To the Editor: Dr. Schiller's provocative commentary (1) in the April 2000 issue attacks Medicare and Medicaid for having distorted the otherwise free-market mechanisms in health care. He claims that government-subsidized health benefits encourage overutilization, consequently inflating demand, but his analysis is awash in myth. The message is that as a matter of public policy, we should return to the good old days (myth 1) of charity for indigent and mentally ill persons and low-cost health care for the middle and upper classes, a scenario Dr. Schiller refers to as a "free medical market" (myth 2).

Health care markets are not free, in the classical sense, and never will be, mainly because health status is not a commodity, and the supply and demand for health care is mediated by a complex chain of institutional decision making. For example, individuals with employer-paid health benefits did not shop for them in the past, nor do they today. Company benefit managers do that. And if unfettered utilization without the pain of payment inflated health care demand (by patients), it also inflated supply (by physicians and other providers), because neither patients nor providers had to worry about the economic consequences of their choices. It hardly matters to patients whether the incentive to use health benefits is provided by the government or by an insurance company.

The supply side of health care market expansion predates Medicare and Medicaid, beginning with the Hill-Burton Act of 1946 and the Kerr-Mills Act of 1960, which supported, respectively, a vast expansion in hospital beds and a vast expansion of nursing home beds. Nursing home beds grew from 180,000 in 1954 to more than 630,000 by 1965 when Medicare was implemented (2). Payments to nursing homes via the Kerr-Mills Act increased by a factor of ten in the five years preceding Medicare (3).

As an alternative to the present situation, Schiller advises that indigent and mentally ill persons should be cared for through "local public hospitals, charity care, and family support." Unfortunately, local public hospitals (myth 3) don't exist anymore; most were acquired by large health care corporations and converted to for-profit status (4). Yes, profits also have something to do with the expansion of markets. If distasteful regulations were introduced after Medicare and Medicaid were enacted, there are plenty of places to assign blame.

So if we take Dr. Schiller's free market idea seriously, all of us would be on our own: no risk sharing, no health insurance, no government-paid health services. No pain, no gain. (Think of it as a macho health policy.) Either you pay out of pocket, or you queue up at the local charity line with the great unwashed. After all, we certainly do not want to design our health care system around "such individuals" when we can have an "equitable medical market for the great majority." One can see that equity (myth 4) is a cardinal value for Dr. Schiller—if only he could figure out how to apply it to all citizens.