Left and Right Attack Medicare

William Salganik (The Baltimore Sun) writes a thoughtful article, “Assessing the new Medicare” in the Albany Democratic Herald, 31 December 2005.

“It’s projected to cost $724 billion over the next 10 years. It’s expected to enroll nearly 30 million seniors and people with disabilities. It relies on private insurance companies to deliver a big new government benefit. It begins today.”

Salganik reviews the views, pro and contra across the political spectrum. I liked his quotation from academe:

“It’s a huge natural experiment,’’ said Stephen Soumerai, a professor at Harvard Medical School. “We’re going to have a research agenda for a lifetime.’’

What (cynical?) insight!

The crunch assessment comes later in his article (read it whole at;: http://www.dhonline.com/articles/2005/12/31/news/nation/sunnat04.txt)

“Critics on the left, however, say the program expressly omits the most effective way to save money — using the government’s purchasing power.“If we’re really concerned about negotiating the best prices possible, the best way is to buy in bulk for all 43 million beneficiaries,’’ said Judith Stein, director of the Connecticut-based Center for Medicare Advocacy. “Wal-Mart figured that out. Wal-Marts in Baltimore and in Hartford (Conn.) don’t negotiate on their own.’’Instead, she said, “It’s moving Medicare in a more expensive and more privatized direction.’’

Critics on the right dispute that it’s a true free-market exercise. Pointing to 1,132 pages of regulations for the program, and invoking the intellectual godfather of laissez-faire economics, Robert E. Moffit, director of the Center for Health Policy Studies at The Heritage Foundation, said, “This is not a benefit designed by the private market. The left is wrong to imply that this weird benefit, with the doughnut hole, is somehow a product of an Adam Smith approach.’’

Judith Stein must be naïve about Big Government bulk purchases being as efficient as Wal-Mart’s. In my ‘defence research’ days, I interviewed an MoD procurement officer, who had worked for many years in the private defence contracting sector and who reported that a simple component for a computer storage system, which he had actively marketed for the private company to other private companies, had recently been adopted by the MoD. Instead of ordering from stock for a few pounds, the MoD required it to go through the entire procurement process, from scratch, with everything open to re-definition and re-design. This raised its estimated acquisition cost to hundreds of pounds per copy, would delay delivery and operational use by several years and potentially add yet more costs to its replacements, assuming it avoided obsolescence before going into service.

If you want an expensive way to purchase anything, get the government to undertake it.

Robert E. Moffit is wrong to assert that “The left is wrong to imply that this weird benefit, with the doughnut hole, is somehow a product of an Adam Smith approach.’’

The ‘doughnut hole’ refers to the provisions in Medicare that exclude the costs of certain medicines whilst covering the costs of others.

Smith’s views on public funding and public provision were pragmatic. Whether the construction of a project and its post-completion management was undertaken by the public or private sector should depend on which did it most efficiently and economically. Public commissioners could be indolent; private contractors could be corrupt. Choose the best or, failing that, experiment with both kinds across the country. Get Wal-Mart et al to take over Medicare purchasing under licence from the government – that should please both Judith Stein and Robert Moffit.

Smith also envisaged individuals paying something towards the benefits they achieve under a scheme (e.g., in his advocacy of little schools in each village to educate all the children, rich and poor, which included some minimal payment, even a penny, from everybody). In Medicare the idea is that people help to fund it, and the fact of the ‘doughnut’ (what a fresh approach to the imaginative use of language we get from the US!) ought not to condemn a programme from right or left. It would not have been criticised by Adam Smith.