Remember the Medicare Catastrophic Coverage Act of 1988? A lesson for today?

The following is extracted from a comment on this blog related to a post about raising the Medicare eligibility age.

Back in 1988, Congress passed and Ronald Reagan signed into law the Medicare Catastrophic Coverage Act of 1988. It was designed to limit seniors’ annual out of pocket costs to $2,000. It was endorsed by the AARP. Everything was fine, until retirees (the beneficiaries themselves) found out that THEY would be paying the full cost of the expanded coverage through an income tax surcharge. 

We saw something that almost never happens. Before most of the provisions of the law could take effect, it was REPEALED. Retirees let Congress know that they were certainly in favor of lower costs and lower out of pocket spend – so long as someone else paid. Bottom line, at least a quarter of the added amount you and I pay (maybe 10% of our cost of services) is needed so providers can comply and subsidize treatment of Medicare eligibles. So long as Congress (and not markets) sets prices so as to maximize vote buying, that’s what we will have.  

This lesson from the past is relevant today and ultimately portends health care in the future.

image1When you try to sort through the health care debate, the political rhetoric and the “expert” analysis, keep the following in mind. It is absolute the gospel truth, I promise.

  1. Nobody wants to spend their money, any of their money, on health care. It has nothing to do with affordability. It has everything to do with perceptions and the hierarchy of spending satisfaction. Here is a simple example, why was it necessary to provide free contraception under Obamacare when that drug was easily affordable to women either at full price or with a minimal co-pay?  Why is Clinton proposing full coverage for three routine office visits a year estimated to save the average person a total of $100?
  2. The application of market forces and consumerism to control health care costs via patient shopping does not work because of #1 above and the fact health care is too emotional and at times too scary to place price at the top of the decision process.
  3. If you squeeze one segment of the health care delivery system it will manifest itself elsewhere. That is, if you restrict payments, you restrict accessibility, and costs are shifted elsewhere. In some cases unit price restriction will result in higher utilization.
  4. If you use a single-payer system financed with taxes, you diminish cost considerations by patient and provider. Overall spending increases steadily. To manage costs these systems must use bureaucratic processes to limit payments and the care provided (and continuously raise taxes). This takes various forms of what most people would classify as rationing of health care.

However, having said all the above and perhaps because of the above, I have no doubt that the United States is headed for a single-payer system for no other reason other than it provides universal coverage with minimal cost at the point of service and hides real costs within payroll taxes that soon disappear from the conscious mind while nobody cares about or understands the consequences.


  1. Today’s Seattle Times has a front page article about the proposed increases in health care premiums in the State of Washington. Premera submitted (to the State’s Insurance Commissioner) the highest request, a 20% increase in premiums, others are somewhat less. The average is about 13% across the board.


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