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. 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. 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.