Medicare: The Problem and the Solution?

What has the most potential to mire the United States in long-term debt? According to White House Office of Management and Budget Director Peter Orszag, the answer is Medicare and Medicaid.

Orszag writes that every other federal program's effect on future deficits and debt is "swamped" by the effects of these two flagship government-run health care programs. His solution? Create a massive new Medicare-like program, in the form of a universal "public option" for health insurance.

If only life were so easy in other realms. Overweight people could get thinner by eating more. The New York Yankees could fill their empty seats by raising their ticket prices still higher. The housing crisis could be solved by encouraging more loans to unqualified buyers.

But no one would ever propose such things -- at least no one outside of Washington.

Orszag's statement is puzzling. Obviously, he's a smart guy. How could he seriously think that the way to stop our drift toward financial disaster is to paddle harder toward the falls?

Orszag seems to believe that the underlying problem of skyrocketing Medicare and Medicaid costs is the rising costs of all health care nationwide. He seems to view the costs of Medicare and Medicaid as the cart, not the horse. If only we could get nationwide health care costs in line (the thinking apparently goes), we could also get Medicare and Medicaid costs in line.

In short, Orszag -- like President Obama -- seems to believe that if the government takes over health care it could impose lower prices by fiat, and our looming deficit nightmare could be avoided.

There are four central problems with this plan:

1. Government-run health care has proven to be far less affordable than privately run care. As research that I've recently had published by the Pacific Research Institute reveals, since 1970, Medicare's per-patient costs have risen 34% more per patient than the combined costs of all health care in America apart from Medicare and Medicaid -- the vast majority of which is provided by the private sector. Medicare's costs have risen $2,511 more per patient.