December 14 , 2018
Medicare for All
With the Democratic victory last month putting an end to Republican control of government, there is now no chance for a repeal of Obamacare, also known as the Affordable Care Act.
This law expanded health insurance coverage to tens of millions of people, and lowered the uninsured rate to 5% or less of legal residents in states that supported the law fully. But the ACA has a couple of drawbacks.
First, it did not fully cover everyone, leaving 25 million Americans without health insurance. Second, even some who were able to get insured found themselves with significant out-of-pocket costs due to the copays and premiums that come with private insurance. Third, and most importantly, the US still spends about 18% of its GDP on health care, much higher than the rest of the advanced economies, without all that spending generate much in the way of benefit.
To solve these issues, progressives like Bernie Sanders have been campaigning for “Medicare for All” as a policy that will fix all these problems. But is this feasible, and how could we actually implement “Medicare for All”?
Medicare is the Federal government program that provides health insurance for elderly and disabled people. It is paid for by taxing everyone who works 3% of their income and capital gains. It is massive program spending over 600 billion dollars per year. It is also much cheaper than private health insurance, and loved by those who are covered by it.
Medicare has a number of advantages over private health plans. Because it does not need to earn a profit, and it does not need to advertise and market itself, it has extremely low overhead. Almost all the money goes to actual healthcare. The law is written such that any doctor or hospital that accepts Medicare has to accept what Medicare pays as payment in full. What this means is that Medicare has the power to control what it pays for medical services, unlike private insurers. Medicare pays me a certain amount when I see a sick ICU patient in the hospital for each day of care, and I have no power to bill beyond that. Private insurers have to contract with doctors and hospitals independently and don’t have the clout to drive down prices, which is why private health insurance costs more. Because Medicare is the insurer of half the patients in the hospital, no hospital or doctor could afford to not sign a Medicare agreement.
Medicare for All in theory would be a good system. Instead of most working people getting private health insurance through their work, they would all get to enroll in Medicare, and would pay for it by paying higher taxes. While the taxes would go up, workers would get the money their employers now spend on health insurance added back to their paychecks, and since Medicare costs less, workers would on balance come out ahead. Medicaid, which covers the poor, would be phased out and be replaced with Medicare. Medicaid is another Federal government program, but it is much less generous in benefits than Medicare, and pays doctors and hospitals a lot less. For this reason, many doctors don’t see Medicaid patients, especially surgeons. For Medicaid patients getting to a specialist can be challenging.
In reality, moving to Medicare for All would be difficult. First the politics would be challenging as the private health insurance industry would see its business model vaporize in an instant. They will do everything they can to stop this. But the secret they won’t share is that private insurers do nothing of value for patients, they are just a pass through for payments going to doctors and hospitals, and there is no benefit in doing that through Blue Cross or United Healthcare rather than through Medicare.
Second, Medicare does not cover 100% of costs, it actually covers 80% of costs, and patients are expected to pay the other 20%. If they are very poor, they can get out of that obligation but for most seniors, the other 20% is covered by buying a private insurance policy. These policies are known as “Medi-Gap” policies and are purchased by most seniors. If Medicare for All was instituted this would need to be explained and a mechanism created for the entire country to buy these types of policies.
The really big problem is how to pay for this. Moving everyone to Medicare and then raising income taxes to cover the cost would be a massive tax increase, likely around one trillion dollars per year. How to impose that level of tax on the population would be almost impossible to sort out. Even given that wages would go up, it would be hard to tax everyone fairly to capture the revenue needed to fund universal Medicare.
The alternative is to lower ambitions somewhat. Instead of trying to move everyone into Medicare in one fell swoop, and thereby destroying the entire private health insurance industry, make the transition voluntary and gradual. The way to do that is to make Medicare enrollment open to anyone and any company that wishes to buy into it. For the typical working family, Medicare would be just another option of where to enroll for health insurance. If a person wants to stay in Blue Cross they can do so, but they could also switch to Medicare. Big companies like Boeing or Exxon would offer Medicare as an option to their employees, and if they chose Medicare then the insurance premium would go to Medicare. Insurance premium rates would be set by age by not any preexisting condition just like private insurance does currently under Obamacare rules. Because Medicare would be cheaper, and people are familiar with it and trust it, the end result would be that most Americans would transition over to Medicare. We would still have health insurance as a job benefit, but instead of buying a private plan we would buy Medicare. This way there would never need to be a tax increase on the public as a whole.
This idea of opening Medicare enrollment to the general public but not forcing people to join and not taxing them heavily is the best route forward, and I expect the Democrats to enact this the next time they run government.
