The following is from Rick Mayes 2007 article on the development of Medicare’s hospital prospective payment system.
Ronald Reagan … won a landslide victory over the Democrat incumbent, Jimmy Carter, by, among other things, arguing for the expansion of the free market and reduced government regulation. Yet the free market was not solving the problem of medical inflation. In Reagan’s first full year in office, hospital spending increased 17.3%. The following year the country slipped into the worst recession in half a century, with the unemployment rate reaching almost 11%. …
It appeared that the forces that drove hospital inflation were beyond hospital administrators’ control. Thus, by 1981, even leading representatives of the hospital industry were convinced of the political inevitability of major reform to Medicare’s payment system. …
Given the administration’s short-term goals for reducing domestic spending, however, a free market approach to reforming Medicare was not possible. As a result, fiscal necessity overwhelmed political ideology. Republicans would have to increase the government’s authority over medical providers, because the federal government needed budgetary savings immediately and the hospital industry had shown it was unable to reform itself. …
By 1982, federal policymakers’ concerns about the financial stability of Medicare were escalating and becoming part of even larger worries about growing federal budget imbalances. Mushrooming budget deficits (stemming from Reagan’s major tax cuts passed the previous year), together with the highest unemployment rate and the worst recession since the Great Depression, created a sense of fiscal and economic crisis.
Nearly three decades later we’re in just about the same situation. Taxes have been cut, unemployment is high, we’ve just experienced the worst recession since the Great Depression, Medicare spending is still out of control, and much of the political focus is on the deficit. These are deep and old problems. One landmark health reform law isn’t going to solve them, and it didn’t.
