By Kent R. Kroeger (July 20, 2019)
When presented with complex or too much information, willful ignorance often feels like the best option.
“If the cost of educating oneself outweighs the benefit of obtaining deeper or more accurate information, then it is rational to simply ignore contradictory inputs,” argues Kathleen Schaefer in the Journal of International Service. “Economists describe this acceptance of narratives at face value as part of rational ignorance.”
Schaefer’s focus was immigration, but her words just as easily apply to the U.S. healthcare system. Constituting almost 20 percent of the U.S. economy, few issues are as complex as healthcare.
Indeed, it is that narrative about ‘health care policy being too complex for easy solutions’ that is keeping good policy ideas from being embraced by otherwise competent political, news media and economic elites.
Rational ignorance loves the status quo or, if forced, the adoption of incremental policy changes — policies such as Obamacare.
So when former Vice President Joe Biden says of Bernie Sanders’ Medicare-for-All plan that “all the Medicare you have is gone. It’s a new Medicare system. It may be as good, you may like it as well, it may or may not, but the transition of dropping 300 million people on a totally new plan, I think is a little risky at this point.”
Biden is putting on display his own rational ignorance — and it is not just him. A recent MSNBC panel discussion hosted by Stephanie Ruhl kept throwing out terms and phrases like “risky,” “too costly,” “starting from scratch,” and “revolutionary” to describe Sanders’ plan, and calling Biden’s proposal to build off of Obamacare and offer a public option as “safe,” “reasonable” and more “achievable.”
In fact, the opposite may be true and to understand why it important first to understand the gravity of the problems facing our current U.S. healthcare system.
The U.S. healthcare system is broken
No matter how many times Fox News’ Sean Hannity says “the U.S. has the best healthcare system in the world,” it doesn’t make it true. To the contrary, the U.S. healthcare system is a significant outlier among other advanced economies — but not in a good way.
Americans pay twice as much for healthcare (Figure 1), yet, in the aggregate, achieve markedly inferior health outcomes. For example, we die younger (Figure 2) and have a higher infant mortality rate (Figure 2) than most other advanced economies.
Figure 1: Health spending as a % of GDP (Source: OECD, 2018)
Figure 2: Life expectancy at birth (Source: OECD, 2018)
Figure 3: Infant mortality rates for selected countries (Source: OECD, 2018)
Even more discouraging, life expectancy in the U.S. has declined in recent years, largely due to the opioid drug crisis and a higher suicide rate (Figure 4).
Figure 4: Trend in life expectancy at birth in the U.S. (Source: OECD, 2017)
These statistics are not the result of an analytic sleight-of-hand. They are straightforward metrics long measured and commonly used for cross-national comparisons. And the conclusion drawn from them is unmistakable: the U.S. healthcare system underperforms relative to other advanced economies.
The reasons are many and better described elsewhere, but health economists generally agree that one reason is the U.S. private insurance industry adding a layer of administrative costs not present (to the same degree, at least) in most other advanced economies. The Centers for Medicare and Medicaid Services (CMS) estimate the U.S. private insurance industry accounts for 34 percent of the health insurance dollars (Figure 5) — which translates to nearly $1 trillion.
Figure 5: The Source of U.S. Healthcare Dollars
And while private insurance’s share of the health insurance dollars will likely decline as the U.S. population ages, their financial bottom line will not necessarily suffer if recent performance is an indicator. According to Berkshire Hathaway, through third-quarter 2018, health insurers’ net income grew by 19 percent to $25.8 billion compared with the same prior-year period. Zacks Equity Research reports that the private health insurance industry generated returns higher than the S&P 500 index in each year from 2012 to 2017, returning an impressive 257 percent compared with the S&P 500 index’s gain of 91 percent. This is a good time to be the health insurance industry.
It is not, however, a good time to need medical care. While the Affordable Care Act (“Obamacare”) significantly reduced the percentage of Americans without insurance from 18 percent in 2013 to 11 percent in 2016, that percentage has since risen to almost 14 percent in late 2018, according to the Gallup Organization. In addition, The Commonwealth Fund recently reported that the percent of underinsured American adults (aged 19–64) has risen from 10 percent in 2003 to 28 percent in 2018 (Figure 6).
Figure 6: Underinsured American Adults (ages 19–64)
And for those Americans with private health insurance — either through their employer or through an individual plan — costs have risen prohibitively over the past 20 years. In 2018 the average annual premium for employer-based family coverage was $19,600 (up 5 percent from 2017) and was $6,900 for single coverage (up 3 percent from 2017), according to the National Conference of State Legislatures. In 1999, the average annual premium for family coverage was only $6,000, and for single coverage around $2,500.
There is only one rational conclusion: The U.S. healthcare system is under-delivering, whether in comparison to other advanced economies or to its own past performance.
The media, politicians, and Sanders himself are misrepresenting Medicare-for-All
In this context, Sanders’ Medicare-for-All plan is hardly ‘revolutionary,’ ‘radical’ or a ‘fundamental transformation’ of the U.S. healthcare system. It takes an existing, successful public health program — Medicare — and, over time, expands it to the remaining segments of the population.
But its critics drive home a contrasting picture of Medicare-for-All:
Medicare-for-All requires starting from scratch!
As seen in Figure 5 above, public health programs (Medicare/Medicaid, CHIPs, DoD’s Tricare, the Veterans Administration healthcare system) already account for two-thirds of U.S. health insurance dollars and, even without Medicare-for-All, will likely increase its share over time as the American population ages. And with the rapid advancement of artificial intelligence and machine learning, scaling up the current Medicare system to the rest of the population should become easier. Medicare-for-All is the exact opposite of starting from scratch.
It’s too expensive!
Medicare-for-All critics also instill doubt by suggesting the program’s expansion will lead to substantially higher taxes and potentially national bankruptcy. Sanders’ senior economic advisor, economist Stephanie Kelton, has a direct response:
Most estimates of Medicare-for-All’s costs over its first 10 years range from $32 trillion to over $40 trillion. Yes, that is a big number, but remember that our current healthcare system is going to cost between $34 trillion and $47 trillion.
Any forecast about healthcare spending is built upon debatable assumptions, but, at a minimum, we should be able to answer with confidence, “Will Medicare-for-All increase or decrease healthcare spending overall?”
Based on Sanders’ description of his Medicare-for-All plan, cost savings will occur in four primary areas: (1) reduced drug prices through increased price competition, (2) reduction in administrative costs (i.e., elimination of private health insurance), (3) constraints on provider payment rates (i.e., what doctors and hospitals are paid), and (4) increased use of preventive medicine (resulting in a healthier population and less demand for high-cost medical services).
Forecasts on Medicare-for-All costs are sensitive to assumptions, particularly regarding whether or not Medicare-for-All will pay current Medicare/Medicaid rates (which are generally below actual costs).
Assuming Medicare-for-All reimbursement rates remain near current Medicare/Medicaid rates, the real problem with Medicare-for-All is that it shrinks 20 percent of the U.S. economy. How will economic growth be affected, particularly in the short-term, if cost rationality is brought to our healthcare system? How do you eliminate an entire industry (supplemental, private-based insurance notwithstanding) and not cause a recession?
As described by the Sanders campaign, Medicare-for-All is more likely to put downward pressure on what this country spends on healthcare.
It will require the government to raise taxes on the middle class!
Similarly, the claim that middle class taxes will rise under Medicare-for-All dovetails with the ‘too expensive’ argument and rests on the same question: Can we achieve total cost savings through Medicare-for-All?
Regrettably, Bernie Sanders didn’t help his cause by telling the Associated Press that his healthcare plan could cost up to $40 trillion over a decade and that he’d consider raising taxes on the middle class “in exchange for healthcare without co-payments or deductibles.” Lost in the translation is that Sanders believes the savings to households by eliminating co-payments and deductibles would exceed any tax hike.
Still, he did say he’d consider raising middle class taxes and that is all his critics needed to hear.
Setting aside the distinction between families sending their money to insurance companies through payroll deductions, deductibles and copays versus paying a healthcare tax, the probability of tax increases pivots on whether Medicare-for-All can reduce costs.
If ‘yes,’ then the Medicare-for-All tax will merely be replacing premiums, deductibles and copays and perhaps even leave households more disposable income. If ‘no,’ then tax increases will be necessary — and taxing the rich probably won’t be enough if Medicare-for-All cost estimates by Urban Institute healthcare analysts John Holahan and Linda J. Blumberg are accurate. They estimate Medicare-for-All over 10 years will cost $33 trillion and will be entirely financed by taxes on individuals and businesses. Even research by the Mercatus Center, a libertarian think tank funded by the Koch brothers, assessed that Medicare-for-All could save $2 trillion in total spending, costing around $32 trillion over a 10-year period.
Predictably, Joe Biden has picked up on this area of disputatiousness within Sanders plan and is declaring that “Bidencare” — in contrast — will expand healthcare coverage and lower costs without raising taxes on the middle class (the details on how he will do that are still pending). The Biden attack on Medicare-for-All has also been reinforced by the news media, with the Washington Post poo-pooing the Mercatus Center savings conclusion as being cherry-picked from that study.
So why am I not convinced that Medicare-for-All will lead to higher healthcare-related spending by households?
There is one incontrovertible fact that the American news media, policy analysts, business lobbies and political class continue to ignore: Every advanced economy with universal coverage delivers better healthcare to their citizens and does so at a unit cost significantly lower than the U.S. (see Figure 1 above).
Germany does it. France does it. Canada does it. The United Kingdom does it. Japan does it. And there is no inherent reason the United States can’t do it, if the political will exists to do so.
Many of these countries pay higher tax rates than Americans, but that does not explain why they deliver healthcare at lower cost and with superior outcomes.
As taxpayers, we should fight paying higher taxes for healthcare as long powerful special interests groups co-opt our healthcare system, bloating its costs for exorbitant private gain and leaving Americans in significantly poorer health than comparable populations in other countries.
The ‘middle class tax increase’ canard is a distraction with one purpose: scare Americans away from thinking a single-payer healthcare system is possible.
But it is possible. California Representative Ro Khanna recently responded to Biden’s tax increase criticism by noting that if the healthcare status quo persists it will cost us $49 trillion over the next 10 years. If Medicare-for-All were to come anywhere close to the $32 trillion price tag estimated by the Mercatus Center and The Urban Institute, middle class Americans won’t be worrying about a tax increase, but rather how to spend the money they’ve saved under Medicare-for-All.
It’s socialized medicine that will lead to healthcare rationing!
The irony of the ‘healthcare rationing’ critique is that our current system already has significant levels of healthcare rationing. Anytime someone doesn’t buy health insurance or has inadequate health insurance coverage because of high premiums, that is a textbook example of healthcare rationing.
The challenge for Medicare-for-All will be predicting the initial surge in utilization rates with the rollout of Medicare-for-All, as people start getting the basic and preventive care they chose not to receive under the private insurance-based system. In the long-run, higher utilization rates will save money as people get more preventive care services and address potentially expensive health issues earlier in their development.
Second, Medicare-for-All isn’t socialized medicine. The doctors, nurses, hospitals, clinics, pharmaceutical companies, and medical equipment manufacturers all remain in the private sector under Medicare-for-All. Only the administrative function for U.S. healthcare, currently handled by private insurance, will be rolled into the public sector. A patient under Medicare-for-All is unlikely to ever talk to a public employee during a treatment or service delivery. Medicare-for-All is statism, but not socialism. The British National Health Service is socialized medicine.
It is too complex!
This is my favorite complaint about Medicare-for-All, especially coming from Democrats proposing a public option and other tweeks to Obamacare. On the day it was passed, ACA contained 2,300 pages and would soon include over 16,000 more pages in additional rules and regulations. The section of the Social Security Act of 1965 creating Medicare contained only 138 pages. Complex is the arcane, special interest laden maze that Obamacare has grafted onto our system. Medicare-for-All simplifies everything by blowing all that up, leaving us with a familiar healthcare system under Medicare that is already established and functioning.
Medicare-for-All proponents need to address rational ignorance
Unfortunately, the portrayal of Medicare-for-All as radical reform is, in part, due to Sanders himself and how he sells the idea to Democratic voters — who generally support the concept, even among many of Sanders’ non-supporters.
“If you support Medicare-for-All, you have to be willing to end the greed of the health insurance and pharmaceutical industries,” Sanders says in his current stump speech. “That means boldly transforming our dysfunctional system by ending the use of private health insurance. It is imperative that we remain steadfast in our commitment to guarantee healthcare as a human right and no longer private corporations to make billions of dollars in profits off Americans’ healthcare.”
Drama sells and Sanders understandably presents his healthcare proposal in that light. But while bold rhetoric may work for Democratic activists, it may be counterproductive in persuading those on the fence with respect to Medicare-for-All.
Before he died, Fox News analyst Charles Krauthammer conceded that this country was heading towards a Medicare-for-All system. He wasn’t a fan, even as he acknowledged its legitimate political attraction.
“I think, historically speaking, we’re at the midpoint,” he told Fox News’ Chris Wallace in May 2017 as Congress was debating whether to end Obamacare. . “We had seven years of ObamaCare, a change in expectations, and I would predict in less than seven years we’ll be in a single-payer system.”
Predicting that whatever Congress and President Trump came up with in 2017 would be ‘rickety,’ Krauthammer concluded: “It’s likely that Republicans are going to suffer at the polls, and as a result of that — if that happens — you’re going to get a sea-change in opinion. Then there’s only two ways to go: to a radically individualist system, where the market rules, or to single-payer. And the country is not going to go back to radically individualist.”
Unlike Joe Biden or Pete Buttigieg or Kamala Harris, Krauthammer educated himself on single-payer systems (e.g., Medicare-for-All). He consciously went beyond rational ignorance, though he remained a critic of the statist approach to healthcare. The radical approach to healthcare is our current private insurance-based, individualist system. It has failed and Krauthammer grudgingly acknowledged as much.
Medicare-for-All is the prudent expansion of a well-established program to other segments in the population that are, on average, healthier than those currently covered by Medicare. The overall cost effectiveness of Medicare should increase as it covers younger, healthier population segments.
In truth, Medicare-for-All is the most prudent, safest, and least complicated way to bring meaningfully improvement to the U.S. healthcare system. Tinkering on the margins by offering a public option (of unknown price competitiveness) within an already bloated, inefficient healthcare system is far costlier and riskier.
It would be nice if the media and politicians (including Bernie Sanders himself) presented a more accurate picture of Medicare-for-All.
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