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Medicare Rx Reform: The Road to Medical Serfdom

By Sheldon Richman

June 23, 2003

A 30-year-old woman with multiple sclerosis was prescribed the drug Avonex by her neurologist. Her husband was trained to administer the weekly injections, because her poor vision prevents her from doing it herself. A state program helped pay for the drug. They were satisfied with this setup because it met their family's needs.

But then one day she heard from the supplier of her medicine. The representative told her that her pending order had been cancelled because Medicare had started covering the drug—but only if the injections were given by a physician. The state program that formerly covered her had to defer to Medicare.

"Kind of a problem for someone who cannot drive to get there and lives approximately 50 miles from her neurologist who prescribed the drug," she says. "Now I have to figure out what I am going to do because I will not get my meds in time for my next injection."

When Government Pays, Government Controls

This story is disturbing—and ominous, considering that Congress and President Bush are on their way to adding prescription-drug coverage to the regular Medicare program for seniors. Are similar restrictions in store for them? Will bureaucrats be making rules about what drugs can be taken, for what ailments, in what manner, and administered by whom? There is every reason to think so. When government pays, government controls. And controls tend to expand.

At this writing, it appears Congress likely will pass and President Bush will sign a bill to help Medicare participants obtain medicine by subsidizing their purchase of private prescription-drug coverage or their enrollment in managed care. (The plan would limit the alternatives to traditional Medicare to three low bidders per region.) Democrats and Republicans are on board, although some obviously see this as only the beginning. Sen. Edward M. Kennedy (D-Mass.), who supports the plan, says, "We'll expand it over a period of time."

New Rx Benefit Not So Simple

The new Medicare prescription-drug plan may sound like an innocuous proposal. Surely in a rich country like the United States we can afford it. But it's not so simple. For one thing, any such plan requires some people to be forced to subsidize others. That's a mark against it right from the start. Moreover, what if the real price of the plan is the crippling of medical freedom as well as the pharmaceutical industry, which has provided myriad life-saving drugs that often obviate the need for more costly surgery? That is what's at stake. This is no exaggeration.

Bureaucracy Will Set Terms for Medicine

Regardless of how the government provides the coverage, a bureaucracy will gain the power to set the terms for the sale of medicine. When insurance companies and managed-care organizations are dependent on government checks, government officials can call the tune. Since the elderly vote in large numbers, the political dynamic will favor keeping drug prices, and hence the price of coverage, artificially low. This will have at least two effects.

Increased Consumer Demand and Higher Price Rx Program

Demand will be stimulated because the closer a price is to zero, the more the product will be consumed. Medicine is no different. Congress has given itself a $400 billion ten-year cost limit for drug coverage. But that will turn out to be dramatically below actual costs, just as Medicare's estimates were way off. (Its original projection of the 1990 cost of Part A hospital insurance was $9 billion. The actual cost was $66 billion.)

When the price of the program goes through the ceiling, we'll see a host of restrictions on what drugs the elderly can buy. A program touted as liberating will end up constraining. Freedom to choose one's treatment will be further restricted.

Price Controls Will Stifle Innovation

We'll also see price controls imposed in an effort to control the budget. There is no more efficient way to destroy productive activity than with price controls. When government imposes prices below the market-clearing level, shortages will result.

What's more, the development of new drugs will be stultified. It takes hundreds of millions of dollars to bring a new drug to the market. No one will make that investment without the prospect of an attractive return. If prices are controlled for Medicare participants through ceilings on insurance premiums or managed-care fees, pharmaceutical companies may try to recoup their losses by raising prices for non-Medicare patients.

Nationalization of Health Care

The results of interfering with the drug market will harm the American people, but it will help those who want the government to take over all medical care. The medical "reforms" of the past few decades have been setting the stage for the nationalization of medicine.

Each time a regulation failed to make things better, another was passed, with private enterprise taking the blame. When it's clear that no one is satisfied with this effort to provide drug coverage, the advocates of socialized medicine will demonize the pharmaceutical and insurance companies and declare that it's time to turn everything over to benevolent government. That will be the final knell for medical freedom in the United States.

Free-Market Medicine Has Been Lacking for Many Years

While all this bogus reform is going on, the legitimate way to bring down the cost of medicine goes neglected. From the way people talk, you'd think the current problems stem from an existing free market, but nothing could be more wrong.

There's been no free market in medicine for many years. Dubious patent laws interfere with competition. The Food and Drug Administration grossly raises the cost of developing new medicines. And government control through licensing and prescriptions cartelize the entire medical profession.

If the reformers were really interested in lowering medical costs for retired people and everyone else, they'd be addressing those issues instead of paving the road to medical serfdom.

Sheldon Richman is editor of Ideas on Liberty, the magazine published by the Foundation for Economic Education.

This article was originally published in the May/June 2003 issue of Health Freedom Watch.