to the editor: In his editorial¹ on health care reform published in the September 1, 2005, issue of American Family Physician, Dr. Geyman states that health care costs can be reduced by turning our health care delivery system over to a government monopoly. With all due respect to Dr. Geyman, this notion ignores economic history. The 1967 House Ways and Means Committee predicted that Medicare would cost the country $12 billion by 1990.² The actual cost in 1990 in constant dollars was a staggering 900 percent of that estimate: $107 billion.² In 1987, Congress estimated the cost of the Medicaid Special Hospitals Subsidy at $100 million in 1992.³ The actual cost was $11 billion.³

When the Medicare Prescription Drug Benefit was first proposed by the current Bush Administration, the price tag was originally $400 billion. As of this writing, the most recent upward revision stands at $1.2 trillion over the next decade.^4,5

The U.S. government’s track record on health care delivery cost containment is abysmal. If there is some reason that the government would suddenly become a model of fiscal responsibility and efficiency if it had monopolistic control over all health care in the country, I would like to hear it.

in reply: Although Dr. Newbell is correct in pointing out the gross underestimates of future health care costs of the Medicare and Medicaid programs, it is incorrect to draw the conclusion that the government is the cause of such cost overruns. The causes of health care inflation are relentless and complex, including the impacts of medical technology, increasing age of the population, administrative bureaucracy, fragmentation of our market-based system, as well as other factors. There also is considerable evidence that the private sector alternative is less effective at controlling costs than government programs.

Using the Medicare system as an example, here are some of the reasons why we can expect that a single-payer program of government-financed national health insurance (especially if not distorted by the inefficiencies and profiteering of the private sector) would indeed be more effective in containing costs than our present market-based system:

• As a single-payer program, Medicare operates with an administrative overhead of 3 percent, whereas the overhead of private insurers is five to nine times higher¹;

• Between the mid-1980s and 2000, traditional fee-for-service Medicare contained costs much better than private Medicare plans²;

• Medicare could be even more effective in cost containment if it were not hamstrung by “corporate compromises” over the years (e.g., the original political decision in 1965 to contract out administration of the program to private insurers as intermediaries for claims processing, provider reimbursement, and auditing³; the explicit prohibition in the Medicare Prescription Drug Improvement and Modernization Act of 2003 against the government negotiating price discounts of prescription drugs; and wasteful overpayments and subsidies to private Medicare plans)⁴;

• The Veterans Administration, as a single-payer government program for about 5 million veterans, is able to achieve price discounts of more than 40 percent for prescription drugs through bulk purchasing negotiations.⁵ If Medicare were allowed to use its negotiating clout for more than 41 million beneficiaries, it could obviously achieve major savings in the cost of drugs, medical devices, and supplies; and

• Federal overpayments to private Medicare health maintenance organizations (HMOs) between 1998 and 2000 exceeded the costs of traditional Medicare by an average of 13.2 percent each year.⁶

The genesis of health care inflation is not the government, but rather the still unaccountable market-based system, including private exploitation of public programs as a result of political decisions along the way. Unfortunately, health care progressively is being priced beyond the reach of an ever-larger part of the population. For real health care reform, we need to seek efficient and cost-effective programs that will provide better access, affordability, and quality of care for all Americans while reducing waste and profiteering on the backs of sick people.