NCPA - National Center for Policy Analysis


January 26, 2006

During next week's State of the Union address, President Bush will cite rising health costs as a major problem for Americans and their businesses, and he will outline steps to strengthen health savings accounts as a remedy. But, if the president is serious about health reform, he will have to tackle Medicare, says David Gratzer, a senior fellow at the Manhattan Institute.

Medicare needs to be fundamentally rethought, says Gratzer. Faced with rising costs over the past four decades, the only real response has been a bipartisan exercise in wage and price controls. The results have been dismal:

  • In cities such as Denver, it is hard for the elderly to find a doctor. According to a new study by the Center for Studying Health System Change, nearly 30 percent of American physicians will not accept new Medicare patients.
  • Medicare requires hospitals and other providers to comply with over 130,000 pages of regulations, according to a Mayo Clinic estimate. A study for the American Hospital Association found that for every hour of care delivered to a Medicare patient, hospital officials spend roughly a half-hour completing the paperwork.
  • "One unintended consequence of Medicare's administered pricing systems," notes a recent Federal Trade Commission report, "has been to make some hospital services extraordinarily lucrative and others unprofitable. As a result, some services are more available (and others less available) than they would be in a competitive market."

The pricing and regulations of this massive federal program have a profound impact on the rest of health care. With its controls, Medicare bureaucrats simply shift costs over to insured Americans. And if we really fret over rising health care costs, Medicare gives us plenty of reason for angst: It will consume 25 percent of federal income-tax revenues by 2030, says Gratzer.

Source: David Gratzer, "Health of the Union," Wall Street Journal, January 26, 2006.

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