Insuring Health

The Appeal of Medicare for All

The appeal of this proposal is obvious. Medicare costs less on the dollar than private insurance, and is an already existing and popular government program. America is in a perpetual healthcare crisis, defined broadly by the facts that, as a nation, we spend far more than our counterparts among the affluent western nations, for outcomes that are no better (and sometimes appreciably worse), all while leaving millions of Americans uninsured and vulnerable to bankruptcy should an illness strike. To those inclined to favor a national single-payer insurance system as a way to address this, simply expanding Medicare to all American citizens is the simplest as well as most politically feasible option on the table. Indeed, an opinion poll last year suggested the proposal has majority support among the American public. 

But is Medicare for all really a good idea? 

A Personal Diversion 

Because American politics have become so tribal and divisive, it’s worth a brief diversion before I attempt to answer the above question. Some readers may assume that a writer questioning the wisdom of expanding Medicare is a right-winger, and thus be disinclined to trust their opinions. 

While my political beliefs are not easy to neatly categorize in a box, it’s worth noting that in the past five presidential elections, I’ve cast my vote (working backward) for Joe Biden, Hillary Clinton, Barack Obama, Barack Obama, and John Kerry. A careful reader will note a pattern.

Like many Americans, I consider myself a moderate, more interested in practical solutions than dogmatic ideology, and willing to allow that—while I certainly lean a bit toward the left on most issues—sometimes good ideas come out of the right. More importantly, I hold firm to the opinion that stupid and destructive ideas can come from both sides. 

In brief, I am not a hard left progressive, but neither am I a right-winger. I am certainly open to government-financed healthcare and agree that Medicare for all would be, in many areas, an improvement upon our current system. 

But that doesn’t mean it is the best idea we can come up with. 

Medicare For All: A Prescription for Sclerosis

Proponents of Medicare for all point out that, compared to private insurance, Medicare costs less and is more popular with the public. They also point to the track record of socialist democracies like France and Sweden, and note that extending Medicare for all would copy a lot of the efficiencies, cost savings, and universal coverage found in those nations. True enough. But is merely beating our current insurance situation or matching that found in a typical European nation the best we can do? 

It’s worth remembering that Medicare is only a way of paying for healthcare, not a way of delivering healthcare; nor is it the healthcare itself. By way of analogy, imagine the components of a restaurant. The kitchen prepares the food and is responsible for making sure you get something worth eating. The front staff are responsible for taking your order, delivering the food to your table, and tending to your other service related needs, such as filling your drinks. At the end of the meal, you pay for all of the above. 

By comparison, let’s imagine that your doctor determines that you need to have your gallbladder taken out. 

Every American would be “backstopped” against financial ruin by a system that more closely resembles our current system of insurance and that would kick in once they had satisfied a significant but not life-changing expense.

There’s the meal itself—your interaction with your doctors and whether they performed the surgery in a safe and competent manner. Then there’s your interaction with the waiters—did you have an easy time calling to schedule your procedure? When you entered your surgeon’s office for the initial consultation, were the staff friendly and helpful in how they checked you in? And finally, there’s the payment part—did your insurance pick up all or most of the bill, and in a fairly-hassle free way, so that paying for your operation didn’t become a difficult experience in and of itself? 

It’s true that having Medicare would, for many people, improve upon this last aspect of their care. But it would do nothing to improve on the first two aspects; that is to say, it has no impact on the care itself, nor the customer service surrounding it. 

Of course, none of these factors are completely divorced from each other. Just as a fancy French bistro with a reputation for excellent food and service can charge customers more than the pizzeria next door, healthcare and the customer service experience surrounding it are driven in large part by the way that healthcare is paid for. The current system of healthcare we have in this country is one that evolved in response to the incentives of the insurance system we have. And while there are some significant differences between Medicare and its private pay counterparts such as Blue Cross or United Health, the basic model is the same: doctor or hospital provide care for a patient; doctor or hospital generate a note documenting that care; a billing code is then generated from that note and submitted to the insurer; sometime later the doctor or hospital receive payment from the insurer, often with a portion being bounced back to the patient in the form of a co-pay or deductible. 

The above system ensures that, as a business matter, practices have to focus a disproportionate amount of their time and energy on getting paid, with proportionately less resources to invest in improving care or service. If America were to adopt a Medicare for all approach to paying for healthcare, it would more or less cement into place the system of incentives we have now, while admittedly reducing some costs and extending coverage to many uninsured citizens. 

So, the question you have to ask yourself is this:  do you like our current medical system? Do you find going to your doctor’s office to be a great customer service experience? Do you feel your pharmacy is easy to deal with? If you’ve been to an emergency room lately, were you seen promptly and with courtesy, or were you made to wait hours before being seen? 

The chances are good that the answer to these questions is a resounding “no.” A Medicare for all system would lock in a lot of these problems forever, thus robbing us of the chance to truly reform our healthcare system into something much more manageable and humane to the patients and workers who navigate it every day. 

Government programs being what they are, it’s unlikely that if Medicare for all were adopted, it would ever be phased out for something else. (Ask any politician who has suggested reforming social security over the years how that worked out for them). We’d probably be stuck with the program, for better and for worse, indefinitely. If you don’t think the current medical system in America is just awesome, it would be worth pausing before we take this step. 

Didn’t Europe Already Solve This?

It’s true that healthcare in Europe costs less than in America, and that European healthcare systems are more popular with their respective publics than private insurance here in the US is. But that’s a far cry from stating that European healthcare is universally cheap or popular. One recent study, for example, found that just 36% of Brits were satisfied with their National Health Service. And many of the other healthcare systems found in the western democracies, though less expensive as a percentage of GDP than American healthcare, are still the cause of great consternation among their nation’s politicians and economists for being on a seemingly interminable upward trajectory that sucks up just a little more of the national budget each and every year. This chart is instructive: while costs are less and the growth of costs are not as steeply upward as in the USA, the long-term trend toward growth in expenditure is found in nearly every industrialized nation.

Do America’s Doctors Want Medicare For All?

I can point to several studies (here, for example) that suggest that Medicare for all would lead to a decline in the physician workforce, but let me instead speak from personal experience. 

Medicare pays less than its private insurance counterparts. It would be unfair to say that a doctor cannot be profitable seeing Medicare patients or that we lose money when we care for somebody on Medicare, but it is true that almost every doctor in private practice views their private insurance patients as the main source of revenue, and their Medicare patients as the ones they see out of a sense of duty to society. Many doctors will admit privately that they keep an eye on their ratio of private insurance patients to Medicare patients, and try to ensure that Medicare patients do not come to completely dominate their patient panel. In effect then, the higher fees paid to doctors by insurers like Aetna or Blue Cross serve to subsidize the care of Medicare patients. 

If there were suddenly to be no more private insurance patients, most doctors would take an immediate and dramatic cut in income. “I would quit medicine the day they passed such a law,” one otherwise politically liberal colleague told me; I suspect many others would not be far behind him. If you think it’s hard to find a doctor now, don’t expect things to get any better under a Medicare for all scheme, unless it was paired with significant hikes in the rates of reimbursement to doctors. But that would go a long way toward undermining the very logic of Medicare for all itself, since it would push the price tag of such a system way up. 

The Underlying Principles of Our Healthcare System

Before proposing a specific idea for how to replace our current system, I’d like to flesh out a few basic principles of healthcare and economics that ought to inform any such discussion.

The first is that, typically, insurance is used to pay for rare but catastrophic events. 

For example, most homeowners have a policy on their house. This is because the odds that somebody’s house will burn down or be destroyed by a storm are low, but if that were to happen, it would be a financially ruinous event. In effect, an insurance company pools together a bunch of homeowners; takes a little money from each, every year; pays out an occasional large sum when the rare event of home destruction occurs; and keeps the difference as profit. This is good for the company’s bottom line, but also for consumers, who get peace of mind (and, if they are one of the unlucky few, their home replaced) for a relatively small annual fee. Everybody comes out ahead in this scenario. By contrast, it would make no sense to insure the sweater you bought from J. Crew, because 1) it will almost certainly get stained, ripped, lost, or stolen at some point, and 2) when it does, the cost of replacing it will not be prohibitive. 

This logic holds for other common forms of insurance too. You probably won’t die before retirement, but if you do, your life insurance will pay out a benefit to make sure your spouse and children are not deprived of lost income You likely won’t wreck your car, but if you do, your insurance will help to defray the cost of replacing it. 

Healthcare fits somewhere uneasily in the rare/catastrophic continuum. Just about all of us will need healthcare at some point in our lives, so healthcare consumption is not a rare event. However, depending on what services are needed, the costs can indeed be bankrupting. It is therefore important to acknowledge that the idea of “insurance” for healthcare doesn’t entirely fit the typical paradigm of other forms of insurance. 

The idea of “insurance” for healthcare doesn’t entirely fit the typical paradigm of other forms of insurance.

The second point to make is that markets work quite well in bringing better products at lower costs to consumers. I don’t hold that capitalism is perfect, but the automobiles of today are far safer and more reliable than the cars we drove even a few decades ago. Amazon, for all of its questionable business practices, has grown into one of the world’s most formidable corporations by making it easy for consumers to have a vast array of products delivered to their doorstep with one mouse click. This system is not perfect—most of us still dread dealing with airlines and cellphone providers—but as a general rule, when businesses have to respond to the demands of consumers or risk being put out of business by their competitors, they do just that, evolving over time to provide better services. 

Of course, healthcare can never function as a true market for many reasons: patients are in no position to turn down a service and shop around during an emergency situation; it’s impossible for the consumer to make an informed decision about a “purchase” given that medical care is complex and people typically defer to the judgement of their doctor when making treatment decisions. All of this is true. But wherever market-like forces can be built into the healthcare system, it’s likely to lead to lower costs and an improved experience for the patient. 

Third of all, markets don’t just improve products, they also keep costs down, because consumers will always try to get the best value for their dollar. Insurance distorts this process, because it “hides” the cost to the consumer. While the consumer is ultimately paying in the form of higher premiums, any given trip to the doctor is paid by the insurer, which gives the illusion of “free” care. This serves as a disincentive for patients to care about keeping costs down, and as any doctor will tell you, patients can be cavalier about requesting tests of dubious value, or going to the emergency room for a non-urgent issue because of the convenience of it. Insurers recognize this problem, which is why larger co-pays have become increasingly popular in recent years. Thus, any reform that is going help reduce the ever-growing costs of American healthcare is going to have to give patients some market-type incentives to keep costs down. 

Fourth of all, healthcare expenditures in the United States are skewed toward a relatively small number of healthcare encounters. According to the CDC, 51% of all doctor’s visits in the United States in 2020 were to a primary care physician, yet less than 5% of our annual health expenditure as a nation went to primary care services. Most of the spending went to the relatively smaller number of “big ticket” items such as emergency room visits, surgeries, hospitalizations, and expensive medications and diagnostic testing. 

A fifth and final point: it should be remembered that the real goals of Medicare for all are to provide the largest number of Americans with the greatest amount of financial security against bankrupting healthcare expenses at the most reasonable cost possible to the public. This is indeed a very worthy goal, and one that any reform to our healthcare system ought to try to achieve. 

And now, having made the above points, allow me to propose an idea. 

Hey, What’s the Big Idea?

Let’s split our healthcare system (not literally, but mentally) into two parts. 

One part is the system of primary care and other routine outpatient visits (urgent care, a visit to an outpatient specialist) that forms the majority of interactions consumers have with the healthcare system, but which in fact cost a very small amount of the healthcare budget. The second would include the rarer, but financially “catastrophic” events like hospitalizations and cancer treatments that affect only a small percentage of the population in any given year, but make up the majority of costs. We’ll cal the first part the “routine” part of the system, and the second part the “catastrophic” part of the system. 

By contrast, the catastrophic part of the system involves events that are unlikely to happen to a person in any given year, but that could be potentially ruinous, and that involve situations in which people can’t reasonably be expected to act like a consumer. For this part of the system, a system of insurance—either provided by or backed by the government to ensure universal coverage—is more appropriate. However, since giving the consumer some “skin in the game” is vital to controlling costs, I would propose one additional innovation: this would only kick in after a percentage of a person’s income is reached—a percentage not high enough to lead to financial catastrophe, but one that is painful enough to dissuade people from spending frivolously. 

In practice, the system might work something like this:

• Every American would be given a Health Savings Account (HSA)

• Similar to the way current social security taxes work, every working American would have to contribute a certain amount to their HSA each year. For the purposes of this essay, let’s say $3,000. The government would kick in money to help fill the accounts of workers below a certain income threshold–perhaps a worker earning $30,000 or less would contribute nothing, with the government providing all $3,000; a worker earning $40,000 would contribute $1,000 with the government contributing $2,000; and so on. I’m providing these amounts to illustrate the point; the actual amounts and limits would need to be studied and determined, and are outside the scope of this essay. But everybody, regardless of income, would have at least a minimum amount of healthcare dollars that they could spend. 

• To encourage additional savings, workers and employers could also contribute some amount above the minimum, on a tax-deductible basis. 

• Crucially, HSA dollars would roll over year to year without penalty. Participants could bequeath their HSA money to the HSA of any beneficiaries they choose upon death. This would ensure that no citizen ever has an incentive to spend more money than necessary–a crucial feature of any functional market. Moreover, it would allow most young workers to accumulate a sizable HSA over the course of their lifetime so that later, when they are older and more in need of medical care, they would have a cushion in their account. 

• Every citizen would also be enrolled in a national health insurance plan, let’s call it Medicare for the sake of argument, but it could also be through subsidized private health insurance as many other industrialized democracies do. Again, the details could be worked out later, but for now let’s say this would kick in at 10% of annual income. 

• Most routine medical expenses, such as a trip to the primary care doctor or an outlay for routine blood work and x-rays would be paid directly by the consumer out of their HSA. 

• Larger expenditures, such as a hospitalization, would be picked up by the consumer until they hit the 10% income threshold for the year. But crucially, this gap could be covered by dipping into the HSA. For example, an American making $100,000 per year would be responsible for the first $10,000 of medical bills. Even if they had the mere minimum $3,000 in their HSA, this would leave them with a maximum out of pocket expense of $7,000—a significant expense to be sure, but not one likely to leave them bankrupt or homeless.

• Once the income limit is reached, all future bills for the year would be covered by insurance. For example, if the above American making $100,000 per year got hospitalized with appendicitis and ran up a $40,000 bill, insurance would pick up $30,000 of the tab. If, later in the year, they incurred another $20,000 in medical costs, that too would be paid for completely by the insurer. 

With the above system, we can begin to imagine a true renaissance for our healthcare system. Since most routine office visits would now be paid for via a simple cash transaction, the basic market dynamics that have led to great service and efficiency in other industries could be unleashed. Freed from the bureaucracy of having to bill every visit through an insurer, doctors could turn their attention to running consumer friendly, service-oriented practices, while devoting time to their patients, rather than doing paperwork to satisfy the needs of insurers. Medical practices could now compete on cost, service, and quality, opening up pathways for innovation and allowing newer business models that better serve the public to evolve. The elimination of the huge overhead that medical practices now spend just dealing with insurers would allow doctors to cut prices while still earning as much or more than they currently do. The average citizen would not have to interact with an insurance company at all in many years.

Meanwhile, for the more worrisome life events such as a hospitalization, a major surgery, or cancer treatment, every American would be “backstopped” against financial ruin by a system that more closely resembles our current system of insurance and that would kick in once they had satisfied a significant but not life-changing expense. And since the first few thousand dollars in expenditure on such events would still often be coming in the form of a direct consumer transaction, hospitals, dialysis centers, and other “big ticket” healthcare items would also have some incentive to become a little more cost transparent, efficient, and customer friendly. 

Is the above system perfect? No, but no system ever will be. It’s high past time to admit that the one we’ve currently built here in the United States is horrible. Rather than expanding it to all, we should be reimagining it completely.

This is one of an ongoing series from Dr. Bittermilk, offering solutions to a variety of issues surrounding the U.S. medical system.

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Dr. Reginald Bittermilk