Today’s Managing Health Care Costs Number is $1.1 trillion
I concluded a few weeks ago that Donald Trump’s health care plan was a loser. This weekend, the New York Times headline was “Donald Trump’s Health Care Ideas Bewilder Republican Experts.”
On the Democratic side, Bernie Sander’s health care plan doesn’t add up. The basic problems – paucity of details, undercounting of costs and overcounting of savings, underestimating disruption and political nonviability. I worry that arguing for the Sanders single payer plan will take our attention away from making important fixes to Obamacare, Medicare, Medicaid, and employer sponsored health insurance. The net result will not be “Medicare for All” but will rather be reversal of some of the benefits of the Affordable Care Act that are already being realized.
Lack of details:
- Sanders proposes a “federally administered single-payer health care program.” But even Medicare is administered by intermediaries on behalf of CMS. Even TriCare for military benificiaries is administered by a third party.The federal government is good at doing many things – but it has no experience administering a health plan.
- SandersCare is clear that the federal government will negotiate hard for lower prices from drug companies. It is not clear about how prices will be set for providers – but it’s a good bet that provider prices will have to go down.
- Volume is bound to increase with elimination of any out of pocket costs. How will the medical system accommodate all of these additional demands? Are they fully represented in the costs? (I doubt it)
- How will government collect the additional tax revenue to account for the almost $1 trillion currently spent by employers on health care? This will be perceived as a huge tax increase by business, even if net costs remain the same or go down.
- Medicaid is the largest line item in the budgets of most (or even all) states. Will the federal government “claw back” these contributions back to help fund “Medicare for All”?
Undercounting the costs:
- SandersCare would eliminate copayments, coinsurance and deductibles. However, there is no accounting for likely increased volume as people get some discretionary care that they might have otherwise foregone.
- Kenneth Thorpe of Emory estimates that the plan would cost about $1.1 trillion more a year than Sanders’ has planned for. He notes increased costs for Medicare to cover current out of pocket costs and Medicaid which would have to hike hospital payments.
Overestimating the savings:
- Apparently the initial Sanders plan expected pharmacy savings higher than total pharmacy costs – although this has been fixed. He assumes that the US will purchase drugs at the same prices as underdeveloped countries – which is not likely. We have higher GDP, and it makes sense we should pay (somewhat) more for pharmaceuticals.
- It’s not reasonable to think that administrative costs could be as low as Medicare as a percent of total costs. Medicare costs are high as the beneficiaries are old and sick – and the amount required to administer health plans for younger healthier beneficiaries will be lower, but he percent of premium that administration will take will be higher. Can we save 13% of total medical costs from administrative savings alone (6% in private insurance industry and 7% in provider billing departments?) I’m doubtful.
Underestimating the disruption of 1/6 of the GDP:
- Health plans employ hundreds of thousands of Americans. Would all of these functions be removed to government?
- Physicians for National Health Program used to show brilliant slides of the billing department of a Canadian hospital (one person to bill health plans in the US), and a US hospital (a room of endless cubes, all occupied.). Will we do away with all of this? Immediately?
- Hospitals have 20 years of bonds outstanding, many guaranteed by various state and quasigovernmental agencies. Many of these are expected to be paid from future cash flows – which are not expected to tumble as they would if we moved to single payer.
- The Affordable Care Act was passed in 2010 but many of the provisions didn’t take effect until 4 years later. How much lead time would it take to design and implement the regulations for single payer health care?
Political nonviability:
- Did I mention that health plans employ hundreds of thousands of Americans? They are not going to step out of the way quietly or easily.
- Providers in the US might be unhappy – but they are paid far better than their colleagues around the developed world. SandersCare will threaten this- and physicians and hospitals will make their unhappiness known
- Remember how unhappy some were when Obamacare failed to deliver “no change to your health plan if you like it.”? Obamacare was a minor change compared to SandersCare.
- That 77% marginal tax rate for those with high incomes will cause many or the rich to choke – and to oppose this vigorously.
- Republicans are likely to hold at least one and possibly both houses of Congress – even if a President Sanders was inaugurated in January, 2017. The Republicans who have deployed mighty efforts to undo Obamacare, which is built around private insurers and is largely patterned after Republican plans from the Nixon administration to Massachusetts’ “Romneycare,” would never countenance SandersCare.
- Even Vermont retreated from single payer health care when it discovered the level of tax hikes required to fund this!
There are certainly elements of SandersCare that can help move the dialog. A public option was rated by the CBO as money-saving during the debates of the Affordable Care Act, and perhaps Sanders’ campaign will help us achieve this over the coming years. I believe we should focus our attention and enthusiasm on expanding Medicaid in remaining states and improving both regulation and provider payment under existing Obamacare provisions. A fight over single payer will just be an enormous distraction.
Additional sources:
David Himmelstein and Steffie Woolhandler debate Ken Thorpe’s numbers
Gerald Friedman debates Ken Thorpe’s numbers
