Medicare and Doctor Availability

Ezra Klein writes about doctors who are curtailing the amount of time they’re willing to spend treating Medicare patients:

One of the dirty little secrets of the health-care system is that Medicare has done a much better job controlling costs (pdf) than private health insurers.

The problem is that Medicare can’t control costs too much better than private insurers or, as you see from the article above, doctors will simply abandon Medicare. In a world where there’s only Medicare and Medicare decides to control costs, doctors can either take the pay cut or stop being doctors. And as we see from other countries, lots of people want to be doctors, even if being a doctor doesn’t make you particularly wealthy. But in a world where Medicare is just one of many payers and Medicare decides to control costs, doctors can simply stop taking Medicare patients and a lot of legislators will lose their jobs.

I always think this concern is overblown if taken literally. It’s true that any particular doctor can refuse to see Medicare patients and instead fill his schedule with the privately insured, but doctors as a whole can’t do this. Medicare beneficiaries are too big a slice of the market for the entire doctoring industry to give them up as clients. Instead what you’re looking at is that in markets with meaningful competition among health care providers, the most in-demand providers are filling their schedules with the highest-paying customers — i.e., not Medicare beneficiaries. Medicaid has even lower payment rates than Medicare and so we already have a quite robust “lower-tier” of health care providers who take Medicaid patients and a higher tier that doesn’t. If Medicare and private payment rates diverge, we could see a more elaborate three-tier system.


Alternatively, Congress could choose to seriously crack down on doctors. They could pass a law next saying that doctors who want to see patients who benefit from tax-subsidized group health insurance plans (i.e., basically all health plans) need to see Medicare patients on equal terms. There could still be a tiny “top tier” of super-exclusive medical boutiques in New York and LA, but basically you’d eliminate the problem here at the cost of pissing off doctors.

The larger point is that there’s nothing stopping us from creating a de facto system of national price controls for what we pay to health care providers. There are a lot of reasons why we don’t do it, some good and some bad, but the option of “controlling health care costs” by telling the health care industry it needs to start charging prices that are closer to marginal cost will “work” fine. The whole industry is systematically dependent on explicit and implicit government subsidies (direct public spending, tax subsidies, patents, etc.) so there’s not some shortage of levers you could apply if you wanted to.