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Medicare for All makes a lot of sense

The economics of Medicare for All championed by Sen. Bernie Sanders are actually quite straightforward. Unde...

Posted: Aug 5, 2018 10:46 AM
Updated: Aug 5, 2018 10:46 AM

The economics of Medicare for All championed by Sen. Bernie Sanders are actually quite straightforward. Under what advocates call "M4A," health care coverage would expand while total spending on health care -- by companies, individuals and the government -- would decline because of lower costs. More would be paid through the government and less through private insurers.

M4A would reduce health care costs for three reasons. First, Medicare pays hospital and doctors at lower rates than private insurers. Second, drug prices would be lower. And third, there would be administrative savings.

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These conclusions are robust. Recently, the libertarian-leaning Mercatus Center published a study with data that bear out these conclusions. Indeed, these sensible conclusions jump out of any straightforward analysis.

M4A would seem to be an unbeatable approach. And indeed it is -- almost. It's basically the solution adopted by Canada, the countries of Western Europe, Japan, Australia and New Zealand.

Yet one high-income country does it differently: the United States, which still relies heavily -- far too heavily -- on private health insurers.

A broken system

The main reason why the United States continues with a broken system is straightforward. The US private health care industry is enormously profitable and powerful. M4A would help the nation but hurt the owners, top managers and highest-paid health providers of the private health care industry.

Thus, the health care lobby blocks M4A -- though it would greatly benefit the nation. (Free-market ideologues, including the Mercatus Center, oppose M4A because it would enlarge government, even though it would both expand health coverage and reduce costs. More government, in the free-market view, is bad even if it is more cost-effective.)

The challenge in adopting M4A is not really about whether it would be a better system. Yes it would be. It is about political muscle. The health care lobby is the biggest one in the country, with lobbying outlays of a whopping $557 million in 2017, including $280 million by pharmaceutical and health products companies, $103 million by hospitals and nursing homes, $92 million by health professionals and $82 million by health services and HMOs, according to the Center for Responsive Politics. Those princely sums add up to a lot of votes in Congress.

The lobbyists get a very good return on their political investments, to the detriment of almost all Americans. Americans spent an average of $10,300 per person on health care in 2017, about twice the average of comparable countries. Those excessive outlays pay for the ridiculously high earnings in the health care system. According to recently published data, 17 CEOs of not-for-profit hospitals, for example, were paid more than $5 million each in 2014. And that's just the not-for-profit sector.

Americans know well the dismaying case of a medicine like sofosbuvir (trade name Sovaldi), a cure for Hepatitis C, that cost about $1 to produce yet was originally sold for $1,000 per pill, with the monopoly power of patents and the protection of an absurd law that blocks the government from negotiating prices with the private pharmaceutical industry.

The current system is an outrage, and Americans express less satisfaction with the health care system than do their counterparts abroad. And yet it doesn't change. The health care lobby has been too strong, successfully playing on the public's fear of change and the fear of too many incumbent politicians of crossing a powerful lobby.

The missing facts

Vital facts are routinely obscured from the public. Consider the recent Mercatus study. On the one hand, it rightfully and straightforwardly concludes that M4A would provide more health care coverage at lower cost than the status quo, projecting a net reduction in national health expenditures of roughly $2 trillion over a 10-year period (2022-2031), while also enabling increased health care coverage.

Yet the study actually portrays this outcome in frightening terms, as simply a great expansion in the size of government and taxes: "Doubling all currently projected federal individual and corporate income tax collections would be insufficient to finance the added federal costs of the plan."

The simple retort, of course, is that the reduction of private-insurance premiums would more than offset the rise in the public sector costs (hence the overall net saving). Yet this fundamental point is buried in the report's rhetoric. It would not be hard to design the new taxes, perhaps as payroll taxes rather than income taxes, so that almost all workers would see a net reduction of their health care costs (with the elimination of private-insurance premiums more than offsetting the rise in taxes).

The Mercatus report fails to emphasize three crucial facts:

First, US health care is not a competitive marketplace. It is rife with monopoly power, enabling the extraordinary markups of drug prices, the extravagant salaries of the top-paid health care providers and the rampant price discrimination exercised by health providers, which charge different prices to different clients depending on the provider's market power vis-à-vis different clienteles. M4A would limit this monopoly power by putting a powerful government payer up against the monopolists.

Second, US health care prices are sky-high compared with the prices paid in other high-income countries, while US health outcomes are worse. Life expectancy in the United States is not only around five years lower than in the leading countries but has actually been declining in the past two years, in part because of epidemics of depression, suicide and substance abuse.

Third, M4A wouldn't require the United States to plunge into an unknown health care model. Medicare already ensures lower costs than private health care and is popular among the elderly. The health systems of every other high-income country offer other proven models. Par for the course, the Mercatus study doesn't even mention the overwhelming evidence from abroad.

By looking more carefully abroad we would learn that M4A can save far more than $2 trillion over 10 years. The savings could actually approach $1 trillion per year, given that the United States would save even more than that amount per year were it to pay the same share of gross domestic product on health care as does Canada with its single-payer system (10.4% of GDP in Canada, compared with 17.1% in the United States, for 2017). Even with that lower rate of spending, Canada achieves a higher proportion of health care coverage and a longer life expectancy (81.9 years, compared with 78.6 years in the United States, for 2017).

Sanders nearly won the Democratic nomination in 2016 by taking M4A to the people despite the naysaying of the Democratic Party establishment and newspaper pundits. With health care premiums continuing to soar, and with Donald Trump and the Republican Congress aiming to cut back even further on health care coverage, the public backing for M4A is sure to surge by the presidential election in 2020.

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