The Problems With Reforming Medicare

Speaking to seniors at an AARP panel on health-care yesterday, President Obama defended his administration against the worry that "saving money" on Medicare would necessarily entail cutting benefits. "Nobody is talking about cutting Medicare benefits," Obama said, according to the Wall Street Journal. Instead, he said, the savings will come from reducing waste and inefficiency in the system. 

Two points:

First, there's genuine reason to worry that reducing Medicare payments would reduce access to doctors. Shifting costs onto doctors will make it tougher for them to operate, and some may respond by simply turning away Medicare patients. This should not be surprising: Medicare fees, which reimburse doctors at rates set by the government, are essentially a form of price control, and price controls almost always exacerbate the possibility of shortages.

Second, it's true that White House budget director Peter Orszag has long argued that there is a significant amount of waste in the Medicare system. He says the government may be able to cut costs by as much as 30 percent. But as former Reason editor Virginia Postrel has already wondered, if that's true, why not simply reform Medicare first and hold off on the rest of the health-care system?

Furthermore, shouldn't we be suspicious of expanding government influence in the health-care market if large government medical programs result in massive, well-documented fraud, waste, and abuse?

Read Reason's archive of health-care coverage here.