By Jeffrey D. Sachs
Common Dreams, November 20, 2019

The American political debate over health care is absurd. Americans pay twice as much as any other nation for health care, and then are told daily that they “can’t afford” to switch to a lower-cost system very similar to those of Canada and Europe. If President Donald Trump and the plutocratic Republican party were the only ones carrying this ridiculous message, it would be understandable. Yet this message is also coming from media pundits aligned with the Democratic Party and the most conservative wing of the party.

Let’s be clear on the central point. Medicare for All, as first proposed by Bernie Sanders and endorsed by Elizabeth Warren, is affordable precisely because it is cheaper, much cheaper, than the current system.
America’s health care system relies on local monopolies (such as a health care provider centered at the sole major hospital in a city) and national monopolies, notably pharmaceutical companies holding exclusive patents.

In other countries, the government sets delivery prices and typically pays the health bills through the budget. In the US, the monopolists set the prices.

The sky-high revenues end up as huge corporate profits, wasteful administrative costs, useless and even harmful advertising and lavish salaries. Health care CEOs are making gargantuan salaries, many exceeding $10 million per year.

Who loses? Almost all Americans, whose insurance costs and out-of-pocket outlays inevitably lead to lower income because of unaffordable health care costs, untreated chronic illnesses, premature mortality and personal bankruptcies. Single-payer systems such as in Canada and Europe are cheaper, fairer and have better outcomes.

A recent international comparison of the performance of 11 national health systems on five main dimensions (care process, access, efficiency, equity and health care outcomes) ranked the US health system dead last.

Despite all of this, the US pundits profess to be alarmed about the prospect of Medicare for All. There has been a wave of op-eds and columns published (for example, here and here and here) declaring that Medicare for All would lead to massive tax increases, and that Sanders’ and Warren’s support for Medicare for All threatens to reelect Trump. It’s ridiculous.

Both Sanders and Warren poll well against Trump, ahead in the overall popular vote (though like all Democrats, facing headwinds of the Electoral College).

And at this stage of a national campaign, the goal should be to explain to voters the vast benefits of a single-payer system rather than to prejudge the politics based on self-fulfilling fearmongering.

Yes, one way or another, taxes would rise with Medicare for All, but private health outlays would go down by much more. Total health costs would fall.

That idea is not so hard to understand.

One influential pundit, economist Paul Krugman, has come around. In the 2016 election cycle, Krugman railed against Medicare for All. Yet after Warren laid out her proposal, Krugman supported Medicare for All. In truth, he was simply returning to the economically sound observations that he had long made before 2016.

The pundits seem to believe that Americans will rebel at “higher taxes.” Actually, Americans are much smarter than that. They know that their current private health care payments, whether insurance premiums or out-of-pocket, are nothing other than “taxes” they pay to stay alive. They’ll agree to pay higher taxes to the government if those new taxes eliminate larger private health care bills — again, there are “taxes” by any other name — that they now pay.

Some mainstream pundits are simply repeating what they hear from Democratic Party conservatives and centrists, the wing that has been dominant since Clinton’s election in 1992. They are following the lead of Nancy Pelosi, Pete Buttigieg and others who are trashing Medicare for All.

What in the world are these leading Democratic Party politicians doing in opposing the transition to a fairer, more efficient and lower cost health care system? I would suggest it’s not a lack of understanding. It’s the power of campaign financing. These Democrats are funded by the status quo. The health sector contributed $265 million to federal campaigns in 2018, of which 56% went to Democrats. The sector spends nearly $500 million per year on lobbying. Money talks. Meanwhile, Americans go bankrupt or die early.

There remains the issue of the best way to raise budget revenues for Medicare for All. The basic answer is to use progressive taxation to fund the program. In this way, the nation as a whole will pay much less for health care and the vast majority of households will as well. The highest income households will end up paying a bit more because their funds will not only finance their own health care but will help to pay the health care costs of the poorest households as well.

Sanders rightly proposed a menu of options to pay for Medicare for All, including payroll and income taxation. Warren has proposed one specific approach: progressive taxes on the super-rich and the corporate sector but also a surprisingly regressive “head tax” on companies. She took great pride in not charging a penny of new income or payroll taxes on middle class households. But the proposed head tax on companies would hit wages indirectly and regressively.

Still, both Sanders’ and Warrens’ approaches would result in a more equitable and less expensive system. For most households, overall health care costs will decline.

The most worrisome thing about Warren’s statement as she introduced her Medicare for All plan, is her emphasis on “not one penny” of new middle-class taxes. Here we go again. The Democrats have, for far too long, copied the Republican mantra about “no new taxes,” even as our public debt soars, our infrastructure and public services collapse and inequality reaches stratospheric dimensions.

To honor the silly stricture of “no new taxes” directly paid by middle-class households, Warren ended up endorsing a regressive head tax paid by the employer, which would end up hitting lower-wage workers even though its paid by their employers.

Let’s hope this blunder is a one-time stumble for Warren. Most importantly, both Sanders and Warren are pointing the correct way to reform America’s costly, unfair and inefficient health care system. And this is a goal that most Americans support.

Jeffrey D. Sachs is the Director of The Earth Institute, Professor of Sustainable Development, and Professor of Health Policy and Management at Columbia University. He is Special Advisor to United Nations Secretary-General Ban Ki-moon on the Millennium Development Goals, having held the same position under former UN Secretary-General Kofi Annan. He is Director of the UN Sustainable Development Solutions Network. He is co-founder and Chief Strategist of Millennium Promise Alliance, and is director of the Millennium Villages Project. A recent survey by The Economist Magazine ranked Professor Sachs as among the world’s three most influential living economists of the past decade. Sachs is the author, most recently, of “The Age of Sustainable Development,” 2015 with Ban Ki-moon.

https://www.commondreams.org…

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Comment:

By Don McCanne, M.D.

This article on Medicare for All is important not only because it is authored by one of the world’s leading economists but also because it should put an end to the opposition to funding single payer Medicare for All though the tax system. Progressive taxes are the most efficient and equitable method of funding health care for all of us.

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By John E. McDonough
The Milbank Quarterly, November 2019

August 19, 2019 was a big day for The Business Roundtable (TBR), the Washington, DC non-profit association of chief executive officers of major US companies. The organization released a new “Statement on the Purpose of the Corporation” signed by 183 CEOs declaring that the interests of workers, customers, communities, and “other stakeholders” should be as important as the interests of a company’s shareholders. This represented a significant change from its 1997 Statement that declared “the principal object of a business is to generate economic returns to its owners.”

While actions, not statements, will reveal real intent over time, this change was noteworthy—including for the US health care sector. The subject has deep roots in American society, especially in the advocacy of the late economist Milton Friedman, who derided corporate social responsibility as “fundamentally subversive” and asserted that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.”

In the 1970s and 1980s, Friedman’s notion powered a movement in the United States, Great Britain, and around the globe called “neoliberalism” that promoted deregulation, defanged labor unions, shrunken government, and ever lower taxes. From business schools to high cathedrals of capitalism “greed is good” became more than a movie line from Wall Street and its iconic Gordon Gekko. Binyamin Applebaum’s new book, The Economists’ Hour, lays out the neoliberal narrative, warts and all, in compelling detail.

What about US health care and this neoliberal era in which we still breathe? The connections are multiple, deep, and noteworthy. For starters, of the 183 CEO signers of the TBR statement, only 11 come from companies primarily embedded in the health sector, such as Pfizer, CVS Health, and Siemens, far less than a proportionate share of health care’s 18% jumbo slice of the US economy. And it is not difficult to view TBR’s statement as whitewash, especially when signers include CEOs of Johnson & Johnson and Mallinckrodt Pharmaceuticals, companies that are neck deep in the nation’s opioid marketing scandal.

Influential US political and economic historians refer to the period from the late 1970s through today as the “Reagan era,” crowned during the presidency of Ronald Reagan who declared in his inaugural address that “(i)n this present crisis, government is not the solution to our problem, government is the problem.” His term in office ushered in the modern era of tax cuts, growing inequality, wage stagnation, diminished unionization, and repeated assaults on government legitimacy. The “Neoliberal Era” may be a better fit.

Coincidentally or not, in the early 1980s US national health spending as a percent of gross domestic product (GDP) split from rates in other advanced nations toward its current extreme outlier status. US spending on health increased from about 8% of GDP in the late 1970s to 17.8% in 2017, far ahead of the nation with the second highest rate of national spending on health, Switzerland, at 12.2%.

In return for this massive societal investment in medical care, we have the world’s most technologically advanced health care system along with the highest prices in the world for any category of medical services or products one can imagine. The rush of private investment capital into our medical sector has resulted in cutting-edge medical care, advanced drugs and medical devices, and the highest salaries of any professionals in American society.

In these 40 years, we also have seen three consecutive years of declining life expectancy, a deep anomaly among our international peers, humiliating rates of infant and maternal mortality, shocking levels of gun violence, and extreme incidence of overweight and obesity. As economist John Komlos has documented, during World War II, native born Americans were the tallest among advanced nations, both men and women—we are now among the shortest. For good measure, Americans are also among the most dissatisfied with our health care system. For what it is worth, money doesn’t buy us good health or happiness.

In this epoch, we have seen enormous growth in private investor funding into a sector formerly dominated by nonprofits or government, in hospitals, physician practices, home health, hospice, air ambulances, and much more. The pharmaceutical industry has always been for-profit, yet its extraordinary concentration has ballooned its pricing structure. The for-profit health sector keeps evolving, assuming new forms. As Gondi and Song document, between 2010 and 2017 the value of private equity deals involving acquisition of health-related companies, mostly hospitals and physician practices, increased 187% reaching $42.6 billion.

Could the investor dominance of much of US health care explain at least part of our outlier status on health spending and outcomes? It is hard to imagine that the investor-driven corporatization of American society could have left medical care untouched. Even today, the most common complaint from conservatives and Republicans about US health care is that government regulation thwarts the free market.

The notion that we could put this massive bulk of toothpaste back into the tube seems preposterous. The economic and political power of the incumbent system would easily stymie any serious challenge, including the apparent one, a nationalized “Medicare for All” structure. Assuming anything of this magnitude could get through Congress—or the Supreme Court—is a daunting stretch. And yet, the real frustrations of Americans with a system organized first and foremost to serve money and power before patients deserve attention.

If, as the Business Roundtable advocates, we are embarking on a new national conversation concerning the role of the for-profit corporation in American society, perhaps we should also instigate a parallel and sustained national examination and conversation about the history, experience, and results from for-profit corporatization of our health and medical care sector. It is clear that this revolution produces good and bad results for American society and for the world. Is it time for a reckoning?

John E. McDonough, DrPH, MPA, is a professor of public health practice at the Harvard University TH Chan School of Public Health in the Department of Health Policy and Management.

https://www.milbank.org…

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Comment:

By Don McCanne, M.D.

It is important to understand the concept of neoliberalism. It has divided the political left in this nation. No longer is there an unwavering reliance on public social programs since many on the left now believe that the private sector should provide the prevailing influence (forget the right). Application of neoliberal ideology is responsible for flat wages, income and wealth inequality, diminishing worker representation, increasing tax inequity, and suppression of beneficial public regulation.

An extremely important current manifestation of the inequities of neoliberalism is the internal attack on the left against the single payer model of Medicare for All. The single payer concept is one of the most important that would correct the social injustices and health care injustices that are so prevalent in our nation. Not only would it finally ensure that everyone would have access to health care, it would also reduce the injustices inherent in income inequality, not to mention improving the way that we spend health care dollars so that we would be receiving greater value and higher quality of care. Yet the neoliberal element within the Democratic Party is conducting a vicious campaign designed to destroy support for an equitable Medicare for All, while vocally supporting one of the greatest contributors to health care injustice – the private insurance industry and the fragmented, dysfunctional financing system it supports. But then supporting private solutions to public problems is what neoliberalism is all about.

The neoliberals have reduced the Medicare for All debate down to merely allowing people to buy an individual government plan, misnamed Medicare, while leaving all of the other dysfunctions in place that cause high costs, impaired access, mediocre outcomes, and financial hardship. Sadly, checking the campaign donations received by the Democratic candidates who are opposing single payer Medicare for All will confirm their neoliberal bona fides.

John McDonough asks if it is time for a reckoning. Way past, I’d say.

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By Sara R. Collins, David C. Radley, and Jesse C. Baumgartner
The Commonwealth Fund, November 21, 2019

Abstract

Issue: With 2020 elections coming up, some Democratic presidential candidates and members of Congress have suggested ways to reduce costs of insurance and care, including proposals for employer plans, which cover roughly half the population of the United States.

Goal: Examine trends in employer coverage over the past decade to determine how much workers are spending on premiums and deductibles and compare costs to median household income in each state.

Methods: Data from the Medical Expenditure Panel Survey–Insurance Component (MEPS–IC), which surveyed more than 40,000 private-sector employers in 2018 on their health insurance plans.

Key Findings and Conclusions: Average annual growth in the combined cost of employees’ contributions to premiums and deductibles outpaced growth in U.S. median income between 2008 and 2018 in every state. Middle-income workers spent an average 6.8 percent of income on employer premium contributions in 2018; per-person deductibles across single and family plans amounted to 4.7 percent of median income. Recent proposals would enhance the affordability and cost protection of Affordable Care Act marketplace plans, allow people with employer plans to buy coverage on the marketplaces, or replace private insurance with a public plan like Medicare.

Conclusions and Policy Implications

For U.S. families, the growth in employer health insurance costs has outpaced average growth in median income over the past decade. In addition, as costs have climbed, families haven’t received higher-quality insurance. In 18 states, the average health plan deductible is now 5 percent or more of income, meeting the threshold for underinsurance. While this study only considered families with middle incomes, lower-income families with employer coverage devote an even larger share of their income to health insurance and related costs.

People across the United States are not experiencing health care costs equally. Worker cost burdens are driven by four factors: the size of the overall premium, the share that employees contribute to those premiums, the size of their deductibles, and their income. In Mississippi, for example, people could spend more than 16 percent of their incomes on premiums and meeting deductibles, compared to an average cost burden of 8.4 percent in Massachusetts. In Mississippi, combined premiums and deductibles are higher than those in Massachusetts and Mississippi has the second-lowest median income in the country ($47,800). In contrast, median income in Massachusetts is among the nation’s highest ($81,913).

Higher costs for insurance and health care have consequences. People with low and moderate incomes may decide to go without insurance if it competes with other critical living expenses like housing and food, which consumed 36 percent of average family income in 2018. Research indicates that high deductibles lead people to delay or skip needed health care and prescription medications.

The Affordable Care Act (ACA) provides some cost protection to people with employer coverage. First, people with low incomes — less than 138 percent of poverty (or just under $17,000 for an individual) — are eligible for Medicaid in the 33 states, as well as D.C., which have expanded eligibility under the ACA. This is true regardless of whether or not they are offered a plan through their job. People enrolled in Medicaid pay no premiums or very limited premiums and face low or no cost-sharing. Second, people with employer premium expenses that exceed 9.86 percent of their income are eligible for marketplace subsidies, which trigger a federal tax penalty for their employers. This penalty is also triggered if the actuarial value of their plan is less than 60 percent (i.e., covers less than 60% of their costs on average). There’s a catch: these provisions only apply to single-person policies, leaving many middle-income families caught in the so-called family coverage glitch, where they have an expensive family plan but do not qualify for marketplace subsidies. The data in this report show that the average employee contribution to a family plan is 10 percent or more of median income in nine states.

What is the right level of premiums and cost-sharing for Americans? The ACA set standards for the marketplaces: required premium contributions for marketplace plans begin at 2.08 percent of income at the poverty level ($12,140 for an individual and $25,100 for a family of four) and rise to 9.86 percent for people at 300 percent to 400 percent of poverty ($36,420 to 48,560 for an individual and $75,300 to $100,400 for a family of four). The law also set standards for the benefits plans must cover and the amount that patients pay providers when they use their plans, with subsidies for people with lower incomes.

Congress could extend these marketplace requirements to employer plans or allow all people with employer plans to buy coverage in the marketplaces. But are the marketplace premiums and cost-sharing subsidies set at affordable levels for people across the income scale? Survey research indicates that many people, especially those with incomes just over the threshold for premium subsidies and cost-sharing reductions, may struggle to afford their premiums and deductibles.

Several Democratic members of Congress and presidential candidates have proposed enhancing the marketplace premium and cost-sharing subsidies and extending them further up the income scale. Others also would give people in employer plans the option of enrolling in a public plan offered through the marketplaces. Other members and candidates have suggested eliminating all private insurance and replacing it with a public plan like Medicare, and ending or reducing premiums and cost-sharing. Republican health reform ideas tend to favor replacing the ACA with market-oriented approaches that give states more discretion over insurance markets and the Medicaid program. We are certain to hear from voters on this issue in the coming year.

https://www.commonwealthfund.org…

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Comment:

By Don McCanne, M.D.

In spite of the Affordable Care Act, “For U.S. families, the growth in employer health insurance costs has outpaced average growth in median income over the past decade.”

Something needs to be done. On “policy implications” this article suggests expanding the provisions of the Affordable Care Act and perhaps adding a public option to the marketplaces. Such an approach would perpetuate much of the deficiencies and injustices of our current system of financing health care.

There is one sentence buried in the last paragraph that describes an approach that would correct most of the deficiencies in our health care financing system: “Other members and candidates have suggested eliminating all private insurance and replacing it with a public plan like Medicare, and ending or reducing premiums and cost-sharing.”

It is unfortunate that The Commonwealth Fund along with other organizations and media sources seem to have delegated this approach to a category of “aspiration” which can be dismissed because of a supposed lack of political feasibility.

Our task? Change the perception about political feasibility. Take to the streets if we have to.

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By Adam Gaffney, Steffie Woolhandler, and David Himmelstein
Journal of General Internal Medicine, Online November 19, 2019

Abstract

Most analysts project that a reform like Medicare-for-All that lowers financial barriers to care would cause a surge in the utilization of services, raising costs despite stable or even reduced prices. However, the finite supply of physicians and hospital beds could constrain such utilization increases. We reviewed the effects of 13 universal coverage expansions in capitalist nations on physician and hospital utilization, beginning with New Zealand’s 1938 Social Security Act up through the 2010 Affordable Care Act in the USA. Almost all coverage expansions had either a small (i.e., < 10%) or no effect on society-wide utilization. However, coverage expansions often redistributed care—increasing use among newly covered groups while producing small, offsetting reductions among those already covered. We conclude that in wealthy nations, large-scale coverage expansions need not cause overall utilization to surge if provider supply is controlled. However, such reforms could redirect care towards patients who most need it.

From the Methods

We identified all rapid universal coverage expansions in high-income capitalist nations. In brief, we considered a nation to have undergone a rapid universal coverage expansion if it experienced a ≥ 10 percentage point reduction in uninsurance rates over a 2-year period that brought it to ≥ 95% population coverage. Our final sample included the following: New Zealand—1938, Great Britain—1946, Sweden—1947/1953, Canada’s hospital insurance—1957, Finland—1963, USA/Medicare—1965, Canada’s physician insurance—1966, Australia—1974, Portugal—1979, Greece—1983, Spain—1986, Taiwan—1994, and the USA/ACA—2010 (although neither US expansion achieved 95% coverage, we include them because of their policy salience).

From the Discussion

Thirteen UHC expansions in 11 affluent nations spanning eight decades were mostly associated with small (< 10%), or no, increases in society-wide hospital and physician utilization. However, many redistributed care from well-off populations to more disadvantaged ones. These findings suggest that healthcare supply may constrain utilization increases, even when financial barriers are lifted. Most, but not all, cost projections of Medicare-for-All have failed to account for such supply constraints.

Milton Roemer famously noted that “a hospital bed built is a hospital bed filled,” and conversely that a limited bed supply constrains utilization. Many studies — and our finding that UHC rarely caused a surge in hospital utilization — support “Roemer’s law.”

Many, but not all, econometric analyses have similarly found that doctors provide slightly less care to the previously insured when coverage expands — and slightly more care to those remaining insured when coverage shrinks. Several studies suggest that such utilization reductions among insured populations predominantly affect low-value services, with no evidence of harm. Similarly, an oversupply of hospital beds in a community apparently does not improve health and may increase overutilization of low-value services.

In summary, history suggests that coverage expansions such as Medicare-for-All redirect care to the poor and sick, but need not drive up overall utilization if growth in supply is regulated.

https://link.springer.com…

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Comment:

By Don McCanne, M.D.

It is often claimed that if we expanded health care coverage to include everyone, as would happen with implementation of the single payer model of Medicare for All, we would not be able to afford the costs of the surge in health care utilization, plus the increased demand for care would require greater rationing with resulting impairment of access. Today’s report assures us that neither one of these claims constitute a real threat to access or affordability.

This important study looked at 13 large coverage expansions in 11 nations and found that, by and large, utilization increases were fairly negligible, thus increases in costs and rationing were also negligible. The change that did seem to occur was that there was a limited redistribution of care from low-value care for the healthy and wealthy to essential care for the sick and poor – an actual improvement in health care delivery.

Thus, when you hear that we cannot afford the increase in costs of Medicare for All, you can respond that we will not be spending more, but we will be spending better (keeping in mind that we will recover hundreds of billions of dollars in administrative waste that can be spent on health care).

Also, when you hear that people will not be able to get health care because of rationing, you can respond that the value in health care will improve because we will target our health care resources to providing more effective care (keeping in mind that all universal systems place a priority on emergency services).

This study further confirms that expanding health care coverage to include everyone will provide greater value and higher quality in our health care. We can’t afford not to do it.

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By Mark Shepard, Katherine Baicker, and Jonathan S. Skinner
National Bureau of Economic Research, November 2019

Abstract

There is increasing interest in expanding Medicare health insurance coverage in the U.S., but it is not clear whether the current program is the right foundation on which to build. Traditional Medicare covers a uniform set of benefits for all income groups and provides more generous access to providers and new treatments than public programs in other developed countries. We develop an economic framework to assess the efficiency and equity tradeoffs involved with reforming this generous, uniform structure. We argue that three major shifts make a uniform design less efficient today than when Medicare began in 1965. First, rising income inequality makes it more difficult to design a single plan that serves the needs of both higher- and lower-income people. Second, the dramatic expansion of expensive medical technology means that a generous program increasingly crowds out other public programs valued by the poor and middle class. Finally, as medical spending rises, the tax-financing of the system creates mounting economic costs and increasingly untenable policy constraints. These forces motivate reforms that shift towards a more basic public benefit that individuals can “top-up” with private spending. If combined with an increase in other progressive transfers, such a reform could improve efficiency and reduce public spending while benefiting low income populations.

From the Introduction

In this paper, we focus on the design of the current Medicare program for the elderly to assess its tradeoffs and provide insights about the implications of using it as a foundation for expanding coverage. We first ask about the efficiency and equity tradeoffs involved with its current generous, uniform design. Second, we address the question of how rising income inequality, ongoing medical technology innovation, and the budget pressures imposed by an aging population affect the efficiency of the current benefit structure. Finally, we examine the effects of an alternative, non-uniform benefit structure on economic efficiency and equity.

To study these questions, we build on a rich literature in health economics and social insurance design to develop a simple economic model of Medicare that incorporates income inequality, medical technology growth, and distortionary taxes. The model allows us to assess how the welfare consequences of Medicare’s uniform benefit structure have evolved, as well as the welfare effects of potential alternative public insurance designs.

The model suggests that while Medicare’s uniform benefit has the advantages of simplicity and lower administrative costs, it also comes with a cost of uniformity. While high-income households would likely prefer a very generous plan, low-income households would likely prefer lower health care spending and higher take-home pay or more generous non-medical benefits such as food stamps or housing assistance. A uniform program pools everyone into the same plan, creating an inefficiency due to mismatch between the public benefit and privately optimal generosity.

Our central argument is that three macro trends have increased this cost of uniformity appreciably since Medicare’s creation in 1965. First, income inequality has risen substantially. Rising inequality leads to growing divergence between rich and poor in willingness (and ability) to pay for generous medical care. Second, there have been dramatic innovations in medical technology: there was much less health care available to buy in the 1960s, and even advanced technologies of the day were relatively inexpensive. Third, average marginal tax rates have increased from less than 25% in 1965 to 30% in 2012, commensurately increasing the deadweight loss (or economic cost) associated with publicly financed benefits – a trend that will likely continue with the budget pressures from population aging.

These changes imply that demand among the rich for generous medical care increasingly diverges from what a uniform public system can afford to fund. While a universal, generous Medicare program may have been efficient in 1965 when options for treatment were both limited and relatively inexpensive, tax rates were lower, and income more evenly distributed, the efficiency cost of maintaining uniform coverage has grown over time. The current benefit design thus may not be a sustainable foundation upon which to expand public health insurance.

We describe an alternative insurance benefit design in which the government provides basic insurance but allows higher-income households to “top up” by purchasing additional coverage for additional services. (Medicare does have in place supplemental “Medigap” plans, but these are primarily designed to cover copayments and deductibles, rather than cover additional services.) The basic plan is intended to be similar to public insurance provided in many other countries – with low patient copayments and deductibles but with more modest provider payment rates and with coverage of treatments restricted to those with proven effectiveness relative to lower-cost alternatives.

Supplemental “top-up” plans are also common in other countries. Governments often underwrite a basic insurance plan (or mandate the purchase of regulated and subsidized private plans), but then allow households to add on private supplemental insurance.

Our calibrated model suggests that switching from a uniform Medicare benefit to a top-up structure could generate substantial cost reductions and efficiency gains in the long term. The distributional implications of such a policy change would depend on the alternative uses to which the resources saved on public insurance would be devoted. Many European countries spend substantially more on other social insurance programs than the U.S., and some of those non-medical programs themselves are likely to yield health benefits. We show in the model that there exists a redistribution of the “Medicare dividend” that would raise wellbeing across all income groups.

While our model considers benefit design solely for people age 65 and over, the implications for Medicare benefit design are clearly amplified under proposals to expand the eligible population. For example, while the cost of “Medicare for All” proposals depends crucially on the details of eligibility, coverage, and provider payment rates, most proposals require additional tax revenues that would substantially raise marginal tax rates. The implication of our simple model is that a more basic public benefit – closer to “Medicaid for All” than to “Medicare for All” – with the option for individuals to top up to more generous private coverage, coupled with increased transfers to the poor, could prove to be a higher-value, more sustainable alternative to many proposals that seek to expand the current Medicare program.

From the Discussion and Conclusion

Means-tested in-kind transfers of housing, food, and health care are the predominant form of income redistribution to low-income households. Medicare is a prominent example of a uniform in-kind benefit provided to both high- and low-income populations. In this paper, we develop a model that allows us to gauge the tradeoffs involved in this uniform benefit design.

Using a stylized model, we show how tax distortions, income inequality, egalitarian preferences, and technology growth affect the efficient structure of the program. Our results suggest that in 1965 when Medicare was first created, its uniform generous structure was relatively well suited to the economic and technological environment. But by 2019 it has become much less efficient relative to a “top-up” health insurance program where more basic public coverage can be supplemented by private health insurance. Our results are consistent with policies seen in many other developed countries, which provide a basic universal public insurance plan and where many citizens take advantage of the opportunity to pay extra for amenities and additional services.

We explore the implications of an alternative “basic” form of public insurance that provides more restricted benefits with regulated prices and allows higher income households to top-up their coverage with privately financed plans. Under such a plan, lower income households would consume less health care than their higher income counterparts, and perhaps less care than they do now. This naturally raises concerns about equity. Many who support a uniform benefit structure point to the “right to health care” as a foundational rationale. It is worth noting, however, that a uniform benefit is likely to result in a substantially higher share of income being devoted to health care (rather than, for example, food, education, or housing) than the typical lower-income household might choose. It is also likely to result in fiscal pressures over time that not only raise taxes but also crowd out spending on other public goods and transfer programs. We demonstrate in our model that it is possible to offset some of the equity effects of the top-up redesign by appropriate redistribution of the taxpayer savings generated by scaling back the public benefit.

This top-up structure is not only similar to that seen in some other countries, but is also related to other proposals discussed in the U.S. context, including value-based insurance design and premium support plans.

Moving to a basic benefit-plus-top-up plan would of course pose both practical and political challenges because of the reliance on potentially controversial determinations of cost-effectiveness. Political pressures might, though, play out differently with different plans and different eligible populations.

As new technologies arrive with ever-larger price-tags, pressure will continue to mount on public budgets; and equality of access to care, rather than guaranteed access to a minimum level of care, will become increasingly costly. It is vital that policymakers consider how alternative program designs affect the overall wellbeing of households across the income distribution as they debate Medicare’s future.

https://www.nber.org…

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Comment:

By Don McCanne, M.D.

This working paper is important because it comes from noted academics in the health policy community. The theme is not original. In a somewhat arcane economic disposition they rationalize a two-tiered or multitiered system of health care financing:

“We explore the implications of an alternative ‘basic’ form of public insurance that provides more restricted benefits with regulated prices and allows higher income households to top-up their coverage with privately financed plans. Under such a plan, lower income households would consume less health care than their higher income counterparts, and perhaps less care than they do now.”

In one of my earliest ventures into health policy, in response to the failure of the Clinton reform effort, I composed a health care proposal advocating for a basic plan for everyone and supplemental coverage for those who could afford it. I sent it in to PNHP, and Claudia Fegan was kind enough to return it, saturated in red ink. I learned two lessons. I realized how poorly informed I was on the topic of health policy, and it motivated me to study the topic more intensively, which I continue to do so to this day. More importantly, I developed a more acute sense of health care justice – that we can easily devise a health care system that ensures that everyone receives the health care they should have.

So why do so many in the policy community believe that lower income households should be restricted to only basic health care benefits while allowing higher-income households to top-up their benefits? I did further research to try to answer this question, and I found an article by the lead author of this working paper, Mark Shepard, titled, “Surprised by Jesus: how he found me at Harvard.” But the historical Jesus was a prophet of social change, which leads to the age-old question: What would Jesus have done?

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FTI Consulting, November 2019

Key Findings

• Introducing a public option could create a “two-tier” health system where employer- based insurance provides access to a different set of hospitals or services than those available to enrollees in public insurance.
• The government would be expected to set premiums for the public option approximately 25 percent below market value for comparable private insurance plans, squeezing out private competition and diminishing consumer choice. The significant discrepancy in premiums would cause the eventual elimination of all private plans in the individual market.
• By 2028, 20 percent of state marketplaces would not offer a single private insurance option as a result of the introduction of the public option.
• In the first year following introduction of the public option, over 130,000 Americans enrolled in ACA coverage would be forced off of their existing health plan as private insurers exit the marketplaces. Over a decade, up to two million marketplace enrollees could experience a loss of private coverage.

Conclusion

The success of the ACA in expanding affordable coverage through increased private sector competition is one reason why it remains popular today. For years, politicians have toyed with the idea of introducing a public option into our nation’s health care system. Time and time again, efforts have failed when it became clear that doing so would destabilize health coverage for the millions of Americans satisfied with their existing coverage. The results of FTI’s analysis demonstrate that introducing a public option to the ACA marketplaces would not serve to build upon the existing system, but would instead displace private insurance plans in most markets. Instead of bearing the risks associated with public option plans, several states have implemented market stabilization measures, such as reinsurance, that have successfully reduced costs to consumers and state governments. Such programs offer a potential alternative to the public option for policymakers seeking to reduce health care costs while preserving consumer choice.

Acknowledgments: This work was supported by the Partnership for America’s Health Care Future.

https://americashealthcarefuture.org…

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Comment:

By Don McCanne, M.D.

This consultant’s report was supported by the Partnership for America’s Health Care Future – “an ad hoc alliance of American hospital, health insurance, and pharmaceutical lobbyists committed to preventing legislation that would lead to single payer healthcare, expanding Medicare, or creating Medicare for All in particular” (Wikipedia). So what bias does the report demonstrate?

The consultants conclude that introducing a public option (a publicly administered insurance program) to the ACA insurance exchanges (marketplaces) would place the private plans at a considerable competitive disadvantage and drive them out of the exchanges.

What could the public option do that would be more appealing to patients than the private plans? Rather than the narrower provider networks of the private plans, the public option might be open to all current Medicare providers, which constitute most of our health care delivery system. Also they expect premiums for the public option to be 25 percent lower than private plans, likely representing both administrative efficiencies and administered pricing that would be features a public option.

The public option does sound like a much better deal for beneficiaries than the private plans. In fact, driving out the more expensive private plans through competition is touted to be a benefit of markets. The risk under market theory would be that the single plan remaining would be a monopoly that could drive prices up and reduce services. But in this case the public option would not be driven by profits and shareholder demands; instead, it would continue as a public service providing appropriate health benefits at a fair cost.

Although it would seem that this report was produced to scare the public by threatening them with the loss of their private coverage, it seems that it might have the opposite effect of enticing them into supporting a public option. More likely, this report may be used internally to scare the members of the Partnership for America’s Health Care Future, causing them to intensify their lobbying efforts against the public option, and, by extension, especially against Medicare for All.

This report emphasizes the consequences of a public option since many consider it to be an incremental step towards Medicare for All. But merely enacting a public option would add yet one more player to our highly dysfunctional, fragmented health care financing system. It would be much more logical to move directly to a single payer system of Medicare for All.

Can you imagine what the members must think about the prospect of the government offering the entire nation superior benefits with spending moderated through administrative efficiencies and negotiation of fair prices that would be paid by a public universal risk pool? Unfair competition! Maybe the medical industrial complex would consider it unfair, but what could be more fair for the patients?

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