Medicare's impingement on freedom

Paul Krugman writes:

the modern G.O.P. considers itself the party of Ronald Reagan — and Reagan was a fierce opponent of Medicare’s creation, warning that it would destroy American freedom. (Honest.)

Greg Mankiw responds:

Pretty silly of old Ronald, wasn't it? Well, also today, over at the Wall Street Journal, three past presidents of the American Medical Association write:

the right of patients to privately contract with physicians to ensure they have the medical care they want, without penalty—regardless of what the government pays—must be recognized and protected. Today, if a doctor wants to bill a patient for additional payment over the Medicare reimbursement, he has to withdraw from Medicare entirely for two years. A patient who agrees with this arrangement can't receive any Medicare money for that service, either.

So, if you include the right to sign mutually advantageous contracts and engage in the gains from trade as part of "freedom," then President Reagan was not so far off the mark.

The problem, it seems, is that Medicare sometimes tries to push the price of medical services below their equilibrium levels (a phenomenon that will likely get more severe with the Medicare cuts being envisioned in the pending healthcare reform bills). Such price controls naturally lead to private attempts to circumvent them, which in turn lead to regulations to prevent that behavior. These new regulations cannot help but impinge on economic freedoms.