Plane Rides and Medicare

Gary Wolfram
 
Issue CCXLV - April 23, 2010
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On my plane ride back to Hillsdale from a whirlwind speaking tour -- Florida, California, DC and back to California -- I sat beside a doctor and another traveler. As I was grading exams, I tried to avoid engaging in the conversation between my fellow passengers, but couldn’t help overhearing the discussion. The doctor was explaining how the people who are making up the tea-party movement are a bunch of “idiots,” in his words. He gave as an example the case of one of his patients who receives Medicare. The doctor related how he challenged the patient to admit that Medicare was socialized medicine and that it works. The doctor’s explanation for the wonderful workings of Medicare was that the patient had received a lot of expensive medical care and that the patient did not have to pay for it. This was proof that socialized medicine works.

My first instinct was to jump into the conversation and mention that the government’s own report of the Social Security and Medicare Trust Fund lists the unfunded liabilities of Medicare at $88 trillion and states that the program is not sustainable. The problem is that I knew I would never get my exams done if this happened, so I was content to listen and think. Obviously, the Medicare program works for the doctor. He is able to charge the United States government for services that the patient would never buy on his own. This added demand bids up the price of the doctor’s services, and the doctor is paid regardless of how happy the patient is with the doctor’s work.  But the more interesting concept is that the doctor seems to think that because someone else is paying for the services, they are free. It is as if the act of someone else paying for something has created the good or service out of thin air. What the doctor fails to see is that I am able to purchase fewer goods and services because my income is taxed away to pay for the fees the doctor charges his Medicare patient.

The Medicare system “works” in the doctor’s view because the promises made to those currently over 65 are being made by taxing the rest of us. But soon these promises will not be made. The dedicated revenue from the payroll tax assigned to Medicare is currently not enough to cover the payouts, and this situation is going to get worse. At some point the competing demands for federal revenues will overwhelm the demands of the Medicare system, and the tax burden to fund the system will become such a significant drag on the economy that the general population will demand changes. As Milton Friedman pointed out many years ago, there is no such thing as a free lunch. Unfortunately, my fellow passengers seem to think the opposite, and I fear their opinion is reflective of many in America who fail to see that resources used up in the production of medical services cannot be used to produce something else.

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