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Why ‘Medicare-For-All’ Is Not The Answer



May 14th, 2013

The Affordable Care Act survived the Supreme Court and a presidential election, so why does it face such an uncertain future?  One reason is that it was essentially silent on how to control costs.  This has led many pundits — including the likes of Paul Krugman and Robert Reich — to argue that the best approach would be to extend Medicare to everyone.  A January National Research Council report on the relative disadvantage of America in global health outcomes, especially compared to countries with national health insurance, added further fuel to the fire.  But is a larger government role in health insurance the best approach?

The idea of universal Medicare is powerful and attractive. Mr. Krugman points out that in the last forty years, average Medicare costs per person have grown by 400 percent while those for private insurance have increased more than 700 percent. His numbers suggest that if everyone had Medicare for the last 40 years, we might now spend only 14 percent of GDP on health care instead of nearly 18 percent, while also reaching universal coverage. Mr. Reich argues that “Medicare-for-All” would save between $58 billion and $400 billion annually, and similarly concludes: “Medicare isn’t the problem. It’s the solution.” Critics of the U.S. system are also quick to point out that Americans don’t live as long as their counterparts in countries that spend much less, suggesting universal Medicare could save money and improve our health.

The argument for universal Medicare basically comes down to three key claims:  (1) Medicare gets lower prices; (2) Medicare’s administrative costs are lower; and (3) greater spending does not mean better health.  Each of these deserves closer attention.

Prices.  Consider first the argument that Medicare has lower prices.  This happens because the government, as the largest purchaser of health care, can demand lower payments for services compared to private insurers.   In fact, because Medicare is the only payer for people aged 65 and older, it can quote take-it-or-leave-it prices, and choosing to leave it means providers can’t treat 40 million of the sickest Americans.  That is a lot of market power; indeed, economists have a word for it: monopsony.

The classic problem of monopsony buying power, however, is underprovision of services.  The medical market is no exception. This problem manifested in Medicaid years ago — as states started to clamp down on payments, providers exited the market, leaving us with the patchwork system we have today.  Could the same happen to Medicare?  We are already hearing reports of doctors who do not take Medicare patients. In a 2010 survey of 9,000 physicians, the American Medical Association reported that 17 percent of doctors restricted the number of Medicare patients; among primary care physicians, a whopping 31 percent did.   With universal Medicare, is the population really going to accept, and would Congress really allow, the continued reductions in prices?

Administrative costs. Proponents of universal Medicare often point to the much higher administrative costs in private plans.  But are such higher administrative costs necessarily bad? For one, the large variation in Medicare costs suggests inefficiencies that might be corrected through more administrative spending. Over the last 40 years, the Dartmouth group has documented extensive geographic variation in Medicare spending that is unexplained by demographics, income, or disease severity. Areas with 30 percent higher spending seem to have no better outcomes.

Ironically, Medicare’s low administrative costs — about 3 percent compared with 17 percent in the private sector — may be to blame for the high spending.  The private sector uses these funds to do a better job controlling excessive use. Tomas Philipson and colleagues have shown that the variation in Medicare hospital use is four times larger than the private sector when it comes to heart disease. Because it can rely on its monopsony power to control overall spending, Medicare has a weaker incentive to limit overuse.  Meanwhile private insurers have become more efficient, employing tools such as utilization review and case management (which count as administrative costs) to assess patient needs and then either restrict services or steer patients towards more cost-effective care. In a world without private insurance, we would likely see more money wasted on care that produces no benefit for patients.

In addition, administrative spending protects against fraud.  By some estimates, the Medicare program loses a staggering $60 billion to fraud each year. This amounts to 11 percent of the Medicare budget and would be enough to double Federal spending on primary and secondary education.  No private company would ever tolerate this abuse.  Imagine the fraud if Medicare covered 300 million Americans.

International comparisons and spending.  Finally, it’s time we made sense of international comparisons, since they are often used to assail the current health care system.  Despite spending more than any other nation per capita on health care, American life expectancy at birth ranks 34th worldwide. Several countries ranked ahead of the U.S., including Canada and England — have single payer health systems, raising the question of whether replacing private insurance with universal Medicare would make us healthier.

But, as the NRC points out, these comparisons conflate health care with numerous other influences.  What we eat, the stress in our lives, exercise, the air we breathe, our genes, and a host of other personal and environmental factors determine our health.  Take obesity for example.  Much of American’s low life expectancy stems from obesity, but the primary causes of American obesity are not health care. Steven Woolf, the Chairman of a recent study on life expectancy by the National Research Council and Institute of Medicine concluded, “Much of our health disadvantage comes from factors outside of the clinical system and outside of what doctors and hospitals can do.”

Once we get a disease, there are certainly places where higher U.S. spending buys better care. Cancer is a poignant example. The largest study to date of global comparisons in cancer survival finds the U.S. ranks first or within the top three for the three cancers analyzed: breast, prostate, and colorectal. The magnitude of the differences between countries is also large; an American diagnosed with prostate cancer has a 91 percent chance of surviving at least five years, but the odds drop to fifty-fifty if you live in England. Or take breast cancer, where the 5-year survival rate is 83 percent in the U.S. compared to 69 percent in England. In Canada, where financing is public but provision is private, the differences are narrower but the higher U.S. survival rates remain statistically significant.

Improved survival in the U.S. does not appear to be driven by Medicare. Data from the Surveillance Epidemiology and End Results (SEER) project reveals survival rates are higher for groups under age 65 than over 65 and cancer prevalence is only slightly higher among the older group. While lead-time bias is a possibility, better U.S. cancer survival suggests our largely private insurance system delivers value in treating (if not preventing) certain diseases. Cancer is only one example, but it’s an important one.

All this is not to say that private insurance is perfect. Problems of adverse selection, care coordination, and complexity exist.  Waste is still an issue.  However, the argument that Medicare is superior in terms of cost savings and quality is flawed and ignores key factors that make any conclusion decidedly more nuanced. As the country’s fiscal challenges pressure us to make dramatic health system changes, we should be wary of calls to implement “Medicare-for-All.”

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10 Responses to “Why ‘Medicare-For-All’ Is Not The Answer”

  1. PoliticsDebunked Says:

    Medicare for all is essentially government dictated price controls, which don’t magically work differently or better in healthcare than in other aspects of the economy. People need to learn the basics of how the rest of our economy functions and how prices are kept under control bottom up rather than top down.

    Prices in say the consumer electronics industry in real terms tend to decline over time, in contrast to healthcare. What happens is someone say working with production of one component of a computer comes up with a creative way to produce the part more cheaply. Part of the savings may go to profit, but competition will lead the price to be lowered, which tells competitors it is possible to lower the cost to produce that part so they go and find a way to do so. Prices are lowered over time due to people finding actual cost reductions.

    In contrast if you had a government employee trying to centrally dictate prices for goods, he would have no way of knowing what innovations might be found to reduce the actual production costs.Prices would get set arbitrarily based on guesses which might be influenced by how politically connected a particular type of product’s industry group is, or say who offered his wife a job. Some prices will get set too high and lead to waste, some will get set too low and lead to shortages and rationing. Some may get set right by accident, but the central planner simply has no way of knowing what that should be since he can’t predict what innovations might arise out there.

    Prices rise in healthcare in part due to myriad restrictions which prevent competition from keeping them under control, usually driven by favors for special interest groups. This page goes through many examples of how “crony capitalism” drives up healthcare costs, with detailed links to sources:
    http://www.politicsdebunked.com/article-list/healthcare

    It also notes the ways government tries to hide the true cost of its healthcare programs. For instance there are vast “unfunded liabilities” in medicare, which means expected future expenses will exceed revenue. In contrast in the private sector a business’s valuation is partly based on their expected future profit, which means that their future revenue must be expected to exceed future costs. So government is partly shifting costs to the future in ways that a private company couldn’t get away with. The page goes over other problems with the notion of cross country comparisons and other reasons to not consider “medicare for all” a rational approach.

  2. cmhughesmd Says:

    I think Dana Goldman’s reference to the Nova Scotia lottery is hilariously blinkered. He is aware, is he not, that about 1/6th of our citizens don’t even get a chance at a possibility of a hope of a lottery, right?

    Imagine if Canadians decided to remove 1/6th of their population – the poorest, of course – from the largely non-existent queues Goldman decries. Do you suppose their queues might be shorter? Probably, but Canadians would never be so heartless as to do this. Only Americans, of all modern nations still make this sad, morally bankrupt choice.

    BTW, Mr. Goldman, Why not take on someone our own size? Tell us how much better our health care system is than Germany’s or France’s? We’ll wait.

  3. Jon Oberlander Says:

    Dana Goldman is concerned about tone in blog responses–I am more concerned by his factual errors and misleading statements. Comparing the United States to Canada, Goldman writes that “the US — while wasteful — has a system that on average provides the best access and choice, especially with the ACA.” It is not clear what “the best” means here–best in the world? Or only in North America? Regardless, it is simply inarguable that Canada provides better health security to its citizens with universal coverage at a much lower cost than the US.

    To be sure, Canada has its share of significant problems. But it is a bit much for Goldman to cite issues in primary care shortages and a lottery for care as an indictment of Canada without mentioning America’s own issues with primary care or the now famous Oregon lottery for Medicaid or medical care costs driving Americans (including those with insurance) into bankruptcy and much more. Even when the ACA is fully implemented, over 30 million US residents will lack insurance coverage–we will not match Canada on universality.

    Goldman is worried about Canada’s limits on choice but he does not note that the US is itself not free of constraints: many Americans face constraints on choice of medical care options because they do not have any coverage at all, do not have a choice of insurers from their employer, or have restricted choice of doctor because they are in a managed care plan. In short, Goldman’s conviction that the US has the “best access and choice” is strangely divorced from the evidence.

    Finally, Goldman’s published work does not, as he claims, demonstrate that higher US spending on cancer produces better results than the EU. That work has serious methodological problems which undercut its conclusions:
    see: http://theincidentaleconomist.com/wordpress/health-affairs-authors-respond-to-criticism-maybe-mine/
    and http://www.reuters.com/article/2012/04/09/us-cancercare-idUSBRE8380SA20120409

  4. Dana Goldman Says:

    There is a tone here that somehow the Canadian system is ‘better’ — or at least non-inferior and less expensive. But surely everyone can agree that the Canadian system restricts choice, has greater delays, and is starting to show cracks. Just try getting Erbitux for Stage IV colon cancer ; or an office visit in Yarmouth, Nova Scotia, where they held a lottery to see who would get primary care.
    ((See http://www.city-journal.org/html/17_3_canadian_healthcare.html or http://www.nationalreviewofmedicine.com/issue/2006/03_15/3_policy_politics03_05.html).

    In fact, cancer is a poignant example, as research we published in Health Affairs last year demonstrated that the US has better survival than the EU, and the gap is widening. These better outcomes come at a cost, but a straightforward cost-benefit analysis indicates that the gains are worth it. (See http://content.healthaffairs.org/content/31/4/667.short)

    The point is that the US — while wasteful — has a system that on average provides the best access and choice, especially with the ACA. Canada has a lower global budget, but it has restricted choice. If we move to global budgets, we can lower costs, but we shouldn’t fool ourselves that health outcomes will magically improve and access will improve.

  5. Theodore Marmor Says:

    This critique of Medicare is bafflingly opaque to the difference between single payer systems providing broad, first dollar coverage and the particular features of Medicare US version 2013. The arguments for the former rely on normative appeal of principles like those of the Canada Health Act, on experience with very limited if any patient cost-sharing at the point of service, and decades of comparative financing experience. On that basis, one can compare how Canadian developments differ from those in the US from 1971–when their system was operational–to now. Not everyone would agree that Canadian experience is superior, but it would be difficult to argue the case that the US experience was superior. So, why are those data not addressed seriously when dealing with “international experience.” One cannot coherently argue against that form of medical care policy by selectively observing features of American medical care and speculative claims about the extent of ‘fraud’ in private and public health insurance. The monopsonist noted in the article is not US Medicare, but Canadian Medicare at the provincial level—or, by extension, the NHS in the UK. There are indeed issues of fraud in the US, but interestingly, there is no serious evidence presented that supports the claim that private health insurance is superior on that front.

    Finally, in no OECD nation is health care financing the central explanation for the profile of the population’s health. Health care serves lots of purposes and is important in many ways, but it ought not be evaluated primarily or substantially–in rich countries with basic public health–for major changes in population health profiles.

  6. bob4healthcare Says:

    Some clarification is warranted. You spent time attempting to discredit the idea of “Medicare for All”. As far as I know, nobody is promoting that. The term “Medicare for All” is the short title that we use on promotional items and sometimes simply a desire to state “Improved Medicare for All” as simply as possible. We work hard to provide the education and promotion of Improved Medicare for All. There are very big differences between the two. The U.S. Congress partly privatized Medicare via the so-called Medicare Modernization Act in 2003. It hasn’t been the same since. And, considering all factors, Improved Medicare for All is much better than Medicare. The following side-by-side comparison shows the amazing differences, but currently needs an update, since the comparison is based on the 2011 Medicare Handbook. We’ll be updating it to compare to the 2013 handbook, but you can quickly see the differences.
    http://www.mforall.org/p/Improved_Medicare_for_All.

    - Bob the Health and Health Care Advocate

  7. brucequinn Says:

    Good article but there are some loose threads here. The arguments don’t really make sense unless you can at least try to sum them against each other. (1) For example, if Medicare prices were 50% lower but utilization or fraud was 10% higher, then you would still save a lot of money, net. (2) While Medicaid for 15-20% of the relatively disenfranchised poor people is subject to substantial undercapitalization, it is less clear that a national health plan (like Canada or England) would look nearly so bad, due to the far broader political base. (3) Some of the other statistics are more subtle. For example, men and women in the US “live longer” after a diagnosis breast or prostate cancer at least in part because of the relentless screening of tiny and in some cases inconsequential tumors. (4) The Medicare fraud rate of 10% is sometimes based on a standard error checking survey (called “CERT”) which tallies up minor errors, such as if Dr. Jones’ signature is “illegible” on what is obviously Dr. Jones’ chart – had his signature been more legible, the care and cost would have been identical. Or if a patient has had a successful 5 day necessary hospitalization, but the physician neglected to use the phrase “admit to hospital” in his original two-page admission note. Of course, there is plenty of real fraud too. (5) Finally, the authors rate Medicare can use monopsony pricing so it needn’t do more utilization review. But this is apples an orange, it’s like saying, you can read USA Today, so you don’t bother to read the Bible in Chinese. Monopsony pricing is easy, but utilization review is hard.

  8. RobertBurney Says:

    Bravo! Nice to hear someone challenge these old canards. Medicare doesn’t use its pricing power to lower prices. They did so with durable medical equipment, but Congress made them stop. Imagine if CMS put out an RFP for total hip replacement.
    Administrative costs are lower because Medicare doesn’t do administration. They don’t manage hospital use, and they don’t communicate with clients. It also seems cheaper to allow fraud than to spend money to prevent it.
    Life expectancy–even infant mortality are related to factors that have nothing to do with healthcare. The clue is to look at countries that rank better than the US and ask how we are different.
    At the end of the day, Medicare is an insurance company and has nothing to do with the cost of healthcare services. Any savings legislated into Medicare are merely cost shifting to elderly patients.

  9. Rachel Says:

    The authors ask if the population is ready to accept lower prices. Well yes, of course they are. Let’s be clear. There are people who are benefiting from the large amounts of money, and byzantine complexity of the current system. They are not most people. However they are people who contribute to Congressional campaigns. The only way that we will achieve Medicare for All is if the population pushes hard. The rich are doing fine in the current system. Others are not. Of course physicians, especially highly paid specialty physicians, will balk at lower prices. That is perfectly understandable. But if that is their only choice, then they will adapt. And under Medicare for All, their overhead will be sharply reduced. There are several excellent comparisons of the amount of office staff needed for physicians to practice under the current system. If you want doctors to be allowed to be doctors, not managerial accountants, Medicare for All is the way to go.
    The only benefit to today’s high administrative costs, in which any health care provider must struggle to keep up with myriad plan benefits and rules, is extra employment for skilled clerical support. But imagine the lift to the economy when employers no longer need provide medical benefits to their staff. Private plans do not spend their money on fraud prevention. In fact they benefit enormously from the fear that providers have of being caught by Medicare auditors. The authors need to spend more time with hospital compliance staff to understand this.
    As for international health outcomes and their causes- the topic is complex. I notice that they mention obesity rather than smoking. Smoking rates have been much lower in this country. Also- they work with cancer, the only disease in which the US seems to fare well in international comparisons. There may be confounding issues of overdiagnosis- but I will leave others to comment on that.

  10. cmhughesmd Says:

    It may not be the answer because your fundamental arguments are actually far from fundamental. The fundamental question is how do we get to universal health care for all, distributed in an equitable manner, as noted in the Charter on Medical Professionalism:

    Social Justice
    The medical profession must promote justice in the health care system, including the fair distribution of health care resources. Physicians should work actively to eliminate discrimination in health care, whether based on race, gender, socioeconomic status, ethnicity, religion, or any other social category.

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