The 2016 presidential election season has produced its share of surprises, none quite as interesting as the contest in the Democrat Party primary, where a long-term member of Congress, not even a member of the party, has shown surprising strength against the heir apparent, Hillary Clinton.
Vermont Senator Bernie Sanders has garnered a lot of media coverage, mostly due to his call for free tuition at the country’s colleges and universities. But, he also has a proposal to replace the Affordable Care Act, aka Obamacare, with a Medicare-for-all plan that has attracted attention as well.
At first glance, expanding the Medicare program seems like an attractive alternative. Seniors seem to be mostly happy with their coverage, and the system has a long track record of paying bills. It’s also single payer, so it’s often used as an example of how the United States could move away from a for-profit health insurance model. So what’s not to like about simply dropping the current system and enrolling everyone in Medicare? Like most problems with government entitlements, it begins with a lack of money to run the program.
Medicare has a funding problem as it exists today, and that problem would only become worse if it were adopted across the population of the US. Healthcare expert John C Goodman has reported that for every dollar Medicare pays out to doctors and hospitals, it only takes in about 13 cents in premiums. It’s a great deal for recipients, but expand it to a few hundred million Americans, and the question arises of just how to pay the bills? Avik Roy estimates that the cost of Medicare-for-all over the next ten years would be $28 trillion, at a minimum.
Raising taxes and premiums to offet the cost is an option, but taking such a huge amount of money from the economy to pay for health care would mean little money left over for schools, infrastructure, defense, police and fire service, etc, etc. And most of us have enough experience with how government works to know it’s not always successful at getting value for the money it spends.
In a special bit of irony, an option for today’s Medicare recipients that is gaining in popularity are Medicare Advantage (MA) plans, administered by private companies. These plans offer additional benefits, like coverage for prescription drugs, at no additional cost over their Medicare premium. They’ve become so popular, about one-third of Medicare participants have opted for a MA plan. Why would a private company be able to offer additional benefits over what the government plan provides? Because, surprise surprise, the private companies have lower costs.
You may have heard the claim that health care costs would be lower if only Medicare could negotiate prices with doctors and hospitals. In reality, Medicare doesn’t need to negotiate. It sets reimbursement amounts for covered services, and doctors and hospitals either accept the listed payment, or don’t participate.
To that point, if the country decided to move to a Medicare-for-all model, it wouldn’t need to navigate a complicated bureaucratic minefield and enroll everyone in the program. Congress could simply pass a law that doctors and hospitals would have to accept the Medicare rate for all covered services for everyone, without exception. Wouldn’t that be the easiest road to take? Just expand the Medicare pricing model across the board.
If you take that position on mandated payments and billing, however, then the folks who administer the program must accurately price all those millions and millions of medical transactions that take place every day in doctors’ offices, clinics, and hospitals across the country. If they can’t be right every time, then distortions will take place in the health care market. Some services will be over-reimbursed, making them more likely to be abused through overuse and waste. Others will be under-reimbursed, making it difficult for patients to get the care they desperately need without incurring huge out-of-pocket costs. It would only be a matter of time before doctors, hospitals, and patients would all be disheartened and angry, as more and more distortions became apparent.
Through the genius of the free market, there are ways to improve health care in the United States by increasing competition, encouraging innovation, and putting the patient back in charge of their own health care decisions. Medicare-for-all may be a well-intentioned proposal, but it would prove prohibitively expensive, distort medical decision-making, and deliver an ever greater proportion of the US economy into the hands of unelected government officials. That’s not a recipe for success.