Problems with Medicare for All

Abstract: Medicare for All makes private health insurance illegal and changes virtually every aspect of health care in the United States. The transition from a predominately private insurance industry to a purely public industry would be an economic and political disaster. Most but not all competing health care reform plans offered by centrist Democrats have a relatively limited impact centered on fixing problems with state exchanges.

Introduction:

Support or opposition to Medicare for All has become the centerpiece of the 2020 campaign and a litmus test for the “progressive” wing of the party.

Several candidates for the Democratic nomination for president including — Bernie Sanders, Elizabeth Warren, Kamala Harris, Kirsten Gillebrand, Julian Castro, Tulsi Gabbard, Marianne Williamson, and Andrew Yang have endorsed either single payer health insurance or have embraced Bernie Sanders’s Medicare for All plan.

Many of these candidates have made explicit statements supporting a provision of Medicare for All that prohibits private insurance companies from competing with the new Medicare for All program. Most of the debate between advocates for Medicare for All and advocates of other proposals involves this provision of the bill outlawing all private health insurance.

Medicare for All is by far the most transformative health care reform proposal under consideration. The bill abolishes all private insurance, expands existing Medicare benefits and the need for Medigap insurance, eliminates all premium payments, eliminates health insurance deductibles, and eliminates HMOs and other Medicare Advantage Plans. The new Medicare for All benefit appears more generous than current Medicare to patients. However, the bill will substantially reduce compensation to doctors and health care providers.

One competing plan, Medicare for America Is similar to Medicare for All. Both Medicare for All and Medicare for America offer comprehensive change to all aspects of health insurance and health care. Medicare for America makes all people eligible for Medicare but allows all people to opt out of Medicare and accept private insurance. The Medicare for American people makes major changes to cost sharing and premiums but is in general less drastic than Medicare for All. It is surprising that the politicians who appear uncomfortable with the elimination of private insurance in the Medicare for All bill have not gravitated towards the Medicare for America bill.

Most of the health care proposals offered by centrists in the Democratic party are extremely narrow in focus. These plans generally attempt to improve state exchanges by adding a public plan option to state exchange market places. The centrist plans do not address broader problems with the health care system and the larger employer-based market including issues pertaining to higher deductible and out-of-pocket expenses.

The purpose of this post is to describe and evaluate Medicare for All. The conclusion reached here is a conversion from a predominately private health insurance system to a purely public one is politically and economically unworkable and that Democrats need to consider more practical alternatives. However, centrists need to consider a more comprehensive approach to health care and address a wider range of problems than those addressed in their current proposals.

Discussion of Medicare for All:

The Medicare for All proposal would accomplish the following:

· Creates a national single-payer health insurance plan,

· Enrollment is automatic and for life with no annual or lifetime cap,

· Prohibits private plans from competing with the new national health insurance company,

· Eliminates all cost sharing with the exception of some cost sharing for pharmaceutical subject to a fairly low cap,

· Funding is from a tax applied to employers,

· The new Medicare for All program has less cost sharing the current Medicare and the new program will replace current Medicare,

· Secretary negotiates drug prices annually,

· During a transition people can buy into the new Medicare program,

· Transition is fairly rapid with benefits starting around 4 years after the passage of the law

The bill totally transforms every aspect of the health insurance and health care industry. This proposal makes major changes to all health care issues and problems — lack of insurance coverage, cost of premiums, cost sharing, the role of HMOs, and coverage gaps for existing Medicare patients. The extent of the relatively rapid transformation to this industry is staggering.

The new public health insurance system covers the entire population, replacing all public health insurance programs and making any private health insurance that directly competes with the new public monopoly illegal.

The new system eliminates premiums and provides for funding from a tax applied to employers.

The new system eliminates deductibles and most cost sharing with the exception of expenditures for prescription drugs.

The new benefit is more generous than existing Medicare. Under Medicare for All people would no longer have to purchase Medigap coverage for uncovered services.

The new system and the transition to the new system will result in many challenges and problems.

Medicare for All Issues

Issue One: Political Risk Most of the pundits are concerned with short term political problems caused by eliminating private health insurance. I am unaware of a situation where a modern progressive country with a large private insurance industry declared the entire industry illegal. Many countries with advanced public health systems including Canada, the United Kingdom, Switzerland, Sweden and Denmark, never had a private health industry as fully developed as the one that currently exists in the United States.

Industrial countries with socialized medicine generally allow their citizens to purchase private insurance. Sometimes the private policies are not allowed to cover the basic services offered by the public plan but usually the private plans can compete with the public plans. it is informative that the Medicare for All bill that has received a lot of support from the Democratic party goes further in eliminating private insurance than the systems in some countries with Socialist economies.

Some candidates are attempting to hedge their bets a bit by proclaiming they will support some private option. It is not clear why they didn’t choose to support the Medicare for America bill over Medicare for All given that the former bill makes substantial change but does not eliminate all private health insurance.

Even if a revised Medicare for All bill allows firms to continue to offer employer-based insurance and access to state exchange insurance, the bill will lead to a massive change to an industry and product affecting 160 million people with employer based insurance and 10 million people with state exchange insurance. The implementation of the ACA was miniscule in comparison.

People have short memories. The implementation of the ACA In October of 2013 did not go well. Web sites crashed and people had trouble signing up. The ACA state exchanges impacted around 10 million people. Best case scenario any transition to Medicare for All will involve similar hiccups, impacting 170 million people many of whom are happy with their current health insurance. These hiccups would be disruptive to a broad sector of the population. Even if the bill was enacted, the reaction to the disruption caused by this bill would lead to political backlash larger than 2014 and could lead to a quick repeal of the new law.

The Democrats have also forgotten or ignored the political lessons of 2018 where they had an extremely successful election based in part on their efforts to protect the ACA from Republican attacks. The Medicare for All program basically repeals and replaces the ACA, a program that many Americans now support.

Kirsten Gillebrand has argued that the four-year transition period in the bill will allow Americans to choose Medicare and will result in the resolution of these problems. I have my doubts. My sense is that transition would be very messy.

Issue Two: Financial Impacts from Ending Private Insurance

The four year transition laid out in the Medicare for All Bill would lead to an immediate collapse of stock prices for major health insurance firms and providers and immediate decreases in private health care and health insurance investments.

Many existing health insurance firms and health providers exist under the current system could fail if private health insurance was eliminated. The potential bankruptcies and debt defaults would have a major impact on health care and health insurance industries and the economy.

Issue Three: Financial Impacts on Small Firms are Hard to Evaluate

Advocates for Medicare for All appear to be considering a wide range of funding options. Go here for one list.

https://www.sanders.senate.gov/download/options-to-finance-medicare-for-all?inline=file

A payroll tax is the option in the current bill. The option list states that the first $2 million in payroll is exempt from the tax to protect small businesses.

Some sort of exemption to the payroll tax for small firms, which currently forsake employer-based insurance due to affordability issues is probably essential because these businesses often cannot afford this additional expense. The $2 million payroll tax exemption, unless modified in some way, would apply to both high profit and low profit small firms.

The stipulation exempting the first 2.0 billion in payroll tax means insurance for all small firm employees is paid for either by the payroll tax applied to larger firms or if there is shortfall, general government revenue.

Revenue projections from the proposed payroll tax for funding the Medicare for All proposal, and the cost of the exemption for small businesses need to be examined closely.

Issue Four: Mixing Fiscal Policy with Individual Health Insurance

The Medicare for All benefits are funded in large part with a new payroll tax but the law does not appear to explain what will happen if receipts from the payroll tax are insufficient to cover the health care benefits.

Currently some private insurance companies miscalculate expenses and need to request rate hikes for future years. The request for a rate hike increases costs on companies and people purchasing insurance but these rate hikes do not interfere with the entire political system.

Would general tax revenue be automatically allocated to cover Medicare for All tax expenditures? Would fights over the debt limit or fights over the annual budget impact expenditures for Medicare for All? Is Medicare for All like the current Medicare program set up as a trust funds? If so, how solvent is this trust fund? Would the conversion of the current Medicare system to a Medicare for All system pose new financial risks for seniors who are dependent upon the current trust fund?

What would happen to health insurance payments in a world where all health insurance was the responsibility of the federal government and Congress was unable to pass annual budget bills and Treasury was unable to borrow more because of the debt limit? Would your insurance company cease to operate? Would people have to delay surgery until the debt limit issue was resolved?

The answer to all of these questions will be determined by future Congresses and future Administrations. We could end up with a situation where the amount spent on health care, compensation to providers, and quality of care are determined by an ongoing political dialogue.

Issue Five: Reduced Provider Compensation The primary cost savings from the adoption of Medicare for All stems from reduced payments to providers. On average, Medicare payments are around 40 percent of private insurance payments. As a result some specialists refuse to take on new Medicare patients. Compensation rates and access rates to specialists are even lower for Medicaid patients.

The adoption of Medicare for All for all patients will substantially reduce compensation for doctors and revenue for hospitals and other providers. Some doctors may respond to the new law by creating a concierge practice and only seeing patients that pay an annual fee. However, I expect the government may attempt to curtail such fees given that the proposal already outlaws all private competition.

Provider compensation may be a variable subject to annual Congressional review and be subject to changes in fiscal conditions.

Issue Six: Longer wait times to see specialists Countries with socialized medicine tend to have long wait times to see specialists for certain procedures.

Here is an article about wait time to see specialists in Sweden.

https://www.thelocal.se/20180903/swedes-enjoy-world-class-healthcare-but-long-queues-frustrate-voters

Here is an article about wait time for health care services in Canada.

https://www.fraserinstitute.org/studies/waiting-your-turn-wait-times-for-health-care-in-canada-2018

The problem is highly prevalent in all OECD countries dominated by a public provider. Here is an article with some statistics.

https://www.oecd.org/els/health-systems/waiting-times.htm

The expansion of insurance to the entire population should lead to better health outcomes and longer life expectancy to people who currently lack insurance. However, the long wait times for certain medical procedures will worsen health outcomes and lower life expectancy for the larger sector of the population that currently has health insurance.

Issue Seven: Elimination of all forms of health insurance except fee for service

The current bill does not appear to allow for the continuation of Health Maintenance Organizations, insurance firms that charge a capitation fee for each patient rather than fees for service or private Medicaid Advantage insurance. Insurance firms and medical practices set up along these lines would have to restructure. Some of these firms are better able to control health care costs than fee-for-service insurance.

Issue Eight: Substantial Increases in Health Care Utilization

The increase in the number of people with health insurance coverage, the total elimination of all deductibles and the near elimination of cost sharing from the adoption of health insurance will all lead to increased utilization of health care. The lower reimbursement rates may lead some doctors to increase visits and tests to recoup revenue. The elimination of managed care and capitation models where doctors receive a fee for patient may result in increased use of health care services.

The adoption of Medicare for All will require an increase in the number of doctors and other health care providers.

Issue Nine: Bill provides few details on how to control pharmaceutical prices

The bill calls for the Secretary to negotiate drug prices annually. I suppose the negotiations could go quite well since the single payer is the only purchaser of drugs.

A call for negotiated prices is not a detailed response to the issue of high pharmaceutical prices. The Medicare for All proposal ignores major problems including the practice of pharmaceutical companies of blocking generic competition by extending patents with minor modification, the use of mergers to block competition from generic firms and withholding information on drugs with expiring patents in order to prevent

Concluding Thoughts:

It is important to acknowledge that many countries with socialized medicine offer excellent health care and that many of these countries also have higher life expectancy than the United States. The existence of a cross-sectional relationship between socialized medicine and life expectancy does not imply that the adoption of socialized medicine in the United States would lead to better health outcomes and longer life expectancy.

The higher life expectancy in many other countries is probably more the result of other factors like the higher income inequality in the United States. Also, it appears as though lifestyle and diet contribute to higher levels of certain chronic diseases in the United States and these differences also contribute to life expectancy outcomes. The transition would be disruptive to the entire health care system and economy and these disruptions could lead to worse health care outcomes in some instances.

Most of the focus of the debate on Medicare for All is the provision that would make all forms of private health insurance illegal. It is important to note that many countries with socialized medicine also have a private insurance and private health care system option. The Medicare for All approach is a more drastic solution than many existing socialized systems.

The attention provided the Medicare for All proposal dwarfs all other health care plans. Why has the Medicare for All program received such a dominant role in the health care debate?

The Medicare for All proposal is a comprehensive plan that overhauls the entire health care system. It would bring the nation to universal or near universal coverage, would abolish premiums, would eliminate most cost sharing, and would eliminate HMOs. The Medicare for All plan would also create another set of concerns and problems, potentially much larger than the problems with the current system.

Most other health care plans under consideration have a much more narrow focus. The one exception is a Medicare for America proposal, which is similar to Medicare for All but with an opt-out feature.

Most of the plans favored moderates add a public option to state exchanges to improve state exchange coverage. This change while important only impacts the relatively small segment of the working-age population obtaining health insurance through state exchanges. Many health care problems in the United States, like the increase in deductibles and out-of-pocket expenses stemming from the expanded use of high-deductible health plans, are unrelated to the Affordable Care Act. A comprehensive health plan that competes with the Medicare for All proposal would have to address a myriad of issues.

Authors Note: The author David Bernstein is a writer who lives in Denver Colorado. He is new to Medium. If you like this post also read his article on proposed changes to the Affordable Care Act.

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