There is a discussion by Charles Blahous at E21 of whether “Medicare For All” (M4a) would reduce administrative costs per patient or administrative costs as a percentage of health care spending that strikes me as being pretty fair. His tentative conclusion is that it would reduce administrative costs either per person or as a percentage of expenditures but possibly not total health care costs:
To the extent that M4A achieves its intended goal of universal health coverage, this would increase total national health expenditures. The primary effect of insurance is to reduce out-of-pocket costs facing consumers of health services. This increases health service demand and puts upward pressure on costs and prices. Any credible model for forecasting national health expenditure growth will treat wider insurance coverage as a cost driver rather than a cost reducer. The Medicare trustees’ projection model, for example, anticipates more rapid health expenditure growth to the extent individuals carry comprehensive insurance.
This is not merely a theoretical proposition, especially with specific respect to Medicare itself. The academic literature is clear that the enactment of Medicare in 1965 was a prime driver of subsequent increases in national per capita health spending, notwithstanding Medicare’s relatively low administrative costs. Thus, even if the administrative costs of M4A were impressively low it would still be expected, other things being equal, to add significantly to national health care cost growth. Furthermore, there is no particular reason to believe that single-payer would add significantly to the quality of health care spending – that is, the health value Americans receive per dollar spent. The most M4A is likely to accomplish from a cost perspective to shift costs to providers via legislated Medicare fee schedules, constraining the supply and quality of health services. The bottom line is that lower administrative costs do not necessarily imply a less expensive system. (Final ruling on point #4: point for M4A opponents).
In sum, supporters of M4A are on fairly solid ground when they credit Medicare with having commendably low administrative costs. But in the aggregate, Medicare for All should be expected to drive total costs up, not down.
which I think is optimistic if anything. I think the greatest likelihood is that any savings realized as a consequence of M4A will be disappointing.
I’ve wondered whether it might be possible to define a very narrow set of core healthcare needs and use Medicare for all for those services, while allowing the insurance companies to offer add-on plans (like they currently offer to seniors) to the expanded market.
Ok, no one has ever claimed that changes to administrative costs will alone reduce total health care costs. Overall saving comes from doing what everyone else does: negotiating prices, capital planning, a global budget etc.
Ben,
With M4A there is no price negotiation – the government will set prices through the political and regulatory process and as we’ve seen for decades now, those processes do not hold costs down.
There will, eventually, be some savings due to centralization of some functions under one system but that will be a one-time savings. I have yet to see any evidence that a M4A system will bring cost growth down to the rate of inflation in the other areas of the economy, much less reduce costs generally. The only time since Medicare was enacted that we came close was during the 1990’s. The surging revenue and HMO system that everyone hated won’t likely be repeated.
Just to be clear I’m not against some kind of universal government coverage. Personally, I’d like to see at a government sponsored universal catastrophic plan to start with. However, I’m not convinced our government finances can survive a universal comprehensive system absent some significant reforms in the present FFS system.
“Overall saving comes from doing what everyone else does: negotiating prices, capital planning, a global budget etc.”
Meanwhile, back on earth, the real driver is rationing through approval and waits.
yet, the pressure from below is to increase approvals and decrease waits. Nobody wants to take the heat denying hmm CABG for obese hypertensive diabetics or debulking surgery for a cancer patient.
“The primary effect of insurance is to reduce out-of-pocket costs facing consumers of health services. This increases health service demand and puts upward pressure on costs and prices.”
Gee, wish I’d thought of that. And here all these years I’ve been told health care is “different.”
“Any credible model for forecasting national health expenditure growth will treat wider insurance coverage as a cost driver rather than a cost reducer.”
Hence, we ought to have catastrophic insurance, like other insurance products. After all, all we hear from progressives is how health care events will bankrupt people. We should not have health care maintenance contracts in any event, and especially not when we are expanding the pool.
“The Medicare trustees’ projection model, for example, anticipates more rapid health expenditure growth to the extent individuals carry comprehensive insurance.” Ya don’t say.
My daughter has lived in Germany for 15 years and has used the German system (which mandatory) for a number of her needs. Her health below par. She is very happy with all aspects of the system, except for the high cost of the taxes needed to support it. The German versions of Social Security and Medicare take over 30% of her gross income. I could live with that.
Unfortunately, we are more likely to get the disasterous British system, with doctors and nurses who despise their patients. Heavy government propaganda makes Brits think the NHS is world class, despite its worst in the industrial world outcomes.
“This is not merely a theoretical proposition, especially with specific respect to Medicare itself. The academic literature is clear that the enactment of Medicare in 1965 was a prime driver of subsequent increases in national per capita health spending, notwithstanding Medicare’s relatively low administrative costs.”
But, but, but……….global budgeting.
I’m dubious that admin costs will be significantly lower, but let’s just stipulate they will. Let’s do catastrophic care, selective coverage, higher deductible or premiums for pre-existing conditions and exempt the group market. Oh, yeah, that’s Obamacare – without the cost controls.
“She is very happy with all aspects of the system, except for the high cost of the taxes needed to support it.”
Are we in the Catskills?
Or if there are cost controls, those are the fault of those old meanie Republicans and somehow despite much spluttering and bloviating are left largely in place by the Peoples Vanguard.
There is a very narrow window to make some deals here which requires political courage and willingness to lose seats in Congress.
Blahous is not a health care economist, so he makes a number of mistakes. Let’s just go over a few of them.
First, he appears to forget, like most people do, the physician side of the administrative costs. It costs a lot more money to do billing with the private insurers. I have posted the Health Affairs article here several times documenting those costs.
Next, of course Medicare costs more per pt than does private insurance. Medicare insures the old people who actually get sick all of the time. Private insurance covers a younger, healthier population. You need to look at costs per procedure. Depending upon whose data you use, Medicare costs 20-30 less than the privates.
If M4A results in having everyone insured. it probably ends up costing about the same as what we have now, maybe a bit less, but with everyone having coverage. Tradeoffs anyone?
Wait times? Didn’t we cover that recently? They are longer in the UK and Canada. Everywhere else? About the same as the US. If you include our infinite waiting times for those w/o insurance, we are much worse.
Rationing? Someone is seriously suggesting that Medicare is rationing?
Catastrophic insurance? This is the politically correct term for very high deductible insurance. Deductibles for bronze level Obamacare plans, family, are running around $12,000, so a catastrophic plan would have an even higher deductible. $20,000? Looking at medians, the average household has less than $1000 in a savings account, and less than $5000 in retirement savings. So, if you make less than median income, catastrophic insurance is about the same as having no insurance. Really, why bother with the catastrophic insurance? Makes more sense to just go bankrupt.
Steve
Steve,
My version of catastrophic insurance is different. Essentially, catastrophic conditions would be covered by the government full stop like Medicare. So, if your kid gets liver cancer and needs a transplant that is covered by a M4A government program. There would be no $20k deductible.
For the pricing, let’s assume you’re right and Medicare pays 20-30% less than privates. The other side of that coin is the doctors (and the lobbyists who represent them) keep telling us they can’t afford to treat many Medicare patients because the rates are so low. So either they are lying or a M4A system with Medicare’s payment schedule will drive many providers out of business, or M4A rates will have to rise to satisfy providers.
There is still the issue of cost growth. Medicare reimbursements are lower than private insurers but costs are still increasing much more than inflation in the rest of the economy. IMO that is the primary problem that needs a solution – everything else will get steamrolled by the power of compounding costs.
Blahous doesn’t look at the historical data for any of the European countries (or Canada) as they shifted towards socialized medicine — countries that currently have a lower healthcare cost per capita.
Is America so exceptional that our healthcare markets will behave differently? If so, why?
The countries of Europe also have a lower cost of education per capita.
Median incomes for internists are fairly close across the OECD (except, possibly, for Japan where they’re lower). Medical specialists have much higher incomes in the U. S. than in other OECD countries. The reason is pretty simple. A physician can move from Canada, the UK, or Pakistan and become an internist in the United States pretty quickly and easily. It takes a lot longer for a medical specialist to come to the United States and practice that specialty.
The most diverse, least centralized country in Europe is less diverse and more centralized than the United States. I don’t have the data to back this up but my experience has been that Europeans respect elites more than Americans do. My explanation for this has been that those who respect elites stayed and taught it to their children. Those who hated elites came here and taught that to their children.
When Denmark introduced its present system of health care, 98% of the people were ethnic Danes and at least culturally Lutheran. The United States is an order of magnitude larger than the largest European country.
I think you should be asking the converse question. If the social, demographic, political, and economic conditions that presently prevail in the United States had prevailed in Germany, France, the UK, etc. when they adopted their present health care systems, would they have adopted them at all? I don’t believe so. The Brits only adopted theirs after a relentless campaign of propaganda which has persisted to the present day.
BTW, “socialized medicine” doesn’t really draw a distinction between the U. S. system and that of European countries. The difference between the amount of total spending paid for via the government in the U. S. is only 10-20 percentage points different than the amount of total spending paid for via the government in France, Germany, etc. Our socialism is different than their socialism which should tell you something.
Many of the claims that Blahouse makes — particularly that increased coverage will lead to increased usage and increased costs — wouldn’t be affected by a lot of those demographic changes.
Either people would see doctors more, or they wouldn’t, and that’s going to be similar. And either that would just increase long term costs, or it would result in problems be treated when they are smaller and cheaper to treat.
There are a lot of claims that can be tested against historical data, and he isn’t doing that.
Utilization per patient seems to vary by considerably more than health care system and out of pocket cost.
Andy- Others have suggested a similar catastrophic plan, but no one knows how to make it work. What is catastrophic for me, would be much different than for someone $1000 in savings. For that person, having twins would be catastrophic. Once you start adjusting the level that the insurance kicks in, you are back to subsidies. The doctors who say that the can’t make ends on Medicare fees are sort of correct. It means they can’t keep making their current salaries and have their current increases. It would mean that the surgeons making over $1,000,000 a year (lot more of those than I realized until fairly recently) might have to make $800,000. We might need to do fewer procedures. The important thing to remember is that if they are right, we might as well give up.
As to health care inflation, one would hope that it would be easier to address if everyone was in the same system.