I have had two
experiences this week that suggest that the government is providing too much
subsidy for Medicare. In one case, I received my 2013 plan materials from my
Medicare Advantage plan. In the other, I had a medical episode that required
extensive testing with high-technology equipment, and consultation with
professional medical staff, for which I paid $20.
Under my Medicare
Advantage plan, the amounts I pay for various services will actually be
reduced. The maximum “out-of-pocket” amount that I will pay for all hospital
and doctor services during the year is $3900 – a reduction of $1000 from this
year’s $4900. For visits to my primary care physician, I now have a copayment
of $5.00. Next year they will be free – no copayment. The cost of visits to
specialists will be reduced from $35 to $20, and numerous other medical
services will have a similar reduction.
In the other
episode, I had to visit a hospital for a barium swallow test after a pill I
swallowed went into my lungs rather than my esophagus. The test required a
speech therapist to feed me various foods and watch the course of the foods
through my throat on a very expensive looking x-ray machine. She will later
write a report that will be sent to my specialist doctor. The process took 40
minutes, used expensive equipment, and included a detailed conversation with the
speech therapist about what I could do to avoid further episodes. The hospital
charge for the test was $180, there was an insurance discount (required by
Medicare) of $80, the hospital billed Medicare for $80, and I paid $20.
These prices are
ridiculous because I can easily afford to pay more. It may be reasonable to provide highly
discounted prices to low-income persons who really don’t have money to pay for
medical care (many of whom would be on Medicaid), but any reasonably affluent
person could afford to pay more than I paid above for important medical
services. The problem is not just that I am getting away with a cheap price; it
is that other people are subsidizing that price through their taxes. With a one
trillion dollar annual deficit, in order to save me $1000 in my annual medical
costs, the government will be forced to borrow money from China.
Subsidization by
the government of such routine medical expenditures as doctor visits or lab
tests subverts the purpose of insurance, which should be to protect against the
costs of major medical events. Earlier in the year, I had a knee replacement
operation, in which I spent three nights in the hospital. The hospital billed
the government $108,000; Medicare disallowed $96,000, but paid $12,000 for the
services provided to me. The initial bill obviously overstates the hospital’s
costs, but the net amount seemed reasonable, if not a little bit less than what
I had expected. The savings to me were substantial and an appropriate subject
for insurance.
The price
reductions imposed by Medicare also have unfortunate economic consequences. The
marginal cost of a visit to my primary care physician is now zero. Now, anyone
with a sniffle can go to the doctor for free, while previously, the minimal
expenditure of five dollars would have dissuaded many people from bothering to
go. I suspect there will be a substantial increase of patients in doctors’ waiting
rooms. This, of course, imposes a noneconomic cost in terms of waiting time
that is probably the equivalent of the five dollar fee. But the fee is much
more efficient as a market clearing mechanism.
There has been
political discussion about means testing Medicare, with even President Obama
supporting the concept. However, these discussions seem to have focused on
increasing premiums for wealthier Americans. I suspect there would be more
impact on Medicare expenditures if we means tested payments by the individual
for medical services. A more affluent person might not be dissuaded from a
doctor visit by a $20 co-pay, but might decide that $100 co-pay makes the visit not
worth the expense. Whichever way it goes, there ultimately should be some form
of means-testing.
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