Return to main page
A Rational Advocate
"The most formidable weapon against errors of any kind is reason"

Why Medicare and Medicaid are going broke
By Ben Cerruit on May 30, 2011

A recent government report estimated that Medicare will run out of money in 2024. It should be obvious that Medicare and Medicaid are going broke simply because the prices for medical services are set artificially. It is an established fact of economics that the only way to establish the real price of any product or service is in the competitive market place where consumers pay directly to a supplier. Please note the following excerpt from Wikipedia ( which describes the present pricing method used.

“Medicare and Medicaid are managed at the Federal level by the Centers for Medicare and Medicaid Services (CMS). CMS sets fee schedules for medical services through Prospective Payment Systems (PPS) for inpatient care, outpatient care, and other services. [19] As the largest single purchaser of medical services in the US, Medicare's fixed pricing schedules have a significant impact on the market. These prices are set based on CMS' analysis of labor and resource input costs for different medical services.

As part of Medicare's pricing system, Relative Value Units (RVUs) are assigned to every medical procedure. [20] One RVU translates into a dollar value that varies by region and by year; in 2005 the base (not location adjusted) RVU equaled roughly $37.90. Major insurers use Medicare's RVU calculations when negotiating payment schedules with providers, and many insurers simply adopt Medicare's payment schedule”.

After reading this excerpt it surely cannot be denied that the method used is price control. We only have to look into our past history to note that every time our government has tried price controls it has caused undesireable effects. Under President Nixon’s administration the price controls that were set preceding the interest rate bubble caused hyperinflation and rationing of some products. In fact, a prime example is the economic failure of the present price controlled government directed health care system wherein Medicare and Medicaid are going broke.

Common sense should tell us that in order to continue to provide medical services for those served by Medicare and Medicaid it is essential to determine the true cost by way of allowing it to be determined between the patient and his health service provider in a competitive market place. A single payer system or quasi-single payer system such as now exists simply cannot provide the care desired over the long term and is more than likely to require rationing of care. It has the least chance of maintaining the quality of care that presently exists.

Representative Paul Ryan has proposed a plan that is designed to save Medicare and Medicaid by creating a sound economic footing for it in the future. It will meet the same standards as provided for health benefits given to members of Congress. His plan will continue the present system for those presently over 55 years of age. However for those who are now under 55, upon reaching 65 would be provided a standard Medicare payment for the purchase of private health coverage. When fully phased in, the individual payment provided would be equivalent to the average amount Medicare currently spends per beneficiary and is indexed for inflation.

The payment will be made directly to the health plan designated by the beneficiary with the beneficiary receiving any leftover amount as a payment from the health plan, or assuming financial responsibility for any difference in the payment and the total cost of the premium. This allows the Medicare beneficiary to invest the leftover amount in a Medical Savings Account [MSA] to pay for other medical expenses, or to purchase long-term care insurance. . While any Medicare beneficiary, regardless of income level, is able to set up a tax-free MSA if desired, the new program establishes and funds an MSA for low-income beneficiaries. For details see .

It is evident that a Medicare system based on an artificial pricing of medical services will never be able to set them to effect realistic cost for service provided. Recognition must be given to the fact that a third party (government) is no substitute for direct interface between consumer and provider in the determination of cost. The Paul Ryan plan is the only one that has been introduced to address this issue and should be supported by those who want to save the best health care system in the world. To continue with Medicare as it presently exists will surely result in many now less than 55 years of age not able to afford the health care they may need.

In Association with
Enter friend's e-mail address:

  back to top
return to index page
to book shelf   to music shelf
Send your comments to