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"The Market Can't cure Medicare" and why competition won't lower prices is the name of a time magazine article I just completed. The article was written by Bill Saporito. I'm like everyone else, I love market driven proposals and remedies, but it doesn't always work in our favor.

This past weekend, only Fox News Sunday, had kind words to say about the Paul Ryan budget proposals, especially Medicare. As I've said before Paul Ryan wants to switch Medicare clients to private insurance coverage by the year 2022, leaving those 55 years old and above with government run Medicare. Ryan gets his savings by capping the government's cost to somewhere between $11,000-$15,000. Mr. Ryan believes many companies will be rushing in to provide Health Insurance to the aging boomers.......... ,so,competition should keep the price of premiums from rising much. "There's no evidence of that" says Yale School of Management professor Fiona Scott Morton. She says “We’ve had many uninsured people who are paying out of pocket for things, and it's not driving down prices. I found out this weekend that Congressman Paul Ryan also wants to raise the Medicare age of eligibility to age 67. I have a grim picture of a 65 year old trying to find a private insurance company that will take them as a customer.

A robust market solution is always desirable, and we see the results with the price of cell phones, televisions, fast food, and computers coming down because consumers know what they want and what they're willing to pay for. In health care, the consumer is at a disadvantage because the driving issue is suitability. In the past decade, we have seen double digit inflation in insurance premiums. When people can't afford Health Insurance it's called "demand shedding" by economists. We call it rationing or doing without.

There are those that think they can pull out the Adam Smith rule book every time and the market principles will always prevail but that obviously is not so. We can see it now, where we have four gasoline service stations within a couple of blocks of one another, not making, a penny's worth of difference. The airline industry is super competitive but their fares have increased nine times since mid- December. There's more to competition than price alone. We have two brand name colas with each taking their market share. Competitors won't come into the market because they don't have the funds to get into an expensive marketing war with established companies like Coke and Pepsi. Another example is Microsoft where Linux can't make a dent in the market even though they give away the source code.

I understand the reasoning behind the Ryan budget proposals because it's all about generally accepted market principles. He is proposing to give a onetime yearly block grant to the states for Medicaid. Right now, the Federal government is paying 57% of Medicaid but everyone who meets the qualifications must be covered. He thinks reducing the Federal cost will improve the economy, thereby fewer people will need Medicaid. In reality, states will have more stringent rules in good or bad times and many republican states will use the grants for other purposes. You don't have to take my word for it, look up to each state and see how they are handling their budget shortfalls.

The Market Can't cure Medicare by Bill Saporito.Times magazine May, 2, 2011 issue.