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The other direct way to make Medicare less costly for the government is to make it more costly for the participants. The Part B premium, for example, was originally intended to finance half the cost of the health care it provides. But now it covers less than a third. Raising the premium, at least for better-off beneficiaries, seems fair enough. The seniors lobby is geared up to label any such change a "tax increase on the elderly," which is unfair, since it is actually a reduction in the subsidy they are receiving. (It is fitting revenge, though, on the conservatives who now propose it, since they have been quick to label many a similar subsidy reduction as a "tax increase" in the past.)
But squeezing the necessary billions directly out of seniors has its limits, besides the obvious political ones. Even now, Medicare covers only about 45% of health-care spending of the elderly. Premiums, co-payments, deductibles and noncovered items like prescription drugs cost the average senior $2,750 a year. And this doesn't even include the enormous expense of long-term nursing-home care. In fact, despite the government's projected $181 billion cost for Medicare this year, seniors today spend more, in real terms, on health care annually than they did before Medicare started in 1965. Most important, shifting the cost of health care from one pocket to another--from the government to seniors themselves--doesn't address the central problem, which is the rising cost of health care generally. That is why serious Medicare reform must involve constraining costs in the best way anyone has yet discovered: through market forces.
The problem is that Adam Smith's invisible hand doesn't work well in the medical marketplace for several reasons, not all of which are easy to change. First, most people are insured, making them fairly indifferent to the cost or necessity of individual health-care purchases. Second, most people don't even buy their own insurance. They get it--heavily subsidized--from their employers or the government. This isolates them even further from the economic consequences of their health-care decisions. Third, most health-care purchasing decisions (to consult a specialist, to take a drug, to have an operation) are made by the doctor--who isn't paying in any event--not by the consumer-patient. Fourth, buying health care is not like buying a cantaloupe: it is hard for any lay person to know which purchases make sense and at what cost. Fifth, even intelligent, well-informed people will never be tough shoppers when their health is at stake. Who is going to bargain with a brain surgeon?