Welcome to Guest Blogger, Ken Terry.   We are pleased to introduce Ken who served as the senior editor of Medical Economics for 14 years.  He is currently a freelance writer and the author of Rx For Health Care Reform.  

Cheers and more later.  Kathleen

Medicare For All Is No Silver Bullet

By Special Guest Blogger, Ken Terry, author of Rx For Health Care Reform

Single-payer proponents received support from an unexpected source last week, when a survey published in The Annals of Internal Medicine reported that 59 percent of physicians now favor national health insurance—a 10 percent rise from 5 years earlier. Considering the recently announced support of the American College of Physicians for a single payer system as a possible reform model, it would seem that physicians, if not the AMA, are finally fed up with the current system and would rather work for the government than for the insurance companies. That’s a sea change, and a sign of the times.

But even though a majority of the public also wants national health insurance, don’t expect a single payer system to emerge, even if a Democratic Congress and a Democratic President are elected next year. The consensus among health policy experts is that turning over such a big percentage of the economy—16 percent at last count—to the government remains a political non-starter. Aside from the massive new bureaucracy that this would entail, insurers, employers, and pharmaceutical companies, among other powerful interests, would oppose it.

Equally important, “Medicare For All”—as the single payer advocates term their system—would not guarantee universal access to good, comprehensive health care. The reason is that unless the government imposes a cap on health spending—which it has never been able to do with Medicare—cost growth would quickly outstrip our ability to pay for universal health care. 

The problem with most liberal reform proposals, including those of the Democratic candidates, is that they stress coverage expansion more than cost control. And when you pattern a new health care system after Medicare, you’ve got a really big problem: Medicare is scheduled to go broke by 2018. As health economists Victor Fuchs and Ezekiel Emanuel have pointed out, we’d have to either halve benefits or double Medicare taxes to put it back on the road to long-term solvency. 

But the single-payer people are enthralled with the simple, uplifting message of Medicare For All. After all, they point out, seniors are very satisfied with Medicare. And look at its low administrative costs. In The Huffington Post, for example, Miles Mogulescu recently estimated that a single payer system could save $400 billion a year just by reducing the costs of administering insurance. That would be more than enough to cover the uninsured.

He’s right on the latter point; but in actuality, a single payer system would save only about a third as much as he says (though still nearly enough to cover the uninsured). Mogelescu claims that insurance companies spend 30 percent of premiums on “overhead, profits, and executive salaries.” In actuality, the insurance industry spends roughly 85 percent of its revenues on patient care. If administration costs Medicare 3 percent of revenue, and private insurers, 15 percent, moving to single payer would save 12 percent of the cost of private coverage, which represents about a third of total health costs. By reducing the work of dealing with multiple plans, providers would probably save another 5 to 7 percent of the amount they receive from private insurance. So we’re looking at total savings of 17-19 percent of a third of health costs. At our current spending level of about $2.2 trillion, that comes to $132 billion a year.

Mogulescu makes another interesting observation: He notes that we shouldn’t expect the public plans included in the Obama and Clinton reform proposals to lead to a single payer system, because Medicare is so expensive.
”If this plan is modeled on Medicare, it would be a fairly generous plan in which you can choose your own doctor, in which most treatments your doctor recommends are covered, and in which deductibles and co-pays are low. Even with reduced administrative costs, this would be expensive insurance. Private insurance companies would offer lower cost policies with high deductibles and co-pays. This would lead to what's called ‘adverse selection’. The young and healthy would opt for the cheaper plans. Mostly older and sicker people would opt for the public plan. Far from slowly evolving into a single payer system, the Medicare-like plan is likely to become increasingly expensive, making it even less affordable and forcing more and more people back to bare bones private insurance.”

Again, he’s probably right, but here’s my question: If Medicare costs so much today, how does it become less expensive if it covers everyone? The underlying growth in health costs that’s chiefly responsible for driving up private insurance rates would continue to increase the costs of Medicare, as well. We could control spending by adopting the kind of top-down budgeting that’s done by the U.K.’s National Health Service and Canada’s provincial governments. But it’s unlikely that Americans would accept that method of rationing care, especially if it were introduced overnight.

Some observers claim that Medicare does control costs better than private insurers do. The government program has a fee schedule for physicians, and it pays hospitals fixed amounts based on “diagnosis-related groups” of services. But in fact, neither payment method has had much effect on restraining cost growth. In response to Medicare’s fee limits, physicians have pushed up the volume of services, and Congress has declined to cut their fees to compensate. Hospitals have also become very creative about billing for higher-reimbursed DRGs over the past 20 years. And the availability of Medicare payments has spurred a major expansion in ambulatory surgery centers, imaging services, dialysis centers, and specialty hospitals.

During the period from 1970 to 2000, researchers Cristina Boccuti and Marilyn Moon found, the costs of private insurers grew slightly faster than those of Medicare for comparable services. But from 2002 to 2005, according to the CMS Office of the Actuary, the average annual cost of private coverage grew by 7.7 percent, much less than the yearly increase of 9 percent for Medicare. (And that was before the addition of the Medicare drug benefit in 2006.) Of course, private insurance rates include administrative costs, too, but there’s no indication that the latter changed significantly during those three years.

The bottom line: we shouldn’t expect Medicare For All to reduce health costs. That should come as no surprise, considering that countries with national health insurance are also struggling with rising costs. But if we don’t want to slap a cap on all health-care spending, which would lead to a degree of rationing that most people would find intolerable, what can we do?

The short answer to this question—which I hope to explore in future articles—is that we need to overhaul the financing and delivery of health care. The financing changes are necessary to achieve universal coverage and to provide the right incentives to health-care providers. But we also need to restructure the delivery system in ways that will guarantee that care is patient-centered, coordinated, integrative, uniform, and reliable. These are some of the principles of what I call “deep reform.”

Deep reform goes beyond the options for coverage expansion that now form the substance of debate over health care reform. It includes ideas that are common to reformers on the left and the right, and it provides a new way of thinking about those ideas so that people who want a better health care system can build bridges across partisan divides.

Let’s start thinking about how deep reform can affect everything that health care providers do, how they work, and how they communicate with one another and with patients. When we start looking at the problem in this manner, I believe we can make significant progress within a short time.

Ken Terry is a freelance writer and the author of the book Rx For Health Care Reform.