Medicare-for-All: Why We Should Say Yes, Not "Yes But"
by Merton Bernstein and Theodore Marmor
Health Affairs Blog
August 28th, 2008
Many health policy experts regard Medicare-for-All as a model for reform of America’s indisputably troubled and costly medical arrangements. They express admiration for its administrative efficiency and the resulting savings that could pay for extending coverage, perhaps to all. For example, in a June 2008 Health Affairs article, Commonwealth Fund authors said: “Compared to a Medicare-for-All approach, our [Building Blocks] framework does not achieve the simplicity, consolidated risk, administrative overhead, and provider payment net savings of covering nearly everyone through Medicare.”
Sometimes even Medicare-for-All admirers succumb to the “yes but” syndrome, as in “yes, but Medicare-for-All is politically impractical.” For example, after praising Medicare-for-All, The Health Care Mess concluded that “political reality compels us to ask whether there are not other ways” (besides Medicare-for-All) and answered that question “yes.” Princeton economist Paul Krugman, who had extolled Medicare-for-All in 2006, put a foot in the “yes but” camp in 2007. He welcomed the Edwards, Massachusetts, and Schwarzenegger plans to compel individuals to select from among insurance plans, thereby forgoing Medicare-for-All’s economies. The Edwards and Obama plans required a Medicare-like plan as one option. Krugman argued that such a plan’s lower cost will eventually crowd out more expensive private plans. This overlooks private insurance’s history of cutting prices to gain market share, later returning to double-digit boosts. Also, the Massachusetts program actually is not universal; it omits children, among others, and it is having real trouble meeting its costs. The California legislature as well rejected the “Governator’s” plan as too costly.
Though the political “yes, buts” surrounding Medicare-for-All prove groundless, they deserve discussion. However, the “yes, buts” should not preempt discussion of Medicare-for-All’s substantive advantages, as they all too often do. For example, the May/June 2008 issue of Health Affairs, a 200-page-plus compendium on health reform and expanding coverage, does not contain a single article devoted to Medicare-for-All. In this post, we first describe the advantages of Medicare-for-All, then demonstrate that the evidence behind the political “yes, buts” is exaggerated and flawed.
Medicare, The Most Practical Platform — It’s Been On The Job For Decades
After all is said and done, Medicare makes the most practical platform for both extending coverage and taming medical cost inflation. Not least, Medicare has been on the job for more than four decades and has resolved hundreds of practical problems that any large-scale health program must address. In contrast, any step-by-step program, even one that purports to be “Medicare-like,” must start from scratch — because the “like” must mean that it differs from Medicare. Those differences would require constantly testing the applicability of Medicare decisions to any differing regime. Each subsequent extension of coverage would require like determinations. It does not make sense to keep reinventing the wheel, or prescribing something that resembles a wheel but somehow differs from it (not quite so round, perhaps).
Incremental Proposals Do Not Reduce Costs; They Increase Them
Some members of the “yes, but” club advocate modest steps to expand coverage with the stated ultimate goal of universal coverage. The proposals put forth by the leading Democratic presidential rivals fit that category. Oddly enough, those proposals, by their proponents’ own calculations, would increase total costs $60-$120 billion dollars annually. (These sums probably understate the additional costs because of overly optimistic projections of savings by other features, such as electronic record keeping.)
These anticipated additional costs derive from a major common design feature: they would provide individually determined, means-tested subsidies to make costs appear affordable. Yet those tests, which must be done for tens of millions of participants, substantially increase outlays. For example, means-tested Medicaid incurs administrative costs that are some four percentage points higher than those of the original Medicare (Parts A and B). Because incomes vary, means testing must be done again and again — for Medicaid every thirteen weeks. Clearly, this is less practical than Medicare for All, which would reduce non-benefit and per capita outlays while expanding coverage.
Senator McCain proposes to eliminate tax subsidies for employers that provide health insurance and for employees who receive such coverage. That is almost surely a political nonstarter because of employer and employee opposition. His subsidies to recipients would not meet the costs of adequate plans. And the elimination of employer tax breaks would lessen the willingness of employers to provide medical care insurance, enlarging the ranks of the uninsured.
In addition, private plans’ non-benefit costs include plan advertising, lobbying, commissions to salespeople and agencies, often enormous executive compensation, and profits. Moreover, employers must assess the relative costs and benefits of available private plans; that takes the assistance of experts like actuaries, accountants, lawyers, and personnel administrators, to say nothing of the entrepreneur’s own limited time. Further, many health care providers have many differing charges for the very same procedures, depending upon the patient’s insurer. Administering those numerous variables takes much time, effort, and money.
Massive Savings With Medicare for All: Simplification Leads To Reduced Costs
We must move to a system that reduces per capita costs and pays for expanding coverage from those savings. That’s where Medicare for All shines. Much of its savings derive from simplifying medical care insurance: with everyone eligible, there is no need to trudge through data to ascertain eligibility; with only one regional set of provider reimbursement rates, there is no need to match a claimant’s bill with hundreds or thousands of possible rate schedules. With Medicare-for-All covering all medically necessary treatments with practically no exclusions, coverage would seldom be an issue. Simple is cheap. In contrast, where 300 million people have the choice of insurance plans (family members often are covered by different plans in today’s kaleidoscopic scene), every element of coverage and treatment must be ascertained.
The “One-Size-Fits-All” Objection Falls Apart
Ironically, Medicare-for-All and other “single-payer” plans are frequently disparaged as “one-size-fits-all” programs, as if that were undesirable. Yet we all need the same protection in the event of illness or injury, and many of us want that for everyone else as well. Indeed, the most exemplary rule of all time is to “do unto others as you would have them do unto you.” That “one-size-fits-all” rule is hard to beat. In fact, by pooling all existing contributions from all plan sponsors and participants, existing varying contribution rates would be perpetuated. That way, premiums and contributions would not be one-sized after all. And those rates could share in Medicare- for-All’s savings.
Medicare-for-All Would Eliminate Employment Discrimination Against Women Of Child-Bearing Years And The Elderly
Medicare for All also would banish the current discriminatory insurer rate practices that discourage the employment of women of child-bearing age and older people. Private medical care insurance varies its rates by the age and gender of the population covered. As on average women of child-bearing age and older employees have high projected medical care costs, insurers charge according to the proportion of such members in a group. Human resources departments do not need to advise those making hiring and lay-off decisions of these patterns. The resultant discrimination is, however, very hard to prove, and those who feel the rough side of discriminatory practices are reluctant to challenge them and become marked as “troublemakers.”
Medicare for All would set employers’ and employees’ future premiums without regard to gender or age, resulting in nondiscriminatory insurance rates and employment. That’s good for women and older people — and good for the economy. Increased employment expands the numbers contributing to Medicare and Social Security and — indeed — the output of the economy.
Medicare-for-All also means the end of refusing coverage for pre-existing conditions, so typical of private insurance. In contrast, Massachusetts’ “reform” law permits delaying coverage for pre-existing conditions.
We Can Finance Medicare for All By Pooling What We Already Spend
With Medicare-for-All, medical care providers and insurers would save huge amounts on billing. Those sums can be shifted to treating more people and to pay for types of medical care not now covered by Medicare and typically excluded or extremely limited by private plans — most notably vision, hearing, and dental treatment. Any health care personnel displaced by the change to Medicare-for-All should have preference for retraining.
The expansion of coverage would create new jobs for insurance workers and put dollars already being spent to better use. What a boon to individuals and families, to business and government, that would be. And wouldn’t it be a blessing to doctors, nurses, and other caregivers to devote their time and skills to doing what they are trained to do — providing preventive and healing services? Now, that’s worth discussing.
“Too Much Government” — Another “Yes, But” That Does Not Wash; Medicare for All Banishes Insurer And Employer-Sponsor Conflicts Of Interest
During the 1994 tour to drum up support for the Clinton health care proposals, a principal proponent (at a St. Louis session attended by Bernstein) dismissed single-payer plans as involving “too much government.” That argument disappears with Medicare for All because Medicare uses private insurers as intermediaries to administer the program, applying uniform regional rates promulgated by medical care cost experts; insurers provide those services at very low cost. In contrast, when insurers administer private programs, every dollar of benefits comes out of insurer profits or adds to sponsor costs. Typically sponsors seek an intermediary whose services result in the lowest outlays. Those roles pit insurers and sponsors against patients. Medicare for All eliminates those conflicts.
Lake/Herndon Reports Dissed Medicare for All With Inappropriate Focus Groups, Slanted Questions
Some “yes, buts” originated in the studies performed by Lake Research Partners for the Herndon Alliance, composed of groups advocating expanding health care coverage. For example, the key Lake/Herndon 2006 effort used focus groups in Atlanta, Georgia, and Columbus, Ohio. Columbus has long been considered the gold standard for surveying consumers’ preferences concerning things like differently colored ketchups or mustards, but the city makes an especially poor area for assessing public attitudes toward health policy, especially public programs. The Columbus area has long been marinated in anti-Social Security sentiment. The Columbus Dispatch is a famously conservative Republican advocate. The two largest state employee pension programs (the Ohio Public Employees Retirement System and the Ohio State Teachers Retirement System — headquartered in Columbus) have fiercely and volubly protected their turf against Social Security.
Beyond that, major private insurers and large banks in the Columbus area offer pension services, and they employ substantial portions of the local population. These factors result in disproportionate numbers of Columbus area natives who regard public social insurance programs as undesirable and against their interests. Obviously, it is a poor source for focus groups evaluating social insurance health care programs.
In addition, the questionnaire posed to the focus groups was slanted in favor of what it called “Guaranteed Affordable Choice” (GAC) and against “single-payer.” It defined GAC as offering health insurance for “all necessary medical services” at low contributory rates. (In 2008 correspondence, the Herndon Group president noted that its cost estimates did not cover the promised subsidies and called both the employee and employer contribution rate used in the questionnaire as an “understatement” and “an underestimate.”) In contrast, the single-payer proposal was described as “government-financed [and] . . . financed by tax dollars for a comprehensive set of medical services.” There was no mention that the GAC proposal elsewhere in the questionnaire cited taxes as its source of funding. So the questionnaire made it sound as if GAC would cover more medical services and that “single-payer” would require taxes, without specifying that GAC also would be tax-financed. It bears comment that the questionnaire used “single-payer,” a formulation with less appeal than “Medicare-for-All.” The 2006 report cautioned advocates of expanded health care coverage about “Skepticism Toward Gov’t, Social Security, Medicare” (page 62). Yet an almost contemporaneous survey by Lake Associates for a different group (the American Academy of Family Physicians) reported that 77% of those surveyed placed “Protecting Social Security” among their highest priorities.
Medicare-for-All — The Most Practical Health Reform Option
To date, Medicare-for-All has been framed, incorrectly, in ideological terms. In reality, Medicare-for-All is the most practical reform option. It would greatly reduce non-benefit outlays and lessen employment discrimination. Those features should translate into powerful political support.
Our economic situation requires that we pursue less wasteful policies; reducing health care costs that exceed what other developed nations spend heads that agenda. We need the economies of Medicare-for-All as much for the well-being of American enterprise as for the adequate medical care of our people. We can no longer tolerate a health insurance nonsystem that costs too much, protects too few, and offers too little. Medicare-for-All makes a lot of sense, and no health care reform symposium or national debate should ignore it.
3 Responses to “Medicare-for-All: Why We Should Say Yes, Not “Yes But”“
Kip Sullivan Says:
September 5th, 2008 at 4:03 pm
Simpson says it’s “incredibly dishonest” to say Medicare’s overhead is “lower” (than that of health insurance companies, presumably). Simpson’s statement ignores the facts, and is illogical.
First the facts.
According to the latest annual report of the Medicare board of trustees (these reports are required by law), Medicare spent $431.5 billion dollars in 2007. Of this amount, $6.3 billion was administrative expenditures (or overhead). If we do the math, we determine that Medicare’s overhead was 1.5 percent of its expenditures. Other data presented in the trustees report indicate Medicare’s overhead was about 2 percent throughout this decade, about 2 percent during the 1990s, and about 3 percent in the 1980s.
During the last three or four decades, the comparable figure for health insurance companies has been 20 percent while the comparable figure for self-insured firms has been about 10 percent. I think it is safe to say all reasonable people would agree that 2 percent is “lower” than 20 percent and 10 percent.
Even if you didn’t know these figures, your common sense tells you Medicare’s overhead costs have to be lower than the insurance industry’s. Medicare spends little or nothing on a variety of administrative activities that insurance companies spend substantial sums of money on, including:
- marketing;
- underwriting (which means doing the research necessary to determine applicants’ health histories and whether to insure them and if so at what price);
- making routine use of “utilization review” (aka telling doctors how to practice medicine);
- restricting patients’ choice of provider (it costs money to assemble “networks” of providers that include some providers and exclude others);
- lobbying;
- financing costly salaries and perks for executives; and
- financing profits.
(I consider profit to be a subset of administrative costs, others don’t. Insurance companies typically allocate 3 to 5 percent of their revenues or expenditures to profit.)
Among experts who publish in peer-reviewed journals, the 2-percent figure for Medicare is widely (probably universally) accepted. I offer two examples of expert opinion from the conservative side of the health care reform debate: the Lewin Group, and a coalition of organizations and individuals that signed an open letter to Congress in 1999.
The Lewin Group is a consulting firm which is on record criticizing single-payer proponents. It often makes unjustifiably favorable assumptions about the cost-cutting abilities of health insurance companies. It was purchased by United Health Group last year. It uses the 2-percent figure to estimate Medicare’s overhead costs and the overhead costs of Medicare-like systems (cf the Lewin Group’s reports for the states of California and Colorado).
In 1999, a coalition of conservative and middle-of-the road groups and individuals signed an open letter to Congress begging Congress to raise Medicare’s administrative spending level to the level “found in the private sector” so that Medicare would be better equipped to function like a managed care insurance company. The coalition included the Heritage Foundation, the former Health Insurance Association of America (the trade group that represented the non-HMO wing of the health insurance industry), the American Enterprise Institute, the Concord Coalition, and Wellpoint Health Networks.
This coalition stated that Medicare’s overhead was less than 2 percent. Here is how they put it: “The latest report of the Medicare trustees points out that HCFA’s administrative expenses represented only 1 percent of the outlays of the Hospital Insurance trust fund [which finances Part A] and less than 2 percent of the Supplementary Medical Insurance trust fund [which at that time financed Part B]” (Heritage Foundation et al., “Open letter to Congress and the executive: Crisis facing HCFA and millions of Americans,” Health Affairs 1999;18(1):8-10, 8). Obviously, the average of these two trust funds comes to less than 2 percent.
Now that the basic facts are in front of us, let’s examine Simpson’s strange logic. It is strange in two ways.
First, Simpson assumes undetected fraud is a problem only for Medicare. It is in fact a serious problem for all health insurers, public and private. The US GAO has estimated that fraud eats up 10 percent of all US spending on health care. A national coalition against fraud, which includes US health insurance companies, puts the total at closer to 3 percent. Whatever the accurate number, fraud is occurring at epidemic levels, and it is afflicting private-sector insurers as well as public insurers. If we’re going to charge Medicare with higher-than-reported overhead costs because Medicare is not immune to fraud, then we must do the same for private insurers. If we do that, Medicare’s low overhead costs remain low vis a vis the insurance industry’s overhead costs.
But Simpson’s proposal that we raise our estimate of an insurer’s overhead by the amount by which the insurer is defrauded is irrational, arguably delusional. We may all fervently wish that public and private insurers spent enough money to eliminate fraud. (I am as upset as Simpson is by the Bush administration’s devil-may-care attitude about private-sector corporations ripping off the taxpayer, be it wheelchair manufacturers defrauding Medicare or Halliburton defrauding the Pentagon.) But our wishes can’t change reality — our wishes can’t change what Medicare or any other insurer actually spent on fraud detection in 2007 or any other year.
But just to humor Simpson, let’s follow his odd logic to its conclusion. Let’s raise Medicare’s overhead costs and total spending by the $2.8 billion in fraud that Simpson says Medicare failed to detect and see what happens to Medicare’s overhead ratio, and let’s for kicks just totally ignore fraud committed against the private sector. Total spending for Medicare in 2007 would rise to $431.5 + $2.8 = $434.3. Administrative spending would rise to $6.3 + $2.8 = $9.1 billion. Medicare’s new Simpson-style overhead ratio is no longer 1.5 percent but is instead 2.1 percent, still far lower than the comparable figure for health insurance companies or even self-insured firms.
I won’t return Simpson the favor of calling him “incredibly dishonest” because he got his facts so wrong. I will say I think he wrote a very sloppy post.
Merton Bernstein Says:
August 29th, 2008 at 11:51 am
One cannot judge the efficiency of Medicare by the actions - and inactions - of the Bush administration which is so antagonistic to social insurance. The assessment which Simpson cites is typical of that administration - making baseless claims of achievements that are bogus. Just call it another “Mission accomplished”.
Brian Simpson Says:
August 28th, 2008 at 11:39 pm
Can we please stop repeating this incredibly dishonest line about Medicare having lower overhead? They have lower overhead because they do not police fraud as effectively as they should. According to a New York Times article (not exactly a small government newspaper):
Quote:
But according to a confidential draft of a federal inspector general’s report, those claims of success, which earned Medicare wide praise from lawmakers, were misleading.
In calculating the agency’s rate of improper payments, Medicare officials told outside auditors to ignore government policies that would have accurately measured fraud, according to the report. For example, auditors were told not to compare invoices from salespeople against doctors’ records, as required by law, to make sure that medical equipment went to actual patients.
As a result, Medicare did not detect that more than one-third of spending for wheelchairs, oxygen supplies and other medical equipment in its 2006 fiscal year was improper, according to the report. Based on data in other Medicare reports, that would be about $2.8 billion in improper spending
End quote
$2.8 billion dollars in improper spending blows that 3% administrative costs sky high. That much widespread abuse of a system doesn’t exactly instill confidence in Medicare as a prescription for all.