The Striker Report

In 1961, a registered Democrat and successful film actor named Ronald Reagan warned the American people about the dangerous allure of socialized medicine:

"One of the traditional methods of imposing statism or socialism on a people has been by way of medicine. It's very easy to disguise a medical program as a humanitarian project."

A former sports caster with a radio-friendly voice, Reagan had released a series of recorded speeches he delivered on behalf of the American Medical Association in their fight against a union-supported health care reform bill then before Congress. He was confident his fellow citizens shared his views:

"Now, the American people, if you put it to them about socialized medicine and gave them a chance to choose, would unhesitatingly vote against it."

Reagan said he was not opposed to Federal assistance for the needy, but that he preferred local support to a centralized government bureaucracy. Nevertheless, in 1965, Congress opted for the insurance extension of Social Security now known as Medicare. More than four decades later the program has become the "third rail" of U.S. entitlement policies; few politicians dare touch it, but it seems increasingly problematic for the long term fiscal health of the United States.

The current battle over health care reform in congress is shaping up as one of the more dramatic showdowns in recent legislative history, pitting free market advocates and the private insurance industry against supporters of expanding the public sector's role in providing or mandating coverage.

While both political parties appear to agree that some changes are necessary to assist the millions of uninsured and under-insured Americans, there are major disagreements on how to achieve this goal, and in particular over the role of the so-called "public option" (essentially a public insurance plan attached to Medicare rates).

Some have opposed the policy on the grounds that it would open the door to a single-payer government takeover of the health insurance industry. Proponents of the public option argue that it must be included in a proposed system of Health Insurance Exchanges to prevent price collusion among private groups. Free market supporters counter that the private companies couldn't possibly compete with the US Treasury.

But no party appears overly eager to address the upward acceleration in Medicare expenditures, and the looming tidal wave of health care cost in general.

According to the Congressional Budget Office, since 1975 annual costs per Medicare enrollee have grown an average of 2.3 percentage points faster than per capita GDP.

Furthermore, the CBO is projecting that under the current law, total spending on health care will rise to 25 percent in 2025 and 49 percent in 2082, while "Federal spending on Medicare (net of beneficiaries' premiums) and Medicaid would rise from 4 percent of GDP in 2007 to 7 percent in 2025 and 19 percent in 2082." The CBO found that demographics were partly to blame, but that costs were rising in general: "The bulk of the projected increase in spending on Medicare and Medicaid is not due to demographic changes (such as increases in the number of beneficiaries) but rather to ongoing increases in costs per beneficiary."

They also determined that, "excess cost growth explains 56 percent of the projected growth in spending, as a percentage of GDP, on the three largest entitlement programs between now and 2080. It explains none of the projected growth in Social Security but 70 percent of that in Medicare and Medicaid."

Back in the private sector, a report released by Business Roundtable recently concluded that per employee health care costs will triple to $28,530 a year in a decade if there is no reform.

"These costs are unsustainable and would put millions of workers at risk," said Antonio Perez, chairman and CEO of Eastman Kodak and chair of Business Roundtable's consumer health and retirement initiative.

In a recent Newsweek editorial, Robert J. Samuelson observed: "The central cause of runaway health spending is clear. Hospitals and doctors are paid mostly on a fee for service basis and reimbursed by insurance, either private or governmental. The open ended payment system encourages doctors and hospitals to provide more services—and patients to expect them."

Overuse of insurance has been blamed for at least some of these inflated costs, which might otherwise be reduced through price negotiation. US patients may be surprised to learn that they can often bargain successfully for lower hospital or doctor prices.

Addressing the Congress, President Obama declared: "I will not sign a plan that adds one dime to our deficits either now or in the future. Period." But an AP fact check found that one of the Democratic plans would add $220 billion to the deficit over 10 years according to the CBO.

The bottom line: health care costs in the US at the current rate are almost certainly unsustainable in a low growth economy, especially one that is losing jobs.

President Reagan was a man famous for his love of anecdotes, thus he might have appreciated the recent story of a Littleton, Colorado man who, after spending one night in the hospital, got a bill for $58,000.