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A plan for controlling medical costs

Even though inflation has been cut, one of its main components - medical costs - continues to soar. For the 12 months ending in October 1982, the rise was 11 percent - more than twice the increase in the Consumer Price Index. Annual expenditures on health care are now $243 billion (over $1,000 per person) , 9.6 percent of our gross national product. Expenditures on medicaid which provides medical care for the poor and medicare which provides for the elderly have more than doubled in the last five years.

No real grip on inflation or growing federal deficits is likely until we are able to control medical costs on a continuing and genuinely effective basis. We must restructure the incentive system so that medical services and facilities will be used in a more cost-effective way.

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Is this to be done on the backs of the poor? It certainly need not be. They can altogether be protected from any reduction in their present free health care service.

How to proceed? Individuals receiving medical benefits from the government should reimburse these costs through a 10 percent income tax surcharge to be known as a ''medical surcharge.'' If a person receives $2,000 in medical benefits and owes no income tax, he would owe no medical surcharge. If his income tax liability is $1,000, his medical surcharge would be $100. The wealthy individual with an income large enough to owe over $20,000 in income tax would repay the full $2,000.

The obligation to repay medical benefits would carry over to subsequent years. Take, for example, a person who receives health benefits over a period that he is on medicaid. If he remains poor, he would never reimburse the government for his benefits. If he prospers, however, he would be required to reimburse in annual installments by the medical surcharge until the government is repaid.

Tax liability, by this approach, cannot become onerous. It is also highly progressive; it collects the most from those best able to pay.

There is a qualitative difference between this plan and a proposal for means-testing medicare, however. The imposition of a means test involves cumbersome forms and large bureaucracy for enforcement. The proposed medical surcharge, in contrast, involves no additional bureaucratic interference and would be as progressive as the tax system itself. At most, a few extra lines on the income tax form would be required.

The Reagan administration is astir about these issues. There is talk of requiring medicare beneficiaries to pay 6 to 10 percent of hospital costs for the second through the 60th day of hospitalization. However, considering the trauma that the President has had trying to wheedle social security reform from Congress, the prospects for this seem remote.

Not much more likely is the possibility for making workers pay income tax on employer contributions to private health insurance programs. The theory is the tax would discourage employers from buying ''excessive amounts'' of health insurance for their workers.

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By my proposal, it is clear that most beneficiaries would never fully repay the government for benefits received. Nevertheless, the medical surcharge would pare something from rising costs of health care heaped upon the government. Not only would the collections help offset costs, but, more important, the plan would induce patients to have some concern about health care costs. An individual who knows he or she is liable for paying medicaid and medicare health costs at such time as income permits would have greater concern about the level of those costs than is presently the case.

Today, some people even go to the hospital emergency room for treatment of simple ailments. After all, the service is covered by government and private health programs, while visiting a private physician, even though it is much cheaper, may not be covered. In fact, there is much squandering of expensive health services. Why rush to leave the hospital if it is ''free''? Why question the need for diagnostic tests when we don't have to pay for them?

Under the medical surcharge plan, everyone would be expected to repay the government for benefits received in accordance with his or her means. If we can change the attitude that expensive medical treatment is ''free'' to an understanding that it is a cost to be eventually paid off when it is affordable, we may be able to reduce the escalation of medical costs.

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