The Effects of Reducing U. S. Healthcare Costs

In an op-ed at the Wall Street Journal health care policy expert Sally Pipes argues that Medicare for All could have some unforeseen deleterious effects on care in the United States:

Some doctors evidently believe Medicare for All would deliver better health care for Americans. Some no doubt think more insurance would mean more patients. But it would also force physicians to work longer hours for less pay.

A single-payer program would pay doctors at rates similar to Medicare reimbursement levels, already at least 25% less than private insurance pays, according to estimates by Charles Blahous of the Mercatus Center. Under the current legislative drafts of Medicare for All, government rates over the first decade would be 40% lower than those paid by private insurers.

That amounts to an enormous pay cut for doctors. U.S. physicians earned on average $313,000 in 2019, according to Medscape’s international physician compensation report. The average physician in the U.K. earned only $138,000. The Commonwealth Fund reports that American general practitioners earned a little more than $218,000 on average in 2016, compared with $146,000 in Canada and $134,000 in the U.K.

Drastic pay cuts would inevitably drive physicians to give up the practice. Patients can’t afford an exodus of doctors. Nearly 80 million people live in areas with too few primary-care professionals, the Kaiser Family Foundation reports. Even under current policies, the country may face a shortage of as many as 120,000 doctors in a decade, according to the Association of American Medical Colleges.

The prospect of lower pay and stressful work would also discourage young people from entering the profession. Medical school is expensive; the median graduate takes on $200,000 in debt. It’s time-consuming, too. The typical doctor spends four years in medical school, followed by three to seven years in residency and fellowship. Lucrative jobs in finance, technology and law require far less preparation time.

I’m not a health care expert but I do understand our policies pretty well. Let me make a few observations.

First, the difference between $218,000 and $146,000 per year looks suspiciously like the difference between health care costs in the U. S. and those in the rest of the developed world. Maybe it’s just a coincidence. Second, she’s not just making a case against Medicare for All. She’s making a case against reducing U. S. health care costs. Everything to which she points applies equally well to reducing costs in the sector which necessarily means reducing compensation. Anyone who claims that we will be able to control not just health care costs but the increase in health care costs without reducing health care compensation probably also has a bridge they’d like to sell you.

Let’s examine her claims one by one. They are:

• Physicians would leave the practice of medicine for some other field.
• Fewer students would apply to medical school.
• Students would be drawn to specialties more lucrative than general practice.

The incomes of full-time practicing physicians place them somewhere between the top 5% of income earners and the top 1% of income earners, depending on specialty, and there are roughly a half million practicing physicians. There is no job other than the practice of medicine that those fleeing the practice of medicine could take that would provide that level of income. That’s the reality of work in the U. S. If a newly-minted anything (other than physician) walks into the typical American business, demanding a job that will pay over $200,000 per year, they’ll be laughed out of the place.

Some of those physicians might return to their home countries. It might also have an impact on the life decisions of women who are more likely to work part-time as physicians than their male counterparts. That’s not misogyny. It’s just a recognition of the facts of employment in the health care sector.

Over the period of the last 20 years, the number of students applying to medical school has grown from around 40,000 to around 50,000 for about 20,000 positions. Young people, too, recognize that no field other than the practice of medicine offers the opportunity of “doing good and doing well”, as the NEJM put it some years ago. If that number fell by 20% it would just be what it was 20 years ago.

You might wonder why, given the enormous increases in physician pay over the last 50 years, far more than any other profession, why the number of med school slots isn’t twice or even three times what it was then? The Medicare system pays a stipend for each and every medical resident in the country of around $80,000 per year (the last time I checked) and meters the number of graduates accordingly. I can discern no benign reason for that. It’s just what’s being done.

However, that tells us that the number of medical school slots and the number of graduates entering each specialty is actually under our control. If we reform the formula by which stipends are awarded, it will change the number of med school slots and the number of those entering various different specialties.