Editor’s Note: This article is part one of a two-part series discussing some of the most significant challenges (and solutions) in American Healthcare.
Every Democrat running for president has promised some form of “free” universal health insurance. Whether it’s Vermont Senator Bernie Sanders’ Medicare For All, which headlines the group, or the variants supported by Booker, Buttigieg, Warren, and others, which I’ll refer to as “Medicare for Some.” Despite their optimistic pronouncements, I’m here to break it to you—they’re not telling you everything.
No doubt, there is a clear reason that healthcare continues to take center-stage at many of the debates. Medical costs in the US are growing faster than the economy, comprising $3.65 trillion in 2018. General costs of administering health insurance represented the largest category of year-over-year increases in cost, at 7.7 percent. As healthcare eats increasingly large portions of people’s paychecks, there is an understandable desire to “do something.” Unfortunately, the plans proposed by most presidential candidates would do little to address the underlying problems with American health insurance and likely just add more perverse incentives to what is already one of the most convoluted and bureaucratically bloated economic sectors in the nation.
Terminology is important. Hence, the use of the term “insurance” to describe what’s being peddled. Most of the Democratic candidates use the phrase “universal healthcare” to describe their proposals, but the meat and bones of what they’re suggesting is identical to what Medicare is for people 65 and older today: health insurance (with set reimbursement rates, negotiated prices, etc.). While you might think they’re simply being lazy with the verbiage, they’ve carefully selected these words. They want you to believe their plan (and hence, electing them to the Presidency) will solve any struggles you ever had or will have getting the medical care you need. It’s no coincidence candidates repeatedly echo the refrain “healthcare is a human right.” But coverage is no guarantee of care. Least of all quality care. Just look at the Veterans Affairs (VA) system.
Now that we have that cleared up, what exactly is “Medicare For All?” Basically, it aims to cover everyone in the country with single-payer health insurance where the single-payer is the government (read: you). They want to model it on Medicare, which, depending on whom you ask, has either been quite successful and efficient or a complete disaster. Giving Medicare the benefit of the doubt, why expand it to everyone? With administrative costs lower than almost any other large health insurance plan, expanding Medicare, all else held constant (that’s the hinge-point, you will find), would lower overall medical spending. The argument here is that a single payer allows the government to exploit economies of scale, lowering the costs of prescription drugs, procedures, and insurance coverage.
By its very nature, Medicare is redistributive—of risks (read: costs) and benefits. Some, often the neediest, will access vast amounts of care exceeding the value of their mandated premiums, while others will use almost none of their benefits but still be forced to pay their premium. By pooling risks but forcing everyone to pay almost the same premium (there are some exceptions), Medicare is hoping that the many low-usage payees will balance out the fewer high usage payees. Many argue this is the only way to guarantee care for the poorest.
Unfortunately, healthcare spending, and Medicare spending by association, vastly increases with age. Even the healthiest are unlikely to escape age-associated care costs. A study by the Kaiser Family Foundation indicates Medicare per capita spending more than doubles between the ages of 70 and 96. This throws a wrench into the whole redistributive justice Ponzi Scheme system Medicare is theoretically relying on to cover its costs. What they aren’t telling you is that current Medicare reimbursement rates cover only about 90 percent of the total allocated costs of care.
But this raises the question—if Medicare only pays 90 percent of what it costs to treat a patient, where are hospitals and doctors and health systems making up the difference? It isn’t as though they’re just going to write it off, like the $620 billion in uncompensated care they’ve doled out since 2000. Simply put, they transfer the costs. They overcharge regular commercial insurance, which is typically paid for by employers and individuals. A new study by the left-leaning Center for American Progress found private insurer hospital reimbursement rates are about 134 percent of what Medicare pays for a given procedure. This is how the hospitals can stay solvent and make a little bit of profit while providing care to everybody.
So, what would happen if we truly had Medicare For All, eliminated private insurers, and consolidated administrative bureaucracy under one government roof? Well, if Medicare reimbursement were held constant, covering only 90 percent of the costs, and there’s now nobody to transfer the other 10 percent of costs to, things aren’t looking good. I suppose we could let hospitals go out of business en masse when they can’t pay their staff, suppliers, and utilities bills. If that doesn’t sound bad, imagine how bad that career landscape would look for anyone going into medicine. The current shortage of qualified doctors and healthcare professionals would surely worsen.
Alternatively, if Medicare reimbursement were increased to match the actual costs of care, we would be staring down the barrel of a $32 trillion fiscal gun over the next 10 years. To make that math work, we would need to greatly increase Medicare premiums, raise taxes, or print more money. Of course, given the compulsory nature of single-payer health insurance, its premiums are taxes. And printing more money means inflation, which is also a hidden tax since it reduces the purchasing power of the currency. There is no scenario for single-payer health insurance that does not require taxes, on some or all, to rise. But, the redistributive justice tac of most Democratic candidates means raising premiums on everyone isn’t an option we can consider. So, it’s either inflation or taxes, or both… and more likely, significantly higher taxes on “the wealthy.”
Some of the Democrats are saying we could have “Medicare for some” and then let private insurance cover everybody else, but this belies their misunderstanding of incentives. When people realize the single-payer insurance is cheaper they’ll go for that; and of course, hospitals will continue to shift costs from Medicare to private insurers. The combination of that switching and the inevitable decreased quantity of people using private insurance will make private insurance so inordinately expensive that increasingly fewer people (or employers) will buy it, and eventually private insurers—unable to compete with a taxpayer-subsidized government alternative—will go out of business. At that point, you have Medicare for all. “Medicare for some” is just Medicare for all, eventually.
Candidate Kamala Harris has proposed a sort of “Medicare Advantage for all.” Medicare Advantage, also known as Medicare Part C, allows people with Medicare Part A and Part B to pay for and receive Medicare benefits in a slightly different way. Private insurers contract with Medicare to offer plans with at least the same level of coverage of Medicare Part A and Part B, but often with narrower networks of care. The “Advantage” is that premiums may be lower due to increased competition among the insurers. Like the current “Medicare Advantage” system, Harris’ plan would entail companies competing for patients’ business within those narrower “advantage” health networks, ultimately administering the “Medicare for all.” The theory is competition will drive down costs while maintaining patient choice. What she’s not telling you is a lot of these networks are really narrow. While narrower networks do keep prices down, they severely limit the choice of whom you can see.
It is easy to look at these proposals through an overly rosy lens, distorted by the near unavoidable frustration experienced when trying to access medical care in America today. But if we really want to reform the system to lower healthcare costs, and improve both the quality of care and health outcomes, what’s needed is something a different than what you’ve heard from the Democrats on debate stages the last few months. I will explore some ideas for improving America’s healthcare in greater detail in the next installment, Conversations in Health Part II: Making Preventative Care Great Again.