Medicare (and Medicaid) for none

Sen. Bernie Sanders (I-Vt.), California Lt. Gov. Gavin Newsom, and other liberal candidates for office this year are calling for “single-payer” health care, or “Medicare for all.” These proposals would be inefficient and explosively expensive, leading to a collapse of the U.S. health care system and the emergence of a two-tiered system with excellent, expensive health care for the rich and little or no health care for the poor and elderly.

The objective of health care reform should be to make care available to all Americans and to have a system that continuously lowers cost and improves quality of care. Single-payer and Medicare-for-all would do the opposite.

{mosads}Numerous studies (i.e., The National Health Insurance Experiment conducted by the White House through RAND Corporation in 1976) have shown that the elasticity of demand for widely available, relatively low-cost health care, combined with game theory applied to Americans racing to consume an important, inexpensive and limited resource, leads to massive excess and inefficient demand. That’s likely to mean exploding costs, rationing and ineffective bureaucratic efforts at cost control, in addition to a demoralized health care system with little incentive to innovate or sustain quality. The studies accurately predicted the near-bankruptcy that Medicare faces today.

Aside from explosive demand for a limited resource, the central problem is lack of effective cost control. In Medicare, the government controls costs by paying less. Doctors are forced to work longer hours for less pay. Many surgeons today (after four years of grueling medical school and more than five years of low-paying residency) enter surgical practice making less than an entry-level business strategy consultant with two years of business school. Since doctors are not prone to create unions, their relatively low income and ever-increasing paperwork is at the whim of a government bureaucracy and budget cycle. The result: fewer doctors accept Medicare patients (de facto rationing), although politicians claim to have increased the level of Medicare benefits. That is the definition of cynical on the part of our political leaders.

Single-payer and Medicare-for-all will drive many doctors from a public-financed system. They will walk away from a profession that no longer provides good care or delivers reasonable compensation. At the same time, as current Medicare costs suggest, Medicare-for-all will accelerate the collapse of Medicare. In short, it will lead to Medicare and Medicaid for none. The poor and elderly will be left out in the cold.

But single-payer and Medicare-for-all do, unwittingly, put their finger on the real problem. There cannot be a real solution to the health care crisis as long as finance (insurance) and delivery (doctors and hospitals) are separate. That unique complexity in health care defeats market forces that could lead to progress in cost control and quality. Where the liberals go wrong is suggesting the government take it all over. The best answer is to accelerate a trend that is quietly occurring in the private sector.

Regardless of what the federal or state governments do, we are headed toward a two-tiered medical care system in America. Many physicians, fed up with government programs and the insurance “claims management” systems, are forming “concierge” practices that annually direct-bill a limited number of patients a set annual fee to provide care. At the same time, there is consolidation of hospital and health care systems as insurance companies and other investors begin to buy delivery systems and physicians organize into very large practices and clinical/hospital delivery systems providing a full range of medical care. Single-payer programs will accelerate this consolidation and movement away from government-paid health care.

 The most likely end game for health care reform in America, to achieve what all parties want, is a system of five to 10 large, national, integrated health care organizations that effectively employ nearly all health care professionals and own nearly all health care institutions (hospitals, clinics, surgery centers, etc.). Each would recruit patients and charge annual fees for care. Organizations would compete with one another for customers on the basis of quality and cost, like any other business in the market. This would promote quality and efficiency, just like any market system, rather than inefficient bureaucracy. Some of these systems might decide to segment the market to focus on young families, the elderly, the poor, or others with specialized needs.  

The other inevitable change in the system is that employers will cease to offer health care as an employee benefit. This benefit was created during World War II when the government limited employee wage increases to support financing the war effort. Employers and unions replaced the lost wages with a tax-free benefit — health insurance or direct health care. Today, that’s a poor deal for employers, employees and unions, with health care inflation rising so much faster than wages. If we replaced health care benefits with cash wages, employees could directly buy care from one of the plans described above, with true market incentives to control costs and deliver quality care.

The benefits from these changes would be market-based (effective) cost control, less bureaucracy (no insurance companies, government regulation of cost or financial paperwork), happier and more productive doctors, better quality medicine, complete portability of health care from job to job, equal access to health care, and continued access for the elderly and the poor (whose premiums would be government paid to join the best integrated system for their needs).

The law of unintended consequences is one of the most powerful forces in politics. By pushing for single-payer and Medicare-for-all, Sanders, Newsom and the rest are simply accelerating the reform of American health care to a fully private, market-based system. Such irony is the beauty of a healthy American system.

Grady Means is a writer and former corporate strategy consultant. He served in the White House as a policy assistant to Nelson Rockefeller and a staff economist in the Office of Elliott Richardson, the Secretary of the US Department of Health, Education, and Welfare. He was the White House liaison to the National Health Insurance Experiment, and he helped write and implement the HMO Act of 1973.