April 10, 2011 5:10PM

When Too Much Money’s the Problem…

By Jagadeesh Gokhale

Last Friday’s PBS NewsHour included a debate between NYT columnist David Brooks and WaPo columnist Ruth Marcus on the budget fights on Capitol Hill. Marcus was sitting in for NewsHour regular Mark Shields, whose comments I find thoughtful and worth contemplating. Unfortunately, on Friday Marcus didn’t meet Shield’s standard.


In discussing House Budget Committee chair Paul Ryan’s proposal that Medicaid be converted to a block grant program with the states taking a broader administrative role, Marcus offers:

RUTH MARCUS: The cuts in here are so dramatic. They are so painful. And they — and many of them are focused — I know this is not his intention, but he turns, for example, Medicaid, which is the health‐​care program for poor people, into a block grant. You give it to states.


But then it just doesn’t grow enough to deal with the increase in health‐​care costs. Well, what happens to these people?

Is she serious!?


Marcus seems not to understand that government subsidies to health care consumption, in the form of such programs as Medicare and Medicaid as well as employer tax exclusions for health insurance benefits, contribute to the rapid growth in health care costs. That is, by flooding the health care market with government money, the market ends up with many dollars chasing few worthwhile health care products, which results in rising health care prices. Moreover, the subsidies siphon away health care resources from the private‐​payer health care market, causing cost in that sector to increase rapidly as well.


Subsidies aren’t the only government policies contributing to rising health care costs. Government restrictions on the supply of health care services also play a role. Among those supply restrictions are the ban on drug importation, a very costly and difficult new‐​drug testing regime, and unnecessarily restrictive licensing of health care professionals.


The rapid rise in health care costs is primarily the consequence of government policies. For Marcus to say that we should maintain the current subsidy system for health care because, without it, Medicaid patients won’t be able to keep up with health care cost increases is … well … not very good commentary.