If the government controls the entire health care system, the recent congressional debate over Medicare is a tart foretaste of what Americans can expect.

Last week the Senate passed the Medicare Improvement for Patients and Providers Act of 2008 (H.R. 6331) just weeks after the House passed the same bill by lopsided majorities. It could not have happened without congressional Republicans. In the face of the special-interest pressure, the Republican leadership in the House simply collapsed. In the Senate, the Republican leadership was simply abandoned. In his dramatic July 10 entrance on the Senate floor, an ailing Sen. Ted Kennedy (D-Mass.) cast the decisive vote to invoke cloture, which, amidst giddy camaraderie, resulted in the defection of nine Republican senators, thus ending debate and guaranteeing the bill’s final Senate passage. Nonetheless, against all political odds, President Bush is going to veto the legislation, perhaps as quickly as tomorrow.

The main rationale for the Medicare bill’s enactment is to stop a scheduled 10.6% payment cut for doctors practicing in the Medicare program. Why scheduled? Because Congress mandated a complex Medicare payment system (covering approximately 8,000 medical services delivered by doctors in Medicare), and that payment is annually updated by a formula called the Sustainable Growth Rate (SGR). This bizarre formula ties Medicare payment increases for physicians to the growth of the general economy. In other words, Medicare physician payment would be tied to a variety of external factors utterly unrelated to the supply and demand for medical services, such as, for example, the impact of price fluctuations in the international oil market. In any case, under this congressionally ordained formula, the Medicare doctors are automatically scheduled to get a cut in payment this year of 10.6%, and perhaps twice as much next year.

It would be hard to find anyone on Capitol Hill who favors a 10.6% cut in Medicare physician payment. But the congressional leadership in the House and the Senate would not allow anyone to offer legislative solution to that problem. For example, Sen. Chuck Grassley (R-Iowa) had proposed a 1.1% increase in Medicare physician payment, but it never got it to the Senate floor for a vote. Likewise, Senate Minority Leader Mitch McConnell (R-Ky.) asked for unanimous consent under Senate rules to pass a 30-day extension of current physician reimbursement in the hope of arriving at a compromise, but Senate Majority Leader Harry Reid (D-Nev.) objected.

This only makes sense if politics means everything, and policy means nothing. Being unwilling or unable to fix the indisputably broken Medicare physician payment system — this Chinese fire drill is now routine — the Congress instead spends a lot of time and energy and effort to stop its own Medicare payment system from going into effect. Worse, the urgent need to put the brakes on its own Medicare physician payment update becomes a convenient yearly pretext for its latest loading up the must pass Medicare “doc fix” with even more mischief. This bill, for example, includes an 18 month delay of competitive bidding in Medicare for medical equipment and supplies that was supposed to go into effect on July 1, 2008, thus terminating the initial contracts of winning contractors and forcing taxpayers to foot the inevitable legal bills for the litigation to follow.

This year the “doc fix” bill is the vehicle of choice for ideologically driven cuts in Medicare Advantage, the new system of competing private health plans created under the Medicare Modernization Act of 2003. Never mind that in virtually every category — the breadth of consumer choice, the intensity of health plan competition, the provision of superior benefits, the relative simplicity of an integrated benefit and payment system — Medicare Advantage has been a success. It is routinely claimed that Medicare Advantage plans are overpaid, and that the cuts are cuts to profiteering insurance companies. But, in reality, cuts to Medicare Advantage plans (which account for roughly 14% of all Medicare spending) are cuts to patients’ benefits and a restriction on patient choices. And, if the objective is fiscal restraint in the Medicare entitlement, then there are a wide variety of budget options to contain the growth of overall Medicare spending, including the broad application of income related subsidies beyond Medicare Part B, the part of the program that pays physicians.

Currently one in five Medicare patients are enrolled in Medicare Advantage plans, almost 10 million enrollees. But the fastest growing of these plans is the Medicare private fee for service plans (PFFS). It is the PFFS that the Congressional leadership has targeted for cuts. This year’s cuts would amount to $12.5 billion in the next five years, and $47.5 billion over the next 10.

Private fee for service plans are not like traditional managed care, where patients use provider networks. In PFFS, patient can see any doctor they want; and they offer better benefits options than traditional Medicare. These plans are especially strong in rural areas, such as Vermont, North Dakota, New Hampshire, Wyoming and Montana. But these plans are also popular in large industrial states. In Michigan, for example, 253,159 Medicare patients are enrolled in Medicare’s private fee for service plans. In Ohio, there are 174,760 patients; in Wisconsin, 117,888; in North Carolina, 115,822; in Georgia, 79, 441. Interestingly enough, over 500,000 Medicare beneficiaries are also enrolled in employer-based private fee for service plans.

Overlooked in the “doc fix” debate is the fact that Medicare private fee for service plans — the congressional liberals’ current targets — and other Medicare Advantage plans are an alternative for physicians who intensely dislike the bureaucratic restrictions of Medicare’s payment system. Doctors can negotiate the terms of their own reimbursement with these health plans. The congressional contraction of Medicare Advantage plans would mean a contraction of physicians’ payment alternatives.

None of the existing Medicare programs is without its flaws — Medicare Advantage, competitive bidding for medical equipment, or Medicare physician payment. It would be much simpler to create a new system for the next generation of seniors, broadly based on the best features of a superior system, the Federal Employees Health Benefits Program. The government would make a defined contribution on behalf of the beneficiary, and the beneficiary would pick the plan of her choice on a level playing field. The Congress could stop micromanaging physician payment, or payment for oxygen equipment, or the myriad of other things it does badly. Meanwhile, President Bush is following a principled course.