Seven—
Medicare

Delivering a service such as medical care is inherently more problematic than distributing income-maintenance checks. But American efforts to develop public medical-care programs have encountered exceptional difficulties, in large part because such initiatives have generally been perceived by physicians and other medical-care providers as infringing on their professional autonomy. Whereas public income maintenance fills a void that intrigues few if any private practitioners, public medical-care policy challenges increasingly powerful private interests. Thus ideological positions concerning the boundary between public and private spheres become pretexts for entrenched private economic interests.

As we shift our attention to indispensable services such as medical care, questions about how recipients are to earn their benefits no longer monopolize our attention because providers' attitudes become a much more prominent issue. Nonetheless, there are two important reasons for including service provision in our analysis of the investments approach. First, by examining a basic service such as medical care we learn something about the limitations of the investments approach with respect to social services in general. Second, we are reminded that severe resource inadequacy problems cannot be resolved by income maintenance alone. Access to medical care is an integral aspect of comprehensive protection against severe social hazards.

Historical Background

In comparison to other advanced industrial societies the United States remains a "laggard" with respect to public medical-care

programs.^[1] Although the nation's preventive public health measures—water and sewage treatment, garbage collection, and inoculation against selective infectious diseases—are generally sound, public programs involving therapeutic medicine are distinctly more circumscribed in the United States than in comparable industrial societies. Most noticeably, the United States has no public program to assure universal or minimally widespread and comprehensive medical care. In the twentieth century four separate and lengthy efforts to achieve some form of national health insurance in the United States have failed.

The first of these crusades, in the years preceding World War I, was prompted by the American Association for Labor Legislation (AALL) and other progressive groups.^[2] AALL leaders saw public health insurance as a natural extension of workers' compensation insurance. Having had some success at the state level on the latter, the AALL began state campaigns for public health insurance programs. The AALL's proposals focused primarily on protecting low-income workers against poverty arising from illness. Provisions included sick pay and some coverage for the costs of medical services. Given the relatively low medical costs at the time, sick pay was as important as the insurance provisions.

The AALL argued strongly for the macroeconomic benefits of its plan: health insurance would improve economic efficiency by reducing various industrial costs—worker absenteeism—associated with existing working conditions. As the Progressive candidate for the presidency in 1912, Theodore Roosevelt put a political twist on this proposition, maintaining that no nation could be strong if its population was highly vulnerable to illness.

But business interests rejected these claims of economic efficiency. The AALL plan was also opposed by organized labor, particularly Samuel Gompers and the American Federation of Labor, primarily because they saw it as preempting the unions from winning medical benefits for their workers and thus undercutting the advantages of union membership. For a time the American Medical Association (AMA) cooperated with AALL, but members increasingly perceived the proposal as threatening.^[3] Having thus failed to establish broad-based support, the AALL campaign dissipated during World War I. The war effort distracted attention from public health insurance, and German social programs—from

which the AALL proposal borrowed—became the subject of a barrage of intense and highly negative propaganda.

A strikingly different campaign for public health insurance surfaced in the late 1920s. By this time medical care had become much more expensive, and now reformers focused on public health insurance as a vehicle for helping the middle class afford medical care. The Great Depression, however, posed more urgent social issues, and public health insurance did not get much attention from the New Deal until 1938. Physicians and hospitals had not been spared from economic disasters, and some welcomed talk of public health insurance as a means of expanding the demand for medical care. But by the time the Roosevelt administration sent its proposals to Congress in late 1938, Congress had become more conservative and resistant to New Deal efforts. In 1939 a related proposal, sponsored by New York Senator Robert F. Wagner, was also rejected. And again international turmoil and a world war turned everyone's attention away from domestic issues.^[4]

The third wave of reform began in 1943 and eventually led to the creation of Medicare in 1965. Unlike its two predecessors, this initiative was increasingly dominated by the federal government and garnered the support of new interest groups, particularly organized labor. These proposals looked to the federal government, rather than state governments, and more nearly embodied the concepts of universal and comprehensive coverage. The Wagner-Murray-Dingell bills, introduced in 1943, were the first such proposals. In 1945 President Truman wrested initiative from the Congress with a broader and in some respects more ambitious plan that called for federal funding of hospital expansion, medical research, and medical education and the expansion of the largely preventive public health program for mothers and children—the Maternal and Child Health Program.^[5] The most controversial point was Truman's proposal for a national health insurance scheme that would cover not only social security recipients but citizens generally.

Certainly Truman's proposals had several features that were attractive to medical providers: federal subsidies to enhance the profession's capital—hospitals, research, and education—and to finance demand for medical services. None of Truman's proposals

would have affected existing patterns of medical-care delivery; the dominance and autonomy of physicians were to remain intact. Nonetheless, the AMA, the American Hospital Association, and the Chamber of Commerce, among other groups, opposed aspects of the plan with varying degrees of ferocity. The AMA led the battle against a government presence in medical care with an unprecedented lobbying and public relations effort. As the Cold War intensified, opponents of national health insurance tarred the proposal as a socialist ploy.

In the aftermath of this defeat, proponents of national health insurance—officials in the Social Security Administration and a few other executive bureaucracies, specific members of Congress, some presidents, organized labor, and an assortment of liberal funders and intellectuals—generally adopted an incremental approach to achieving a legislative victory.^[6] A similar tactic proved effective in bringing disabled workers into the social security system, but the government's entry into the provision of medical care was more troublesome than adding disabled citizens to the social security rolls.^[7]

By the mid-1960s, however, the notion of public medical insurance for the elderly—a group generally held to be worthy, medically vulnerable, and of limited material means—had garnered fairly broad-based support. In 1965 innovative compromises within the House Ways and Means Committee resulted in a two-part Medicare program. Under Part A, Hospital Insurance (HI) became a standard social security benefit. An increase in social security taxes was authorized to finance this program. And under Part B, Supplementary Medical Insurance (SMI) for physicians' bills could be purchased by citizens sixty-five and older. This portion was financed in part through monthly premiums paid by beneficiaries and in part through general tax revenues. Finally, the legislative compromise expanded federal support of health care for the poorest Americans (Medicaid).

To reduce opposition from organized medicine, the architects of Medicare chose not to incorporate any provisions affecting the delivery of medical services.^[8] Most importantly, no effort was made to alter the prevailing high-technology, therapeutic orientation with its practices of hospital bills based on costs and physicians'

fees based on services rendered. Thus, Medicare bolstered the demand for medical care without creating any cost-control mechanisms, and the program exceeded cost projections from the outset. In the face of Medicare's rapidly rising costs, Congress has been unwilling to expand the program. Benefits were extended to disabled social security beneficiaries and end-state renal dialysis patients in 1972, but Medicare has not developed into the program of national health insurance that some of its early proponents had hoped for.

Indeed, the fourth campaign for national health insurance, during the 1970s, suggests that if national health insurance is ever developed, it is unlikely to follow the model of Medicare.^[9] For this fourth campaign resurrected a prominent theme of the AALL's pre-World War I crusade: economic efficiency. And in light of the federal budget deficits of the 1980s, any future proposal, even remotely universal and comprehensive in scope, would have to offer greater economic efficiency than Medicare.

From the standpoint of meeting the medical-care needs of the elderly, Medicare represents a distinct improvement over the conditions that prevailed prior to its enactment. However, Medicare's accommodation of existing practices in the medical-care professions limits both its effectiveness in assuring appropriate, efficient medical care and its value as a model for any expanded program of national health insurance.

Distributive Justice

In part Medicare represents an attempt to use public means to redistribute medical care in accordance with the criterion of effort rather than by the market criterion of ability to pay. HI benefits go largely to elderly people who have earned them by working for extended periods of time in jobs covered by the social security program.^[10] Medicare's attempt to distribute benefits in accordance with effort is imperfect, however, in two respects. First, it excludes those elderly people who have exerted sustained effort—in or outside the paid labor force—but not in jobs covered by social security. Second, with few exceptions, it excludes people who have exerted sustained effort in jobs covered by social security but who are under age sixty-five. Thus effort is not the sole criterion. Medi-

care relies as well on ascription—age—as a principle of distributive justice.

Certainly, the elderly are particularly vulnerable to health problems, and they characteristically have both limited incomes and limited access to employer-sponsored private group medical insurance. But other citizens are equally in need of medical coverage. By using ascription as a criterion for distributive justice, Medicare is by design unable to produce results consistent with the criteria of effort or need.

Even among elderly beneficiaries, Medicare coverage has its limits and is far from comprehensive.^[11] Beneficiaries pay a deductible and coinsurance that increases with the length of a hospital stay. SMI involves premiums, coinsurance, and limits on reimbursement for specific services. Outpatient prescriptions and nursing-home care are not covered at all. So while Medicare, particularly with the recent adoption of catastrophic-cost protection, does limit a hospitalized patient's financial responsibility for acute care, it all but neglects a common medical need of the elderly: custodial care for chronic ailments.^[12]

This focus was adopted by Medicare's designers to avoid antagonizing physicians and hospitals. But the emphasis on acute services has also provoked a debate about the relation between medical care and basic goods. In the sense that a wide variety of medical procedures, applied in varying contexts, may save lives, these procedures are as basic as food and water. Yet the dramatic developments in medical technology over the last several decades pose ethical and economic challenges to the simple equation of medical care with basic goods. The ethical question is whether the use of extraordinary life-maintenance techniques prolongs the suffering of patients and their families and constitutes an unnatural or unethical manipulation of life.^[13] The economic question is what proportion of its resources can or should a society allocate to expensive life-maintenance technology. The opportunity costs of systematically applying a variety of expensive treatments to lengthen minimally the lives of terminally ill patients are high.^[14] Indeed, data on cross-national medical expenditures show that these costs rise rapidly with increases in per capita gross national product—a pattern exemplified by luxury goods rather than by necessities such as food and shelter.^[15]

Our final consideration regarding distributive justice concerns vertical redistribution. The program's beneficiaries are primarily elderly people representing the middle ranges of the socioeconomic spectrum. Medicare does involve significant intergenerational transfers, but vertical redistribution from rich to poor is not prominent. But when we consider the market value of Medicare services, we confront a novel form of vertical redistribution. Payments for the medical services provided by Medicare flow to physicians, other medical professionals, and investors in health-care companies. This upward flow makes it difficult to construe Medicare as an attack on property.

Negative Liberty

The HI component of Medicare is financed, like social security, by payroll taxes on prospective beneficiaries. So while recipients have in a sense earned their benefits, their contributions are also compulsory. SMI is paid for in part by voluntary premiums from current recipients, and thus involves no constraint. Subsidies from general tax revenues slightly constrain the liberty of all federal taxpayers in order to extend benefits to recipients who elect SMI.

Apart from the taxes associated with the program, recipients are left unconstrained by Medicare. Medicare beneficiaries generally have as much freedom as privately insured patients in matters such as choice of physician and accepting care.

With respect to medical-care providers, only modest constraints have been introduced by Medicare. In order to facilitate provider cooperation, Medicare's architects explicitly rejected any proposals to intrude upon the organization of medical care. For a while, medical-care providers were important beneficiaries of the new legislation: Demand for medical care expanded slightly, but prices rose rapidly.^[16] Alarmed at the cost, the Nixon administration tried to introduce cost controls and other regulatory devices, and made efforts to stimulate the creation and use of health maintenance organizations (HMOs), which provide comprehensive care for a fixed annual fee.

But provider interests managed to hold the line against these efforts. The medical-care profession has retained the economic benefits bestowed by Medicare without surrendering its autonomy.

The greatest threats in this regard have been the limitations on hospital charges for various diagnostically related groups (DRGs), imposed in 1983, and the Reagan administration's effort since 1984 to encourage physicians to accept Medicare payment limits.^[17] But provider groups may have left their flank unguarded. While they were watching the government, medical care, buttressed by public financing, has grown immensely profitable, and private corporations are moving in to share the proceeds.^[18]

Economic Efficiency

Medicare has reinforced a variety of inefficiencies that characterized the medical-care market into which it was introduced. Among these inefficiencies are: a focus on therapeutic as opposed to preventive medicine, a reliance on expensive medical technologies, hospital charges based on costs, the prevalence of solo and small-scale fee-for-service practices among physicians, the litigious environment of contemporary American medicine, and third-party insurers who insulate both medical-care providers and many of their patients from the most direct, troubling consequences of spiraling medical-care costs. Some of these tendencies are interdependent; fee-for-service practice, for example, lends itself to a therapeutic approach.

This lengthy list of features contributing to economic inefficiency, however, cannot be blamed on Medicare or public policy. Rather these inefficiencies derive from the practices of the private market that the program was designed to leave unchanged. Before examining the provider-related problems for economic efficiency, let us quickly survey the recipient-related economic issues.

Since it serves a population that is already retired or disabled, Medicare has limited effects on labor-market participation. Recipients' rates of use for particular medical services increased somewhat following the introduction of Medicare, but not dramatically. Since use of medical services is not limited simply by economic concerns, public sponsorship of medical insurance seems unlikely to stimulate use any more than private medical insurance available to well-organized workers.^[19]

By providing partial payment for highly specified services tailored to a recipient's immediate needs, rather than income that can

be freely used, Medicare would appear to have little affect on savings incentives. It is unrealistic to imagine that people fail to save because Medicare will cover a portion of the medical expenses they might subsequently experience. Nor could most people ever save enough to cope with the costs of extensive medical care.

Like any social insurance program funded in part by payroll taxes, Medicare may retard corporate or entrepreneurial risk-taking. But since Medicare costs employers less than one-third of the income-maintenance components of social security, its effects on the competitiveness of American goods and services in the global market are minimal.

In 1967 Medicare benefits cost $4 billion; by 1986 benefits had increased more than fifteenfold, to $76 billion.^[20] Serving about 36 million persons in 1986, Medicare consumed approximately 7.5 percent of the federal budget (compared to 20 percent for social security and 1.5 percent for AFDC) and just under 2 percent of GNP (compared to 5 percent for social security and less than 0.5 percent for AFDC). More than two-thirds of Medicare expenditures were for HI, nearly all of that for inpatient hospital care. Of the slightly less than one-third devoted to SMI most was spent on physicians' fees.

The dramatic growth in Medicare expenditures—outrunning inflation generally— is attributable to many factors, but increases in hospital and physicians' fees account for the bulk of it.^[21] Shortfalls in Medicare's trust fund are not far down the road,^[22] and the United States is already spending a greater proportion of GNP on medical services than many advanced industrial societies that provide national health insurance.

Medicare involves several forms of redistribution. From the perspective of individual recipients, HI is an example of life-cycle redistribution, but current practices also involve intergenerational transfers that probably cannot be recouped. Since the incidence of poverty among the elderly has now fallen to the level prevailing among the population generally, the vertical redistribution effected by federal subsidies for SMI is probably less than that entailed by AFDC. But since social security payroll taxes are more regressive than the federal income tax, SMI may contribute somewhat more to vertical redistribution.

As mentioned earlier, Medicare's economic inefficiency reflects

the program's relatively good fit with a sector of the private economy riddled by inefficient practices. This is an unusual predicament in a culture that tends to saddle public programs with charges of inefficiency. Even more unusual have been the efforts of the federal government to stimulate greater market efficiency in the private medical sector. Until recently, in contrast, private insurers have done little in this regard.

Federal initiatives to promote economic efficiency in the private medical sector have been of two types: measures to regulate and efforts to encourage price competition. To date, regulation has predominated. With respect to providers, the Nixon administration applied price controls as part of a more general scheme of economic intervention. His administration also developed Professional Standards Review Organizations (PSROs), which are primarily attentive to hospitalization statistics, and Health Systems Agencies (HSAs), which focus on capital investment decisions. President Carter was unable to secure legislation that would have limited hospital price increases, but the Reagan administration did enforce limits on the federal government's liabilities for Medicare hospitalization and has made modest moves in a similar vein with respect to physicians. These efforts have all helped somewhat to control costs, but the price of medical care has continued to outpace inflation.^[23] Sterner regulatory procedures (bargaining, explicit rationing, and centralized planning) are apt to be required.

As part of its overall effort to control costs, the federal government has also repeatedly raised Medicare premiums and deductibles, and it has kept allowable fees for various services from rising as rapidly as physicians' charges. As a result, Medicare recipients' out-of-pocket expenses have increased, and some analysts recommend increased patient copayments as a cost-control device.^[24] While copayments do reduce federal expenditures, they will not reduce the nation's aggregate health-care bill unless they deter use of services. But there is not much evidence that suggests elderly citizens flock to physicians unnecessarily by contemporary standards. The most prominent increase in services has been in the area of short-term hospital stays, a service attributable more to physicians' choices than to patients' actions.^[25] So copayments appear to be less effective at reducing unnecessary services than at shifting costs to patients.

The limited success of federal regulatory efforts has prompted some analysts and policymakers to suggest that restructuring the medical-care market for better price competition is the strategy most likely to achieve greater economic efficiency. Throughout most of the 1970s, policymakers looked hopefully at group practices, such as HMOs, that provide medical care for a fixed annual fee, thus placing a premium on preventive and ambulatory care. This internal incentive structure seems an encouraging mechanism for cost containment.^[26] Indeed, the most successful and widely known HMOs—Kaiser Permanente, for instance—have kept costs and cost increases well below those of conventional hospitals and fee-for-service practices.^[27] In some metropolitan areas competition among HMOs and between HMOs and conventional medical-care delivery practices has slowed the growth of medical-care costs.^[28]

Despite the interest of federal government leaders and other elites, only modest restructuring has occurred. Many private insurance carriers have integrated specific changes into their operations, but the federal government's repeated efforts to stimulate the development of HMOs have had little success. HMOs are complex, relatively fragile organizations that face difficult circumstances in the current medical-care market,^[29] and some efforts to stimulate new HMOs have constrained existing ones.

Competition and cost-conscious incentives have also led to new problems. Cutting costs by cutting care and self-dealing group practices are abuses every bit as disconcerting as price increases.^[30] Regulation is apt to be necessary under any system of delivering medical services, not just Medicare.^[31] For example, the activities of PSROs in isolating underuse and overuse of hospitalization can be as important in detecting shortcuts in care by HMOs as in detecting cost padding by fee-for-service practitioners.

Today, reformers insist that some sort of restructuring is necessary to improve the economic efficiency of the medical-care market. And almost all analysts interested in reform agree that the only actor with both a sufficiently strong incentive and the necessary organizational capacity is the federal government. Providers have no economic incentive, at least in the short run. Some members of the public have the incentive, but no organization. Insurance companies also have some incentive, but until recently have found it easier to pass along increased costs to their customers. For

the moment, Medicare is not large enough to provide sufficient leverage for a general restructuring,^[32] but some future national health insurance program might.

Administrative Complexity

In part Medicare's complexity is dictated by its mandate. Medical and health services require extensive cooperation from both patients and providers. While Medicare is associated with improvements in health among the elderly,^[33] both patients and providers routinely follow counterproductive practices. Some patients persist in unhealthy habits (smoking, excessive drinking, and poor nutrition). Others cannot escape from environmental dangers at home or at work. Meanwhile, providers practice the episodic acute care for which they have been trained in expensive well-equipped institutions. Most show little interest in either preventive care or in less intensive forms of treatment for the nonacute chronic illnesses that tend to afflict the elderly.^[34]

If we use provision of medical care rather than health as the appropriate objective of Medicare, the inherent requirements for cooperation are still high, but they do appear to fall within the capacities of many providers and patients. Medicare and other federal medical-care initiatives have improved the availability, accessibility, and affordability of medical care.^[35]

Beyond requiring complex cooperation from providers and patients, Medicare requires a fairly complex bureaucracy to handle patients' claims and other aspects of program administration. The complicated rules for coverage, copayments, deductibles, and allowable fees place heavy demands on the Social Security Administration (SSA). Medicare recipients are reimbursed for only a portion of their costs, while covered amounts are paid directly to providers. HI claims are processed either by a recognized intermediary—frequently by Blue Cross—or directly by SSA, while SMI claims are handled by intermediaries. (In contrast, public programs that provide direct services, such as the British National Health Service, are generally less complex to administer but have other characteristics—direct employment of the majority of physicians—unlikely to ever be adopted in the United States.) Despite these complexities, SSA administers Medicare in a fashion that

compares reasonably well with the efficiency of many private insurance operations.^[36] Medicare does enjoy some advantages—large-scale and easy marketing—that help in this regard.

As was the case with AFDC, some of the most troubling questions about Medicare involve limits and harmonization issues. The first limits issue concerns eligibility. The HI component of Medicare is essentially a program for elderly social security recipients. In 1972 elderly non-social security recipients were allowed to enroll, but they must pay the full actuarial cost for coverage. Only fifteen thousand of the roughly one million elderly in this group have chosen to enroll,^[37] with cost the prohibitive factor. A portion of the elderly not covered by Medicare are eligible for Medicaid, and Medicaid has "spend-down" provisions for people who are medically needy but not otherwise recipients of public assistance. But Medicaid, a form of public assistance, is available only to people who have almost no assets.

SMI has from the start been available at the same subsidized rate to all persons sixty-five years of age or older. Over 300,000 non-social security recipients are currently enrolled as well as over 95 percent of the HI beneficiaries.

Medicare's categorical focus on the elderly, of course, excludes the participation of working-aged adults and their dependents, of whom as many as one-third have either no medical insurance coverage or inadequate coverage.^[38] Since the late 1970s the issue of cost control has so dominated discussions of public medical-care policy that questions of access have largely been ignored.

Concerns about the costs of Medicare are exacerbated by several harmonization issues. First, Medicare has contributed to the demand for medical services. While rising demand has generally sustained employment in this sector of the economy, it has no doubt contributed to extremely high levels of inflation in this sector as well. Second, policymakers have developed growing misgivings about the activities of recipients and providers. Access to medical care is only one aspect of health care. Healthy personal habits—diet, exercise, defensive driving—and preventive health care are far more cost-effective ways to promote health.^[39]

Finally, public respect, even reverence, for the medical profession has declined somewhat in the last decade. The industrial character of medical care in America has disillusioned the public and

policymakers alike. By the late 1970s expansion of Medicare was precluded as much by a reluctance among members of Congress to funnel more money into this segment of the economy as by the resistance of physicians and other medical-care providers.

Medicare's public image—cost issues aside—has been generally good. Even concerns about costs have increasingly been directed at providers rather than at the appropriateness of helping vulnerable elderly citizens defray medical expenses. One explanation for the near absence of controversy is that Medicare's public profile is relatively low. Functioning in a manner similar to a private insurance carrier, Medicare has required no dramatic changes in practice for most recipients or providers. While Medicare does not respect Americans' preference for limited and local government, it is not an intrusive manifestation of government. Additionally, most people think about Medicare in tandem with social security and their good will toward the latter rubs off on the former.

Conflicts of Interest and Compliance

Medicare was created to ease the financial concerns of the elderly with respect to medical care. On this score, the program may count several successes. Despite limitations in coverage and increases in recipients' copayments, the proportion of recipients' incomes devoted to medical expenditures has generally declined,^[40] even as the dollar amounts the elderly spend on medical care have increased. And Medicare patients generally pay an extremely modest portion of the extraordinary costs of extensive care. Further, fears that recipients would overwhelm the medical-care system have proved unfounded. We have seen no dramatic surge in the use of medical services by Medicare recipients. Compliance with program objectives by recipients has simply not been an issue.

In contrast, the conflicts between public officials and medical-care providers continue, even though public officials have tried to ensure both profits and relative autonomy to providers. The government has won the struggle over "first principles"—the entry of the state into financing medical care.^[41] But providers remain ambivalent: Medicare is clearly at odds with principles that organized medicine has not abandoned, yet Medicare has bestowed considerable short-term financial rewards on practitioners. Medicare's

limitations on public provision of medical services have turned out to be a mixed blessing in this regard. By enrolling a relatively high-risk population that private carriers were not interested in insuring at affordable rates, Medicare has raised the demand for services and contributed to a situation that has supported larger incomes and profits for medical-care providers. But it has also cracked open the door to public regulation of providers.

For public officials, the primary concern has been the cost of Medicare. Since the early 1970s officials have named rapid cost increases as the major problem afflicting contemporary American medical care.^[42] In their efforts to reduce the rate of cost increases, federal officials have increasingly pitted themselves against the interests of both Medicare's targeted beneficiaries and medical-care providers.

Finally, the decline in the "sovereignty" of physicians at the hands of corporate enterprise may hold a silver lining for advocates of national health insurance.^[43] The more obvious the industrial character of medical care, the less persuasive is the industry's claim to special status. Many service industries—certainly the most basic services—are regulated. If corporate managers continue to displace doctors from control of the medical-care industry, medicine's claims for exceptional treatment will lose credibility.

Summary and Implications

Given the lengthy period of organized medicine's resistance to any sort of public provision for medical care, one hears surprisingly little debate today about whether the elderly need the help Medicare provides or whether it is morally appropriate for the state to provide such help. Instead, the debates focus on costs and cost-benefits. Perhaps even more surprisingly, the culprits with respect to cost are generally held to be private providers and their lack of cost consciousness.

In part Medicare's relatively good image derives from its kinship and similarities to social security. Among social hazards, aging has a special character: its near certainty and fixed position in the life cycle, the widespread perceptions of the elderly as worthy citizens, and the stability of its beneficiary population. And Medicare shares some of social security's popular design features—individual accounts of earned rights, most prominently.

Among Medicare's specific strengths is its criterion of effort, which imparts consistency between the program and American conceptions of distributive justice in the economic domain. And Americans, more so than citizens of most other advanced industrial societies, view medical care as part of the economic domain.^[44] As we have seen, Medicare's infringement on negative liberty is modest; its administration is as efficient as that of its private counterparts; and recipient abuse is not a problem. The program targets a population that has particularly extensive medical-care needs and exceptionally limited capacity for meeting these needs, and has carved out an important area of complementary interests in limiting the financial obligations of program recipients for episodes of acute care.

Medicare also exhibits several important weaknesses. In terms of distributive justice, its egalitarian principles of need and effort mesh poorly with the differentiating criterion of ascription by age. Large numbers of people who need assistance and who have exerted effort in the paid labor market are excluded from Medicare. Even within the ranks of the elderly, Medicare's coverage is incomplete and fails to emphasize basic goods. The program's bias toward episodic acute care covers extraordinarily expensive treatments while needs for the most mundane sorts of care go wanting. This bias also promotes economic inefficiencies that were present in the private sector before Medicare was established. Finally, although Medicare's infringements on providers' professional autonomy are modest, it has perhaps contributed to the profession's concern with economic rather than health matters.

From the central focus of the investments approach—justifying the extension of socioeconomic rights to those confronting social hazards—little about Medicare is disconcerting. Medicare recipients earn their benefits and do not abuse their access to medical care. However, Medicare cannot simply be thrown open to serve all those who need medical care and have no private insurance. The two primary obstacles to extending Medicare into national health insurance are the opposition of medical-care providers and the aggregate cost of such a program. But since other advanced industrial nations do provide universal health coverage, perhaps these obstacles are not insurmountable.

To elicit the cooperation of medical-care providers, any program for the public provision of medical care must address pro-

viders' two principal concerns: profitability and professional control. If we look at the experiences of other nations in creating systems of public medical-care provision, we find no prevailing model for compromises on these issues. But the brief history of Medicare suggests the kind of compromise most likely to work in the United States: Maintain the lucrativeness of providing medical services in return for greater public policy control over the goals and means of medical care. Indeed, since the late 1920s proponents of national health insurance have tried to persuade provider groups that this compromise is in the national interest. Providers resisted this direction forcefully and successfully for a long time, but with Medicare's passage they lost a crucial battle in this struggle. In the aftermath of Medicare's enactment it became easier for providers to accept the payoffs of the program than to continue their earlier resistance. Corporate inroads in the medical-care fields have also been based on this pattern.

To make this compromise explicit and to expedite its implementation, the federal government should create a national bargaining council whose members would represent the federal government, providers, and perhaps other relevant constituencies. This council's central task would be to hammer out a series of guidelines that would assure profitability for providers in exchange for providers' cooperation on the goals and means of medical care. These guidelines should draw on existing institutions and practices. For example, private insurance companies should not be displaced; rather the federal government should expand, coordinate, and perhaps subsidize the efforts of these companies in a national drive to extend at least minimal insurance coverage to more Americans. This insurance could be similar in many respects to Medicare, but would specify affordable out-of-pocket annual maximum liabilities for households in different income ranges.

In return for these financial considerations, providers would be asked to increasingly resolve issues pertaining to the goals and means of medical care collectively with their public official counterparts on the council. These agreements, which would be subject to periodic renegotiation, would specify the sorts of care national health insurance would cover, how that care would be delivered, and the responsibilities of providers and patients. Such agreements might also limit the responsibilities of public policy in prolong-

ing the lives of the terminally ill, or include custodial care for chronic conditions, or make public financial help for certain health problems contingent on patient cooperation in giving up health-threatening personal habits.

The details of such agreements are less important than the initiation of a collaborative process between public officials and providers. In the absence of such a process, no one should expect any broad initiatives in the area of national health insurance.