Low Reimbursement Rates Are a Feature Not a Bug


To continue with the Medicare reimbursement rate blogging from yesterday, it’s important to understand that the program’s low reimbursement rates are a feature not a bug. Probably the single most persuasive conservative critique of the social democratic agenda is that programs to provide public services have a tendency to become tilted in favor of the interests of public service providers rather than public service users.

The dynamics of this aren’t hard to understand. Poor people have very little political clout in the United States, anti-tax activists have a lot of political cout in the United States, and public sector unions have a medium amount of clout. So when you set up a program to help poor people, the tendency is for it to be starved of revenue and also for the most powerful advocates for the program to be the providers rather than the clients, meaning that labor costs wind up being a big part of the bundle.

Medicare is an important exception to all these trends. It’s not a program for poor people, it’s a program for old people. Including lots of old people with high levels of social capital and a large proclivity to participate in the political process. Consequently, there’s strong political pressure for generous benefits. That means, on the one hand, that funding levels are high. But it also means that there’s a reasonable amount of interest in getting as much health care services per dollar as possible. Consequently, providers are paid enough to make it worth their while to see Medicare patients, but much less than they’d like to make. The result is not a perfect program (far from it) but this particular aspect of Medicare is an example of big government at its best—serving clients’ interests rather than those of providers.