An Open Letter to the Congress and People of the United States
May 21, 2019

As economists, we understand that a single-payer “Medicare for All” health insurance system for the U.S. can finance good-quality care for all U.S. residents as a basic right while still significantly reducing overall health care spending relative to the current exorbitant and wasteful system. Health care is not a service that follows standard market rules. It should therefore be provided as a public good.

Evidence from around the world demonstrates that publicly financed health care systems result in improved health outcomes, lower costs, and greater equity. As of 2017, the U.S. spent $3.3 trillion annually on health care. This equaled 17 percent of U.S. GDP, with average spending at about $10,000 per person. By contrast, Germany, France, Japan, Canada, the U.K., Australia, Spain and Italy spent between 9 – 11 percent of GDP on health care, averaging $3,400 to $5,700 per person. Yet average health outcomes in all of these countries are superior to those in the United States. In all of these countries, the public sector is predominant in financing heath care.

For these reasons the time is now to create a universal, single-payer, Medicare for All health care system in the United States.

Public financing for health is not a matter of raising new money for healthcare, but of reducing total healthcare outlays and distributing payments more equitably and efficiently. Implementing a unified single-payer system would reduce administrative costs and eliminate individuals’ and employers’ insurance premiums and out-of-pocket costs. If combined with public control of drug prices and a dramatically simplified global budgeting system, a sensible Medicare financing system would reduce healthcare costs while guaranteeing access to comprehensive care and financial security to all.

As such, we support publicly and equitably financed health care through a Medicare for All system at the Federal level, as described in H.R. 1384 and S. 1129. We encourage Congress to move forward with implementing a public financed Medicare for All plan to achieve the equitable and affordable universal health care system that the American people need.

Signed,

219 Economists (Use following link for list)

https://www.nesri.org…

Release – National Economic and Social Rights Initiative:
https://www.nesri.org…

House Budget Committee hearing: Key Design Components and Considerations for Establishing a Single-Payer Health Care System; Wednesday, May 22, 2019 – 10:00am EDT:
https://budget.house.gov…

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Comment:

By Don McCanne, M.D.

This open letter signed by 219 economists was sent to Members of Congress ahead of the House Budget Committee’s hearing on Medicare for All to be held today, May 22. Of major significance is that it calls specifically for the single payer model of Medicare for All, citing single payer bills that have been introduced in the House (H.R. 1384 – Jayapal) and Senate (S. 1129 – Sanders).

The letter does not endorse public option models mislabeled as Medicare for All, nor does it endorse mere patches to the Affordable Care Act. It states, “the time is now to create a universal, single-payer, Medicare for All health care system in the United States.”

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By Ricardo Alonso-Zaldivar
Associated Press, May 21, 2019

Generous benefits. No copays. No need for private policies. The “Medicare for All” plan advocated by leading 2020 Democrats appears more lavish than what’s offered in other advanced countries, compounding the cost but also potentially broadening its popular appeal.

While other countries do provide coverage for all, benefits vary. Canada’s plan, often cited as a model, does not cover outpatient prescription drugs and many Canadians have private insurance for medications. Many countries don’t cover long-term care.

But the Medicare for All plan from Vermont Sen. Bernie Sanders would charge no copays or deductibles for medical care, allowing only limited cost-sharing for certain prescription drugs. Sanders would cover long-term care home and community-based services. Dental, vision and hearing coverage would be included. The House version of the legislation is along similar lines.

“Medicare for All proposals would leapfrog other countries in terms of essentially eliminating private insurance and out-of-pocket costs, and providing very expansive benefits,” said Larry Levitt, a health policy expert with the nonpartisan Kaiser Family Foundation. “It raises questions about how realistic the proposals are.”

Economist Sherry Glied, dean of New York University’s Wagner school of public policy, says the offer of generous benefits may be needed to persuade Americans satisfied with employer coverage that they would be better off in a new government plan.

“You are going to have to be very generous if you want this to be politically appealing to lots of people,” said Glied, who was a senior health care adviser in the Obama administration.

https://apnews.com…

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Comment:

By Don McCanne, M.D.

In dismissing Medicare for All, politicians such as Nancy Pelosi and Donna Shalala note that Medicare’s benefits are not very good, thereby seeming to suggest that Medicare is not a good model for a universal health care financing system. What they do not acknowledge is that that the single payer Medicare for All proposals describe the most comprehensive health care benefit packages available anywhere – far better than the employer-sponsored plans that they keep touting.

Single payer Medicare for All is not the traditional Medicare program that has been neglected for decades by Congress and by Republican and Democratic administrations, as they continue to enhance the private Medicare Advantage programs. But even Medicare Advantage plans do not begin to match the blockbuster benefits of a well designed single payer Medicare for All model.

The public has to understand that the single payer model of Medicare for All would be the most comprehensive health care program of all nations. It is not our current traditional Medicare program – a program that requires supplemental plans to provide adequate protection. Do not let Pelosi, Shalala and others get away with their efforts to defeat single payer by their false implications that the traditional, neglected Medicare program is the same as comprehensive, single payer Medicare for All.

And scaring seniors into thinking that they would lose their current Medicare? That is dishonest unless the seniors are told that they would be receiving far more comprehensive benefits, without deductibles and other cost sharing, and without the restricted provider networks that the private Medicare Advantage plans use.

And the union members with retiree health benefits they don’t want to give up? No union health benefit program is as comprehensive as single payer Medicare for All. And what about those payroll deductions they made all those years? Go back to the negotiating tables and maybe those reserves could be used for more generous pensions, or whatever else is fair.

But there is no legitimate argument that should cause people to want to reject the most comprehensive health care financing system possible, providing affordable health care for all. If they say they don’t want it, then find out why, because it is clear that they don’t understand what they would be missing out on.

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By Shelby Livingston
Modern Healthcare, May 17, 2019

The health insurance inflation rate hit a five-year peak in April, possibly because managed care is rising.

The Consumer Price Index for health insurance in April spiked 10.7% over the previous 12 months—the largest increase since at least April 2014, according to a Modern Healthcare analysis of the U.S. Bureau of Labor Statistics’ unadjusted monthly Consumer Price Index data.

In contrast, the other categories that make up the medical care services index—professional services and hospital and related services—rose 0.4% and 1.4% in April, respectively. The CPI for medical care services in April rose 2.3%, while overall inflation increased 2% year over year.

Because of the way the BLS calculates the health insurance index, the change year over year does not reflect premiums paid by customers, but “retained earnings” after paying out claims. These earnings are used to cover administrative costs or are kept as profit.

The likely reason health insurance inflation is rising is because of growth in managed care, including Medicare Advantage, Medicaid managed care and commercial insurance, according to Paul Hughes-Cromwick, an economist at Altarum. He noted that added administrative costs increase insurance price growth.

Hughes-Cromwick said the increase in the health insurance index could also be driven by the fact that insurers’ medical loss ratios may be decreasing as high premiums, particular in the individual health insurance exchanges, exceeded anticipated claims.

The eight largest publicly traded insurers posted net income of $9.3 billion in the first quarter of 2019, an increase of 29.9%. They made a combined $21.9 billion in profits over the course of 2018.

https://www.modernhealthcare.com…

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Comment:

By Don McCanne, M.D.

For a dramatic representation of the point made in this article, click on the link and look at the graph depicting a very sharp rise in health insurance prices compared to prices for health care services. As the author explains, this does not reflect the premiums paid, but rather it reflects the retained earnings, i.e., administrative costs and profits.

This waste is what the single payer Medicare for All model is designed to get rid of. It looks like the insurers are making a run for egregious profits while they still can (even though they will have to pay rebates because they couldn’t hide all of their their excesses in the medical loss ratio).

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Reform has a cost. But the point of a health care system is to treat patients, not to buttress the economy.

By Elisabeth Rosenthal
The New York Times, May 16, 2019

As calls for radical health reform grow louder, many on the right, in the center and in the health care industry are arguing that proposals like “Medicare for all” would cause economic ruin, decimating a sector that represents nearly 20 percent of our economy.

It’s true: Any significant reform would require major realignment of the health care sector, which is now the biggest employer in at least a dozen states. Most hospitals and specialists would probably lose money. Some, like the middlemen who negotiate drug prices, could be eliminated. That would mean job losses in the millions.

Though it will be economically painful, the point is to streamline for patients a Kafka-esque health care system that makes money for industry through irrational practices. After all, shouldn’t the primary goal of a health care system be delivering efficient care at a reasonable price, not rewarding shareholders or buttressing the economy?

It’s not surprising that those involved in the business of medicine have joined forces in a lobbying and media campaign, the Partnership for America’s Health Care Future, to ward off transformational reform, particularly Medicare for all. But fed-up voters seem ready to upend an industry that saps their finances, wastes their time and doesn’t deliver particularly good care. Few people would mourn the end of $35 million annual compensation packages for insurance executives or the downsizing of companies that have raised insulin prices to 10 times what they are in Canada.

The first casualties of a Medicare for all plan, said Kevin Schulman, a physician-economist at Stanford, would be the “intermediaries that add to cost, not quality.” For example, the armies of administrators, coders, billers and claims negotiators who make good middle-class salaries and have often spent years in school learning these skills. There would be far less need for drug and device sales representatives who ply their trade office to office and hospital to hospital in a single-payer system, or one in which prices are set at a national level.

“Yes, these are painful transitions,” said Dr. (Katherine) Baicker, who is now the dean of the University of Chicago’s Harris School of Public Policy. “But the answer is not to freeze the sectors where we are for all time. When agriculture improved and became more productive, no one said everyone had to stay farmers.”

https://www.nytimes.com…

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Comment:

By Don McCanne, M.D.

Jobs. Jobs for the sake of jobs.

Why don’t we assign a tally taker to each household throughout the nation. You know, tallying things like number of showers taken, washing machine loads, toilet flushes, or number of electronic devices with average hours of usage or duration lights are left on, or hours that natural gas is used for the furnaces or the water heaters. You could create an industry that does that and relieve the utility companies of the need to maintain the automated devices that currently record usage of utilities. Think of all the jobs that could be created, along with the for-profit service corporations that manage them. Furthermore, that industry, through merger and acquisition, could create great opportunities on Wall Street to enrich passive investors and enhance the income and wealth of the corporate executives and the hedge fund managers. Of course creating a trillion dollar plus industry like that would have to be paid for, and, no matter how you do that, it would ultimately come out of the budgets of the households. But talk about creating a job market.

Of course, this is utterly ridiculous. This would be a middleman industry that provides none of the utilities being measured and would be providing virtually no value for whatever services it would be performing. But isn’t this much like the health insurance industry that is breaking down the health care “utility” into discrete services and products that they tally while providing no health care services and no value. In fact both concepts – middlemen utility tally takers and middlemen insurance tally takers are or would be providing a negative value because of their very high costs while delivering neither utilities nor health care.

Yet those opposed to health care reform that would greatly reduce this profound administrative waste plead that we cannot make that transformation because we need to preserve these jobs. Sorry. As the title of Elisabeth Rosenthal’s article states, “Medicare for All could kill two million jobs, and that’s O.K.” Single payer proposals do include the costs of job transitions, but that is only a one-time expense. From that point on, the cost curve is reduced to a lower trajectory, making health care affordable for all of us forevermore. We can’t afford not to do it.

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By Uwe E. Reinhardt
Princeton University Press

Introduction (excerpts)

Even twenty years ago, it should have been clear that the collision of two powerful, long-term trends in our economy would eventually drive the debate on U.S. health policy to the impasse it reached in 2017. Indeed, some of us had predicted it years ago.

The debate is conducted in the jargon of economics and constitutional federal-state relations. But it is not really about economics and the Constitution at all. Instead, at the heart of the debate is a long-simmering argument over the following question on distributive social ethics:

To what extent should the better-off members of society be made to be their poorer and sick brothers’ and sisters’ keepers in health care?

The two ominous long-term trends on which I based my dire prognosis on the uninsured are the following:

1. the rapid secular growth in the cost of American health care, in the face of
2. the growing inequality in the distribution of income and wealth in this country.

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In the early postwar period and through the 1990s, the dream among health policy analysts and the policy makers they advised had been to construct for America a roughly egalitarian, universal health insurance and health care system.

The dream appears to be dead. We will examine the symptoms of its demise throughout the book. Just one example is the ceaseless talk about the economic “sustainability” of Medicare and Medicaid. That argument reflects efforts by some members of Congress and their advisers to construct for the United States an officially sanctioned, multi-tiered health system in which the quality of health insurance and of the health care experience of low-income and lower-middle-class Americans does not have to match the health care experience of families in the upper strata of the nation’s income distribution. In effect, they seek a system in which health care is rationed by income class.

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In the rest of the book, I begin with an overview of U.S. health spending and the factors that drive our high health spending. I argue that these spending trends already are pricing more and more American families in the lower part of the nation’s income distribution out of health insurance and health care as families in the upper half of the distribution know it. I then focus on a number of bizarre quirks in our health system that are unique to the United States, explain who actually pays for health care in the United States, and explore the question whether from an international perspective Americans get adequate value for their high health spending.

Part II of the book is devoted to the ethical questions that the current situation in the United States raises for health policy makers. I explain the different distributive ethics different nations impose on their health care systems and how the United States is different from the majority of the rich nations in Europe and Asia in that it has never been able to reach a politically dominant consensus on a distributive ethic for American health care. This is followed by an explanation, from an ethical perspective, of the mechanics of commercial health insurance, which accounts for over a third of the total health spending in the United States. I then turn to focus on health reforms and the ethical precepts that underlay the reforms in recent years. The book ends with a brief novel proposal of my own for the next health reform in the United States.

https://press.princeton.edu…

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Comment:

By Don McCanne, M.D.

We can be thankful that Uwe Reinhardt left with us a concise message of the culmination of his life-long devotion to understanding and teaching the economic and ethical costs of American health care, and he did this in only 137 relatively short pages that constitute the main body of this work. But the story is not the conciseness but rather what we might label the normative economics (he didn’t) of health care. The excerpts from the Introduction (above) provide an excellent guide as to what you can expect from this book.

A very special section is the Epilogue written by Tsung-Mei Cheng – his partner in health policy but, more importantly, his partner in life. She provides a clarification of some of his teachings as only she could understand. Of particular interest for single payer advocates is his sometimes confusing expressions as to how single payer may be a great system for some other nations (e.g., Taiwan, which can be thankful for the partnership of Tsung-Mei Cheng and Uwe Reinhardt in advancing health care justice in that nation), yet why he did not consider single payer appropriate for the United States.

For a spoiler that isn’t a spoiler, I will say that his Conclusion – a novel reform proposal of his own – is in the classic teaching style of Uwe Reinhardt. He has said many times before, “Tell me what you want (primarily the ethics of a health care system) and I can design for you a system that will do that.” In this book, he has described the economic and ethical costs of the system that we have chosen, by action and inaction, and used that to offer up reform that would perpetuate our expressed, uniquely American values that have resulted in the system we have. Although it need not be said, it is a teaching lesson, and his unspoken homework assignment is for us to prove him wrong.

In summary, Tsung-Mei Cheng begins her Epilogue with the following:

“The issue of universal coverage is not a matter of economics. Little more than 1 percent of GDP assigned to health would cover all. It is a matter of soul.”

– Uwe E. Reinhardt

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By Dylan Scott
Vox, May 14, 2019

Reps. Frank Pallone (D-NJ) and Greg Walden (R-OR), the top Democrat and Republican on the House Energy and Commerce Committee, have jointly released a draft bill that would prevent patients from facing unexpected charges after they go to the emergency room or receive other non-emergency medical care.

The draft legislation, shared exclusively with Vox, is the most robust proposal yet as lawmakers from both parties and President Donald Trump say they want to end surprise billing. The plan would prohibit surprise charges not only for emergency care when a patient ends up at a hospital that is out of their insurance plan’s network, but also for non-emergency care when the facility might be in network but certain providers are not.

The problem here is simple: Sometimes patients go to the emergency room and end up getting unexpected charges because the hospital itself or some of the doctors who treated them do not have contracts with the patient’s health insurer.

The Pallone and Walden bill takes a multi-pronged approach to ending surprise medical bills:

• Health insurers would be required to treat out-of-network emergency care as in network for their enrollee’s cost-sharing and out-of-pocket obligations. So patients wouldn’t have to pay any more for receiving emergency treatment at an out-of-network hospital than they would at an in-network one.
• Balance billing — when a health care provider sends a patient a bill charging them whatever the difference is between the price set for a service by the provider and the price the health insurer is willing to pay — would be prohibited.
• Insurers would have to make a minimum payment to out-of-network providers for their enrollee’s care, based on the price the insurer pays to nearby in-network providers. (Some states have their own laws for setting those payments, however, and they would not be overridden by the federal law.)

It stipulates that patients must receive both written and oral notice about whether their providers will be in or out of network and what charges they must face. If they do not sign a consent form after that notice, they can not be balance-billed. The legislation also prohibits balance billing from providers that a patient could not reasonably be expected to choose themselves, like anesthesiologists, radiologists, and pathologists.

The Senate had already taken up the cause of surprise bills — Sens. Bill Cassidy (R-LA) and Maggie Hassan (D-NH) have been leading a group dedicated to the issue, while health committee chair Lamar Alexandar (R-TN) has also indicated his interest in tackling the issue — and it can only help that President Trump is on board.

Surprise bills are really only a symptom of the underlying disease plaguing American health care — exorbitantly high and irrationally set prices — but they are a particularly egregious example, as they can leave even patients who have insurance with medical bills that total tens of thousands of dollars.

https://www.vox.com…

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Comment:

By Don McCanne, M.D.

Why do surprise medical bills exist? Quite simple. The private health insurance industry decided that they could price their insurance products more competitively if they had contracts with the providers – physicians and hospitals – in which the providers would contract for lower payment rates in exchange for being authorized to provide care to captive patients of the insurer. Since circumstances would inevitably arise wherein care is obtained from providers outside of the networks, patients would no longer be protected by the insurers’ provider contracts. No contract, no controlled prices and no coverage for the patients outside of the networks.

So what legislative remedies are proposed? A simplified explanation, which makes the point, is that out-of-network providers who care for the insured patients would be required to accept payments close to the terms of a contract that they were not offered or did not agree to. Why should Congress be able to mandate that providers comply with contracts they did not sign, especially when they are not granted the “most favored status” that in-network providers have with the insurers? Why would insurers want to even try to negotiate tough contracts if they can enforce their terms on out-of-network providers? The insurers would have control over the patients, over the in-network providers, and, with this legislation, over the non-contracted providers as well. It is no wonder that the insurance lobby organization – AHIP – issued a release strongly supportive of this legislation.

What would happen to surprise bills under the PNHP model of single payer Medicare for All? Well, it’s a prepaid health program. Since patients do not receive bills anyway, there would be no surprise bills.

Ask your friends in other countries what they do about surprise medical bills. The likely answer: “Surprise medical bills? What are they?”

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By Victor R. Fuchs, Ph.D.
JAMA, May 9, 2019

In the United States, the interests of high-income individuals dominate decisions about what medical care is offered and how it is financed. The result is a less efficient and less equitable medical care system than in other high-income countries. Employment-based insurance plays a key role in determining the production and financing of US medical care.

Employment-based insurance started during World War II as a way for employers to attract needed employees without violating wartime wage controls. After World War II, employment-based insurance spread quickly because group insurance is less costly to administer than individual insurance, and it is less vulnerable to adverse selection of unhealthy patients. Employment-based insurance is particularly popular with high-income employees because the contribution made by employers to the premium is exempt from the employees’ taxable income. This exemption cost the US Treasury an estimated $300 billion in 2018.

For many decades, employment-based insurance has set the standard for US medical care, although several features are now being questioned by health policy experts, including but not limited to giving patients a wider choice of clinicians and hospitals, generally relying on fee-for-service payment, and allowing self-referral to specialists. These cost-increasing features are especially valued by higher-income patients. Employment-based insurance covers approximately 60% (180 million of the 310 million) of insured individuals, but enrollment is highly correlated with income. In high-income households (family income >400% of the federal poverty level), 84% are enrolled in employment-based insurance. In low- and middle-income households (family income from 100% to 250% of the federal poverty level), only 35% are enrolled in employment-based insurance. The result is a product mix of care that caters to the preferences of higher-income patients.

Emphasis is on specialty and subspecialty care, expensive technology, extra capacity to facilitate access (US hospitals have an average occupancy rate of 65% compared with an average of 76% according to the Organisation for Economic Co-operation and Development), and more and better-quality amenities, including space and privacy in the hospital. Architects who build in many countries suggest that design for US hospitals must also include better space for visitors and professional staff. This more costly product mix (specialty care and hospital amenities) is appreciated by patients at all income levels, but higher-income patients would and sometimes do pay extra for them. Many low- and middle-income households would be better off if medical care was less costly, and they had more money for other public and private goods and services.

An imperfect but useful analogy to the differences in product mix between the US medical care system and those of other high-income countries is the difference between Whole Foods (a chain of upscale grocery stores) and Walmart (the largest grocery retailer in the United States). Shoppers who buy their food at Whole Foods spend much more than Walmart shoppers for a more expensive mix of products (ie, by analogy, high-cost drugs, access to specialists), not more food. By analogy, if the US government subsidized the Whole Foods shopper as it does for individuals with the tax advantages of employment-based insurance, and imposed on Walmart requirements for products, personnel, and equipment, Walmart’s costs and prices would increase. Given enough subsidy for Whole Foods and cost-increasing regulations on Walmart, the low-cost alternative might disappear. Such a low-cost alternative does not exist for most of medical care. Its absence is not a problem for high-income patients, but it is for many low- and middle-income households that would rather spend less on medical care. Of note, there are more than 10 Walmart stores for every Whole Foods store. The opposite is true for medical care as most physicians and hospitals strive for high standards and very few concentrate on lowering costs.

The preference of high-income patients for a costly product mix also adversely affects the efficiency of research and development in the choice of projects because market size influences the direction of investment in innovation. Almost all private medical research and development is directed toward extending the product mix with few attempts to discover new lower-cost interventions with truly disruptive innovations. The interests of high-income patients not only result in inefficiency in medical care production and innovation, but also adversely affect the way the United States finances health care. The present system, which is a mix of employment-based insurance, other private insurance, numerous government programs, including Medicaid and Medicare, each with its own eligibility rules and payment schemes, and out-of-pocket payments, is extremely costly to administer. The large role played by private insurance in the United States helps high-income households because the price of the insurance is the same regardless of income, whereas government plans typically require higher-income individuals to pay a larger share of the nation’s medical care bill.

In the current US system, no one knows how much the cost of care is borne by different income groups. Payment is nominally made by insurance companies and the government, but it is essential to distinguish between who nominally pays the insurance premium and who bears the true cost burden. As another example, suppose a government decides to finance medical care by implementing a tax on retail sales, as the province of Ontario, Canada, does. The law might require that stores pay the tax, or that the customer pays the tax, but the cost burden of the tax would be borne by the customer either way. If the store pays, it will raise prices by the amount of the tax. Similarly, most of the premium for employment-based insurance and half of the federal payroll tax (a portion of which goes to Medicare) are paid by employers, but economists agree that the cost burden is borne by employees in the form of lower wages. For some sources of revenue such as the corporate profits tax, the corporation pays, but economists disagree about how the cost burden is distributed among households who are shareholders, customers, or employees. The answer may vary depending on circumstances such as the competitiveness of the industry, the state of the market for capital, the supply of labor, and other factors. It is important to realize that the majority of costs are borne by households regardless of who is the payer.

How should the cost of medical care be borne by different income groups? The answer depends in large part on how medical care expenditures are viewed. If viewed as similar to other objects of consumption, such as food, clothing, or automobiles, no special financing may be required. Because many households have no medical care expenditures during a year, and 5% have 50% of the expenditures, a different financing system seems necessary. One way to think of the cost is as being similar to reparations imposed on US households by a foreign power that has defeated the United States in a war. Assume the foreign power assigns reparations of $3.5 trillion, which is the approximate total for health care expenditures in 2017, to the 126 million US households in a random and capricious manner so that many pay nothing and others pay more than $100 000. The average would be $28 000 per household. Suppose the United States wanted to offset reparations paid by each household so that the inequality of income in the United States would be the same after as before payment. A tax on income at the same percentage regardless of the level of income (a flat tax) could raise revenue for the federal government needed to compensate each household for its payment of reparations. Countries that have national health insurance come close to this solution by having a flat tax on retail sales or on value-added sales that is initially paid by business firms, but is eventually passed on to consumers.

Suppose the United States had such a system in place with a tax rate set at a level that would raise the $3.5 trillion for reparations. The highest income quintile with 51.5% of US household income and 25 million households would have to pay an average of more than $72 000 per household. The lowest quintile with 3.1% of US household income would pay an average of $4300 per household. The remainder would come from the 3 middle-income quintiles that have a combined income of 45.4% of US household income. Their average equal share would be approximately $21 000 per household. The average (mean) GDP per all household in 2017 was $155 000.

The United States could save a large amount on administrative costs of care if it adopted a simpler financing system, perhaps a single-payer system. Changing the product mix (as illustrated in the comparison with product availability at Whole Foods vs Walmart) would be an even more complex proposition, and would require removal of government regulation and professional strictures that prevent emergence of a lower-cost alternative. A change in the financing system would probably distribute the burden of cost more to high-income households; this is probable but not certain because the present distribution of the cost burden is not known. A change in the method of finance and in the product mix would make US medical care more efficient and probably more fair for the majority of households. According to the media and some academic interpretations of Donald Trump’s election as President in 2016, many low- and middle-income individuals perceive that the US economy does not benefit them. Explorations of this question as applied to the US medical care system suggest that there is some basis for those perceptions.

https://jamanetwork.com…

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Comment:

By Don McCanne, M.D.

One of the prevalent attacks against enacting and implementing a single payer Medicare for All program is that it would be disruptive to the employment-based insurance system. But why is that bad? There are many reasons why we would be better off leaving that system behind, but here we’ll discuss only one reason – but a big one.

Basically each employee pays the full premium for his or her health plan obtained through work. The portion of the premium nominally paid by the employer is actually paid by the employee in forgone wage increases, though many do not realize that. The premium is the same regardless of the income of the employee. Thus employer-sponsored plans are regressively funded because the percentage of income used to pay the premium is inversely proportional to income – higher-income employees pay a lower percentage of their income for their health plans. Tax policies make this even worse because the tax expenditures (the reduction in income taxes paid because employer-sponsored plans are not included as taxable income) benefit high income individuals much more than low income individuals who may not even have enough income to receive any tax expenditures at all and thus would have no net reduction of their premium.

After decades of redistributing income and wealth upward, perpetuating this highly inequitable method of financing the majority of our health care coverage – employer-sponsored plans – has placed a great burden on America’s workers and their families, even greater because of our unprecedented national health expenditures. It is even more shameful because these employees are financing highly wasteful administrative excesses to which the fragmented system of a multitude of employer-sponsored plans plus other private plans and public programs all contribute.

A single payer Medicare for All system would not only eliminate much of the administrative waste, but it would also use tax policies to make health care financing truly equitable – fair for all. It is important for the public to understand what a good deal single payer Medicare for All would be for them, but first they have to understand what a terrible deal they are getting for the health plan they get through work.

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Our goal shouldn’t be to lower hospitals’ prices, but to eliminate them entirely. Medicare for All is the way to achieve that.

By Adam Gaffney, M.D., M.P.H.
Jacobin, May 10, 2019

More than 24 million people require hospitalization annually in the United States, and many more see their doctors or other providers, or have tests and procedures, in these institutions. Yet as the health care reform debate heats up, some have painted a grim picture of how hospitals would fare under Medicare for All — predicting slashed budgets, shuttered wards, service cuts, and mass layoffs. Especially for those who rely on hospital care, such claims may sound an alarm.

A recent commentary in the Journal of the American Medical Association predicted that Medicare for All would put hospitals deep in the red, forcing them to shed up to 1.5 million jobs. An article in the New York Times last month gave voice to similar concerns that hospitals, especially vulnerable ones, would close “virtually overnight” under Medicare for All, or would abandon “lower-paying services like mental health” altogether.

An editorial from the Washington Post warned that single payer could “shutter smaller or regional facilities whose margins are already low.” Even some progressives have given credence to such claims, predicting — or even calling for — deep reductions in “prices,” i.e., insurance payments to hospitals, under Medicare for All, or under other reforms.

These claims have a common, flawed underpinning. For one thing, they fail to appreciate a key cost baked into the “prices” paid by insurers today: the billing-related cost forced on hospitals by our dysfunctional multi-payer system, and so they discount the potential savings for hospitals under Medicare for All.

More fundamentally, however, the focus on hospital “prices” fails to recognize that a properly structured single-payer reform would not merely change what hospitals are paid, but how they are paid. Indeed, it could move us away from a system where hospitals have prices at all.

Savings in the Short-Run: Covering the Cost of Universalism

Imagine if we funded public schools the way we funded hospitals. Instead of giving schools a lump sum “global” budget to take care of all their students, we required them to issue per-student bills that were to reflect each student’s unique educational needs, and the precise mix of services they received. Assume also that teachers had to issue bills for every episode of instruction provided to each pupil daily, using a complex fee schedule incorporating the length, complexity, and/or intensity of every interaction. Finally, imagine that the tsunami of resultant bills went not just to the local government, but to a welter of different “educational insurance” plans, with varying rules and requirements; that these insurers frequently contested the charges; and that schools were required to collect co-pays and deductibles from parents, which varied depending on how much education a child “consumed” and their particular insurance plan.

Among other issues, the waste would be colossal: large bureaucracies would be needed to issue and process the bills, and the paperwork would suck up large amounts of teachers’ time, taking them away from, say, teaching. That’s exactly what plays out in hospitals. At one large academic medical center, 25 percent of all payments to the hospital for an ER visit were consumed simply by the cost of processing the bill. Overall, approximately one-quarter of American hospitals’ total revenues is consumed by administrative and billing expenses.

In contrast, Canadian and Scottish hospitals receive global lump sum budgets, similar to public schools, which allows them to eschew “per patient” billing altogether, and spend only 12 percent of revenue on administration. Single payer, in other words, could cut US hospitals’ administrative spending by half, an enormous saving since hospital spending accounts for about one-third of our $3.5 trillion health bill.

This has two implications. Because hospitals’ wasteful administrative costs are baked into prices, single payer would allow us to reduce payments to providers without shrinking the resources they have available to take care of patients. More likely, as demand for care rises once everyone is covered and financial barriers to care like co-pays and deductibles are eliminated, hospitals could increase the amount of care they provide within their existing budgets.

Single-payer financing, in other words, can cover the cost of true health care universalism in the short run. And in the long run, it provides a second critical tool to control hospital cost growth.

Savings in the Long Run: Controlled and Equitable Capital Expansion

Let’s return to the public school analogy for a moment. Assume that once schools were done billing, they could retain revenues that exceeded their costs, i.e., they could turn a profit, even if they remained legally not-for-profit. And let’s say that these profits were the source of funds for capital projects: schools could use them (together with private debt) to upgrade their facilities, construct new wings, acquire new technology, or even build whole new schools. Finally, assume that schools competed for students — especially from well-off families — and that some avoided the poor kids.

In this scenario, highly profitable school systems would, predictably, enter a self-perpetuating cycle of expansion, upgrades, more business, more profits, more growth, hence rising operating costs. In contrast, unprofitable schools would fall behind, and could even go bankrupt, resulting in entire districts (especially poor ones) being left without a single school. (Obviously, large inequities exist among schools today — but they would be massively exacerbated by this financing system).

This is, again, a reasonable description of how hospitals are paid. As Public Citizens’ Sidney Wolfe and Physicians for a National Health Program co-founders (and colleagues) Steffie Woolhandler and David Himmelstein argued last year, hospitals’ profits are the source of funds for capital expenditures, like new wings, major new equipment, sumptuous atrium lobbies, or even the construction of new hospitals. Over the long term, this cycle of profit- and debt-funded capital expansion leads to rapidly escalating operating costs, and hence overall health spending, a key reason why US health care spending diverged so sharply from those of other nations in the second half of the twentieth century. In the 1970s, for instance, hospital spending soared, not because people used the hospital more, but because of an enormous expansion in hospital capital.

The problem is not capital expansion per se (nobody wants dilapidated hospitals), but inequitable and unregulated capital expansion tethered to profitability, rather than community health needs. Today, hospitals in well-served areas often relentlessly expand and upgrade, even as needed hospitals shutter in poorer areas, as seen with the recent epidemic of rural hospital closures. This system of hospital capital financing leads to what British general practitioner and epidemiologist Julian Tudor Hart called the “inverse care law,”: the “availability of good medical care,” as he put it, “tends to vary inversely with the need for it in the population served.”

Moreover, unconstrained capital investments can sometimes actually lead to worse care. For complex procedures like transplants, hospitals that treat only a small number of patients cannot develop (or maintain) the expertise needed to achieve the best outcomes.

Bloated costs, in other words, go hand in hand with inequity, and can even compromise quality. The solution is simple. Under Physicians for a National Health Program’s single-payer proposal, similar to the House Medicare for All bill recently launched by Representative Pramila Jayapal, hospitals’ global budgets could only be spent on operating costs. None of the budget could be retained as “operating margins” (i.e., profits), or spent on expansion. Instead, a separate, dedicated stream of federal funds would pay for hospital capital expansion, based on community need and not profitability, as is done in many countries.

Such policy tools are essential to control costs and ensure an equitable and efficient distribution of health care resources moving forward. Achieving this, though, means a paradigm shift in our conceptualization of health care “prices.”

Beyond “Prices”: Reimagining Hospitals as Social Institutions

A decade ago, the mainstream health care discourse was dominated by a concern that people were using too much hospital care: reducing costly ER visits and hospitalizations by the uninsured — by giving them a primary care doctor — was commonly cited as a justification for the Affordable Care Act. But that framing was simply false. Uninsured people actually use the hospital less (and the ER no more) than those with good coverage, while Americans overall actually use the hospital less than people in most other OECD nations.

Analysts then concluded that if the quantity of care we use isn’t the problem, high prices must be the explanation for our high health care costs. Consequently, in more recent years, mainstream health care discourse has swung behind an emphasis on lowering health care “prices,” whether by market mechanisms or regulation.

This shift is mostly a step in the right direction. But a simplistic conceptualization of “prices” will, invariably, fail us too.

There are three problems with centering our health care reform efforts on the “prices” paid by insurers. First, health care “prices” lump together a wide variety of items. As I’ve argued, insurance payments to hospitals pay for things we care about deeply (i.e., the delivery of quality hospital care), things we couldn’t care less about (i.e., the cost of processing hospitals bill), and things that are often valuable but need to be controlled in an equitable fashion (i.e., capital expansion). Single payer uniquely allows us to extract administrative waste — and thereby cover the cost of providing more care to the previously uninsured and underinsured — while controlling capital spending and directing the investments to what’s needed rather than what’s profitable.

If instead, as some propose, we were to indiscriminately slash hospital “prices” (while retaining current financing mechanisms), we would have no control over where the axe would fall. Hospitals would drop unprofitable service lines like mental health and intensify efforts to avoid unprofitable patients (e.g., the homeless); staffing ratios might rise; attacks on labor would likely intensify, even as executive pay and spending on advertising was maintained — or even increased! And in such a system, of course, unprofitable hospitals would still shutter.

The second problem is more epistemological. Quite simply, hospitals shouldn’t have prices, any more than public schools, parks, or libraries. For one thing, the very meaning of per-user “prices” in social institutions is murky. We could attempt to attribute the costs of maintaining Central Park to distinct visitors, I suppose, based on how long they spent lounging on the Great Lawn, whether they circle the reservoir once or twice, whether or not they ask for directions from park staff, and so forth. But it would be a very crude, and perhaps intrinsically fraudulent, effort. Regardless, it would necessitate a major diversion of park resources into a bookkeeping apparatus with zero social value.

Per-patient hospital bills may be somewhat more meaningful, but at the end of the day, a hospitalization, like a park visit or a year in school, is not analogous to mass-produced commodities churned out on assembly lines. A hospitalization for pneumonia may involve a few doses of intravenous antibiotics followed by discharge home after one or two nights, or it may lead to months in the ICU, requiring the services of nearly every specialist in the hospital. What is the meaning of the price of pneumonia?

The third problem with focusing on prices, however, is the most serious. It is not merely that the administrative effort needed to bill individual users of a park, school, or hospital is extravagantly wasteful, or that these prices have questionable meaning and validity. More fundamentally, allowing social institutions to bill individual users, and then use the resultant profits to expand and grow and modernize, invariably means that these institutions have their quality, technological prowess, and beauty — indeed their very existence — determined by profitability, by the logic of the market.

And they are too important for that.

https://www.jacobinmag.com…

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Comment:

By Don McCanne, M.D.

There is considerable confusion as to how we could afford to pay for hospital care under a a single payer Medicare for All system. That confusion is compounded by the doomsday scenarios being advanced by some in the hospital and insurance industries. That is why this article by PNHP president Adam Gaffney is so important. He not only dispels these myths; he also describes just how the hospital financing would work – recovering hundreds of billions of dollars that are currently wasted – funds that could be used to fill in the current gaps in health care.

Particularly helpful is his description of how public education would be financed if we used the dysfunctional, multi-payer system that we now use for health care. No sane individual would propose such a system for education, yet much of the policy community and the majority of our politicians believe that we should perpetuate the same highly flawed financing model for health care, while adding some tweaks to the Affordable Care Act and maybe throwing in a Medicare for Some public option. That will not repair the fundamentally flawed financing infrastructure.

Be sure to save this resource and share it with others (links to a dozen references are included in the version on the Jacobin website – link above). When people don’t seem to understand what this “global budgeting” is all about, be sure you have down pat the analogy of what financing public education would be like if we funded it like we do health care. Gaffney’s description makes this complicated concept much easier to understand. People should walk away convinced that we definitely need to restructure our health care financing system, and we can do it without spending more than we do already because of the efficiency and savings of the single payer model.

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