Paul told me that before there was such a thing as Medicare, the government went to the providers to determine actual costs for the kinds of health care procedures that Medicare would be paying for. The goal was to pay the actual costs. Paul was on that committee, and they did their homework. Nobody took into account the free-lunch syndrome (see my essay "Health Insurance Is the Problem, Not the Solution" which I posted before Paul's conversation to me). As Paul explained it, the costs took off -- his hand angled up at some 45 degrees -- and the government couldn't pay for it. So they put a cap on what they would pay for.
Here's where Paul and his fellow administrators came in. The fact that
the government wasn't paying did not prevent the costs from continuing
to go up. So the providers -- specifically the hospitals, including Paul's
-- transferred the costs to other customers, mostly the insurance companies.
Guess what happened? Insurance rates went up to cover the increased expenses.
I heard the back end of this same story from the physician
I'm doing some work for.