I was appalled to see Prof. Tyler Cowen accept the idea that a government agency is capable of determining value for the almost 50 million Americans on Medicare. This is Ludwig Von Mises/Friedrich von Hayek/Milton Friedman grade 1 page 1: A central planner simply cannot perform this function.

This bankrupt program has existed for almost half a century: If Medicare knew how to figure out how to pay doctors and hospitals across the country the right prices for the right services, it would have done so by now. Secretary Leavitt tried again and again to force Medicare to pay for an “episode of care” for each patient, and failed. This is something that markets have done for millennia. (Think of an airplane ticket as payment for an “episode of travel”: You have no idea how much the co-pilot was paid for the flight, or how much the fuel cost, nor do you care.) Indeed, Professor Cooper has shown that once private spending is added to the Medicare data that everyone claims shows that more spending does not result in better outcomes, more spending does actually result in better outcomes. My colleague Jeffrey H. Anderson has shown that Medicare spending per capita has increased one third more than private insurance plus private out-of-pocket spending, between 1970 and 2007.

The only way to get Medicare spending under control (in a politically tolerable way) would be for Medicare to report each senior’s health-care spending on his Social Security statement, along with a note stating, “If you can get your own health care for less money, we’ll split the difference.”

— John R. Graham is director of Health Care Studies at the Pacific Research Institute.