The Bankruptcy of Medicare
April 27, 2004
At the end of last year George W. Bush signed the Medicare Modernization Act of 2003 into law in the name of “honoring the commitments of Medicare to all our seniors.” The bulk of the law provided prescription drug subsidies for the elderly, at an estimated cost of between $400 billion and more than $1 trillion over the next decade. Less than four months later, the Medicare’s Board of Trustees issued a report citing Bush’s subsidy as a major reason that the program would go bankrupt by 2019, seven years earlier than the board predicted last year.
As far as sound economics go, Medicare has really been bankrupt since it began in 1965. Since its inception, virtually every reform intended to fix it and keep it afloat has increased medical costs, decreased health care quality for the elderly, and created problems that politicians would use as excuses to pass new reforms.
Government health insurance for the elderly did not have its debut in America, but rather in Prussia in 1883 under the authoritarian regime of Otto von Bismarck. Bismarck invented mandatory health insurance and social security to keep his subjects subservient and dependent, to prevent the more leftist socialists from gaining popular support, and to help cover the costs of the Franco-Prussian War through payroll taxes masked as retirement savings accounts. His legacy had a huge impact worldwide at the turn of the century, as many countries began adopting similar programs.
Because of the high costs and un-American socialism associated with government health insurance, it took more than half a century for its American supporters to implement it in the United States. It finally happened under Lyndon Johnson’s Great Society in 1965, after congressional Republicans and Democrats finally agreed to combine their competing health insurance programs into one gigantic package called “Medicare.”
In its first year, Medicare payments totaled $1 billion, but by 1971, the payments had already risen to $7.9 billion annually. Congress was surprised by the ballooning costs of health care services, and held hearings and established commissions to fix the problem, the first of several failed attempts.
In 1973, Congress passed the Health Maintenance Organizations Act to deal with Medicare’s exploding cost and to otherwise help workers with their rising health insurance premiums. The law subsidized HMOs, forcing employers to offer the programs to workers. Years later, many would complain that the government-fostered HMO leviathan had become too powerful and bureaucratic and called on the government to step in and fix the problem.
To reduce the amount spent on heath care, Congress passed legislation to limit the construction of hospitals in 1974, and in the early 1980s it established new regulations limiting the length of hospital stays for Medicare patients.
In order to combat the growing problem of Medicare fraud (estimated in 1996 to cost $18 billion annually) Congress included in the 1996 Health Insurance Act criminal and civil penalties for doctors who filled out paperwork incorrectly, or who filed claims for treatments “not medically necessary”—as retroactively determined by the Department of Health and Human Services. Under current law, doctors can face jail time if they provide treatments uncovered by Medicare, even if their patients wish to pay out of pocket for such services.
Even with seven payroll tax hikes in twenty-one years, anti-“fraud” regulations, and other reforms, Medicare is still a disaster. Despite a $150 billion annual Medicare budget, today’s elderly now spend more than twice as much out of pocket than they did before Medicare was enacted, even after accounting for inflation. Seniors who try to circumvent the system by opting out of Medicare altogether must forego all Social Security benefits. Medicare has become morally, as well as fiscally, bankrupt.
The price of healthcare for the elderly has continued to increase, even as Congress passed more and more reforms, further inundating doctors with paperwork and new regulations, and increasing payroll taxes for workers.
Prescription drugs have been especially expensive for seniors, mostly due to the Food and Drug Administration (FDA), which forces drug companies to spend hundreds of billions of dollars to test their drugs before releasing them onto the market, even when such drugs are freely available and safely used in Europe. In order to recoup these costs, pharmaceutical companies must charge exorbitant prices. In the meantime, far more deaths result from the FDA keeping drugs off the market than lives saved from this “protection.”
To “repair” these government-induced health care problems, Bush signed the largest expansion of Medicare since its establishment in 1965. Bush claims that the new plan will save the elderly money, even as Medicare is headed straight for bankruptcy. However, just like all the reforms in the years between, it will fail. Neither small reforms nor huge spending increases will fix the underlying problem. As long as government subsidizes healthcare, prices will rise to whatever the government is willing to pay, taxpayers will suffer, and the elderly will still be left out. Even as Medicare demonstrates the abject failure of government health care, some believe the answer is to extend the program, and nationalize medicine for all of us.
After half a century of effort, Medicare’s proponents finally implemented their beloved program when the healthcare for seniors had never been better. Before the establishment of Medicare and the increased powers of the FDA in the 1960s, America did not have a health care crisis, the nation’s young were insured, and the elderly had easier access to the newest available drugs. Hospital stays were cheaper and doctors did house calls. If Bush were as “compassionate” as he claims, he would work to scrap the morally and economically bankrupt Medicare scam, lift the regulations that keep affordable life-saving drugs from those in need, and restore the relatively free market in medicine that America had before Bismarck’s crooked scheme achieved bipartisan popularity and began undercutting the best healthcare system in the world.
Anthony Gregory is a Research Analyst at The Independent Institute. His articles have appeared in the San Diego Union-Tribune, East Valley Tribune (AZ), Contra Costa Times, The Star (Chicago, IL),Washington Times, Vacaville Reporter, Palo Verde Times, and other newspapers.
Full Biography and Recent Publications