What struck me about Thomas Beck’s op-ed in the Wall Street Journal, complaining about “Medicare for All”, was how much he relies on the notion of “true prices”. Here’s his opening:
The notion of a “Medicare for All” system is enjoying a revival. Democratic primary victories by candidates who champion single-payer healthcare, most notably U.S. Senate candidates Abdul El-Sayed in Michigan and Peggy Flanagan in Minnesota, have pushed the proposal back into the healthcare debate.
What these candidates fail to understand—or refuse to acknowledge—is that applying Medicare payment rates to all services provided to all patients would destroy the American healthcare system.
and this is a passage that illustrates my point:
Congress’s Medicare Payment Advisory Commission estimates that hospitals lost about 12 cents on every Medicare dollar they received in 2024 and projects Medicare margins will remain roughly 10% below the break-even point in 2026. Those losses are sustainable only because Medicare is one part of a mixed-payer system.
The other main part is commercial insurance. A 2024 Rand study found that private insurers paid hospitals, on average, more than 2.5 times Medicare rates. Those much higher payments help support emergency departments, trauma centers, neonatal intensive-care units, behavioral-health programs, teaching hospitals and rural facilities, as well as investment in technology, cybersecurity and emergency preparedness.
In effect, America’s hospitals are financed by a combination of public underpayment and private overpayment. The arrangement may not be elegant or even rational, but it keeps hospitals operating. Medicare for All would destroy that balance.
In short his thesis is that private insurance pays the true price of healthcare and subsidizes Medicare.
But that’s not how hospital pricing actually works. Commercial rates aren’t derived from underlying costs at all they’re the output of market power and negotiating leverage between hospitals and insurers. A hospital with few competitors nearby can charge substantially more than a hospital lacking comparable market power; a hospital in a competitive market can’t, regardless of what Medicare pays it.
It’s true that revenue from profitable service lines and well-paying commercial patients funds unprofitable-but-necessary services like trauma centers, NICUs, and behavioral health. That’s a real financial structure. But it’s a static accounting fact about how a given system currently allocates money not a causal claim that Medicare’s low rates force private rates up. Under a single-payer system, that internal cross-subsidy would have to be rebuilt through the payment schedule itself, e.g. higher rates for money-losing service lines, which is a real policy design problem not proof the system is mathematically impossible.
But he’s right that “Medicare for All” has a math problem—it’s just not the math he’s pointing to. An explanation that hews more closely to the facts is that Medicare functions as a reference price and that our prices for healthcare are higher than those of other developed countries because all of the factors, e.g. care providers and insurance companies, lack incentives that would reduce prices and Congress has refused to control the price of healthcare. No foreseeable reform even one that completely eliminates private insurance is likely to bring U.S. healthcare spending anywhere near that of other developed countries without directly constraining the prices paid for healthcare.
Lots of stuff here.
1) An isolated hospital does not get to charge higher prices because there is no competition. I have seen this repeatedly. All of the rural hospitals we have taken over were getting compensated at the same or lower rates than our core hospitals. This is something which has puzzled health care economists. Yes, there are exceptions but it’s largely the case. The places charging receiving the most are mostly the large, city and suburban hospitals. Lots theories on this but I think its mostly that the insurers just give them a take it or leave it offer, knowing most rural hospitals are just scraping by.
2) Health Affairs, KFF and Commonwealth occasionally run articles comparing Medicare prices vs private insurance vs insurance payments in other first world countries. It varies by procedure but in general our Medicare payments are pretty close to what other first world countries pay. It’s really private insurance driving most of our discrepancy with other countries. Where Medicare is a factor it is in usage. In the US health care systems encourage, we are much more capitalistic, more of the high end expensive care. We have a higher percentage of specialists than most other countries. We pay lots more for our drugs and medical devices.
3) The author is correct that paying for everything at Medicare rates would kill the industry, but there seems to be an assumption that we cant therefore cut spending. That has not been proven. If I were in charge, God forbid, knowing that people get really angry and act out when you cut pay, I would freeze payments for a year or two and them limit increases to the inflation rate. If we found out no one wanted to work in health care anymore or companies stopped producing stuff, then increase.
4) Is it realistic that Congress would set reimbursement rates below many European rates?
5) Caveats- Now that I am retired I let my journal subscription go so most of this from literature over 3 years old. Also, it’s really hard to do apples and oranges as we are comparing universal systems vs our fragmented care. Finally, I am skeptical of his 2.5 times claim. It’s pretty variable, sometimes 6 times higher, but overall I think it’s probably in the 30%-50% range.
Steve
I must be missing something. If the purpose of “Medicare for All” is to cut out the insurance middleman, why not cut out all the middle men, and create an actual socialized system. There could still be a private system, but it would not be subsidized through employer deductions.
I may be strange, but I like the VA medical system. It is not perfect, but it serves my needs. The wait times can suck, but we are all vets. Everything in the military is a wait, and being in the infantry, I got used to getting the leftovers from the REMFs.
You may be strange but your fellow vets agree with you.
“A nationwide Medicare survey released Wednesday found that veterans rated Veterans Affairs hospitals higher than private health care facilities in all 10 categories of patient satisfaction.
The VA takes care of about 9 million veterans at 1,255 facilities — the nation’s largest integrated health care system. Despite many widely publicized scandals, VA health care has been consistently rated as competitive with private care in dozens of peer-reviewed articles.”
https://www.npr.org/2023/06/14/1181827077/va-hospitals-health-care
As an aside, pt satisfaction is generally lower in the US than almost every other first world country with quality care. Even those places that conservatives like to use as horror stories generally rate as high or higher in pt satisfaction than the US. They also tend to cost 30%-40% less.
Steve
@steve
I am reluctant to keep endorsing the VA as a socialized medical alternative because I do not want “VA for All”. I like having a place where I am not viewed as a freak. Except for retirees, every patient has some service connected issue.
On the general healthcare topic, I do not comment because I am not wasting my time researching the topic. My knowledge is mostly anecdotal and applicable to specific topics.
For all the hair pulling and gnashing of teeth, Obamacare has not caused the healthcare industry to collapse, but it has not become the Shangri-La that was claimed. Frankly, I do not care why. (I call it Obamacare because Obama referred to it that way.)
What I and others who have used Obamacare know is that Obamacare may make premiums affordable, but deductibles and copays make it unusable. If you need Obamacare subsidies, you cannot afford to use it, and it is cheaper to forgo Obamacare and hit the ER.
I do know that healthcare executives are no less ruthless than any other industry, and while “Medicare for All” may work at first, they will figure out ways to distort the system to their advantage, like all the others you rail about. Like Obamacare, “Medicare for All” will not turn the system into shit. It will just smear the shit everywhere.
Socialized healthcare may be able to hold out longer, but as soon as it is unionized, it will go the way of the public school systems. Poor areas will get poor care, and richer areas will get better care. Because it is socialized, we can all pretend like it is a fair system. (This would not include a private system.)
Anyway, just leave the VA alone.
(Sorry for the length. I only do a healthcare rant every few years.)
“Lots theories on this but I think its mostly that the insurers just give them a take it or leave it offer, knowing most rural hospitals are just scraping by.”
We see this in many businesses. The issue is how many customers do you reach. Take convenience stores as just one example. Hostess (Bimbo) or say, Lays potato chips has to deal with BPs size and reach. (Or a WalMart) But not a rural gas station. They can dictate terms. It’s why you see so many off brands distributed though the rural standalone.
In addition without much more stringent reforms than I can imagine both poor and rich communities will have poor healthcare and the well-to-do will have concierge medicine that is outside the public system.