insur ance." Massachusetts has already adopted such a plan, which led to the exodus of doctors from that state and contributed to its recent financial col lapse and tax increase. Similar plans are under consideration in many other states, and even more appalling "solutions" have been proposed. The director of the Hastings Center, a bioethical think tank in Briarcliff Manor, New York, recently rec ommended that, by law, no one past age 80 or 85 be given accessto aggressivelife-savingequipment and medication. A medical economist from Tufts University has suggested legally banning all new technology: since not everyone can afford it, no one should have it.

Here, as expected, is Lesson Four: what the gov ernment pays for, the government must control. In the very near future, if a physician tells you that your life could be improved with bypass surgery or a hip replacement, you will have to petition the government and take a number. Perhaps your peti tion will be approved, once all the appropriate government bureaucrats have debated its merits. Perhaps it won't. Likewise, every aspect of a physician's practice will have to be dictated and controlled: most of them are already. He'll be told whom he can treat, and how, and what payment he'll receive. His livelihood and his freedom will be in the hands of the same bureaucrats who hold your life and health. What AboutRights? The final step in the process outlined above brings us to the most important reason that the Medicare and Medicaid programs should not be expanded or imitated, but must be scrapped. In the United States, we recognize certain basic rights: life, liberty, the pursuit of happiness. When those words were written, it was understood that those were the rights to your own life, your own liberty, and the pursuit of your own happiness.

The "right" to hats or to medical care is funda mentally different from these basic rights. Such a "right" depends on the efforts of others, those who make the hats or study medicine. If we declare that citizens have a right to hats or to medical care, we are declaring that the hatmakers or the doctors are obliged to provide it, no matter what the cost, somehow, and that if they don't do so willingly,the government will force them to do it. Although your own life is of enormous value, you can't use that fact to justify taking someone else's life, unless he threatens to kill you first. "But the Medicare laws don't kill doctors," you say. "They just tell doctors what to do and take away some of what they earn." If you locked up a dachshund, forced it to obey contradictory commands, and fed it at unpre dictable times and in continually decreasing amounts, you'd have a mob of government offi cials and animal rights activists at your door.

Killingthe dog quickly,they'd say,would be kinder than this long-drawn-out torture. The same treat ment has been applied to doctors for many years now, and few voices have been raised in their defense. When you take away a man's right to think, to act for himself, and to keep what he earns from that action, you make him at best a slave depen dent on your goodwill, and at worst a corpse. Thinking for oneself, acting on those thoughts, and keeping the fruits of one's effort are what allow one to live, whether one is a physician, a teacher, a garage mechanic, or a stockbroker. One hundred twenty-six years ago we finished fighting a bloody civil war to make slavery illegal throughout the United States. Twenty-six years ago, with the passage of Medicare legislation, we sanctioned it again-not on the basis of race, but on the basis of the dedication and skill and intelli gence it takes to become a medical professional.

It is still slavery.It is still immoraL And that is why the Medicare system and all such government programs that interfere with the free market in medicine must be dismantled: not merely because they do not work, but because they require that the men and women who literally save our lives be made into slaves. The same is true of any governmentfunded program of medicine, whether based on the Cana dian or British or Swedish or Soviet model. Gov ernment funding of medicine ultimately results in the enslavement of doctors, and is therefore immoral. Perhaps you are thinking that violating your doctor's rights is acceptable, in return for assuring that you and the rest of his patients are able to afford medical care. Think again. What you'll be 144 THE FREEMAN. APRIL 1991 "Let each of us take back into his own hands how much he spends on medical care, when he spends it, and what he gets for it."

gettingifyouviolatehis rightsis not carefromthe typeof doctoryou knowandtrust.The traditional kind of doctor, who went into medicine for the challengeof usinghis mind and workingindepen dently,willfindit impossibleto workundersucha system,and will graduallydisappear. When the governmentcontrols health care, it will attract a new breed of doctor:the kindwho is content to work 9 to 5 for a fixed salary,following all the rules in a government code, and is more than happy to let bureaucrats instead of his patientstell him what he's doingrightand wrong. If I must undergo surgery,I want it to be at the handsofsomeonewhocanobservethe factsofmy case and is not afraid to make his own judgment and take actionon it-and who will answerto me if he makes an error,not cite his compliancewith section 1052, paragraph 13 in some government manual. Government control of medicine means, in short,that the bureaucratswillbe tellingyou what services you are allowed to have, and when. If whatyouwantis the bestcarefor the mostpeople, any governmentfunded medical program is impracticalas well as immoral.

The MarketHoldsthe Solution The only way to assure the highest quality of medicalcare is to return to the free market. You can have choiceonlyif you are willingto take the responsibilityof paying for it. For most of your workinglife,youhaveprobablybeencoveredby a private insurancecompany.It worked. In fact, it workedincomparablywell untilthe government's intervention in the healthcare market caused prices to shoot through the roof. If healthcare providershaveto competefor our businessagain, the prices will go down, preciselyas they do for new electronicgadgets. Todayno privateinsurancecompanywillcover anyoneover65,exceptas awrap-aroundpolicyfor Medicare.Lettheprivateinsurancecompaniesget backintothe business.Letfamiliesandindividuals save for their own medicalcare, if they wish, by reducing the burden of taxation. Let each of us take backinto his own handshow muchhe spends on medicalcare, when he spendsit, and what he getsfor it.

What about thosewho cannotaffordevenmin imal health insurance? There are many, many physiciansand hospitalswhoprovidemedicalcare forfree.Theydon'tbragaboutit,andtheyare usu ally ignored when the surveyorscollectstatistics on the uninsured.Yes, it does mean that the poor wouldhaveto askfor charity,ratherthan receiving care as a matter of "right." Yes, that would be embarrassing:askingfor somethingin return for nothing usually is. But enslaving doctors and putting the health care of all citizens under the control of governmentbureaucrats is simplytoo higha priceto payfor avoidingembarrassment. Today'smost serioushealth problemis govern ment intervention in the healthcare system. Because the government's spending has driven pricesup, we are forcedto makedo withlesscare. Because of the controls the government has imposed,we are losingthe best mindsin the field. The onlycureis to return to the systemthat made Americanhealthcarethe envyofthe world:a free market, completely exempt from government intervention. D 145 Boulwarism: Ideas Have Consequences by William H. Peterson " Wat's in a name?" asked Shake speare's star-crossed Juliet. "That which we call a rose/By any other name would smell as sweet."