More Medicare Is Not The Answer

Matthew Yglesias is again misrepresenting Medicare, advocating that more of it is the answer to high healthcare prices. As Steven Brill has pointed out, tightening the antitrust laws is the real answer to the problem (although Brill may not really believe his own suggestion). But Yglesias is a known devotee of Big Government, worshipping at its altar, so it’s no surprise that his solution is central planning and price controls. Yeah, that’s the ticket:  315 million people firmly under the thumb of the central authority (for what is a local activity).

Yglesias is wrong when he claims that Medicare is more efficient than healthcare obtained through private health plans. The government does not have a separate system with its own hospitals and doctors who treat people covered under Medicare. Rather everyone uses the same providers and everyone gets the same treatment – the only difference is the source of payment. Yglesias claims that Medicare’s volume and “vast bargaining clout” gives Medicare lower prices, but such a claim is dubious.

Healthcare is a local activity and because it’s local, the number of Medicare patients in any one geographic market may be no larger than the volume that private health plans can offer to providers. Thus, based on volume, the private health plans should be able to wrangle similar prices in most markets. The reason that Medicare has lower prices is because the government arbitrarily sets low prices. Providers accept them because they can make up the difference by charging higher prices to the private health plans.

The higher prices paid by the private sector represents a hidden tax used to subsidize Medicare’s prices. When the private sector eventually disappears, as would happen as more people are covered by Medicare (according to the Yglesias plan), the subsidies would also disappear. At that point, the cat’s out of the bag and we’ll all be looking at a system defined by central planning and explicit price controls. Of course, Yglesias and other liberals would love a single-payer system, but it’s hardly a good idea.

The historical evidence shows that price controls and centrally planned economies are always inferior to decentralized ones that rely on markets and competition. Any government can lower costs by implementing price controls and restricting access to healthcare. But what does that give us? Nothing more than low quality healthcare, stagnation, and eventual decline. Costs may be lower in Europe, but then European healthcare systems either provide lower quality care or most likely have been able to maintain quality by free-riding on the American system.

When the U.S. completes the movement to centralized healthcare, the free-riding ends and we will all be worse off. Are liberals just ignorant about the effects of central planning and price controls that they advocate? Or do they understand the effects, but are okay with them because they believe that central planning will bring about greater equality (by lowering the quality of life for everyone)? As a factual matter, centrally planned economies do not result in greater equality, but even if they did, harming everyone to do so would be despicable.

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