April 02, 2020
With Joe Biden now looking like the certain Democratic presidential nominee, it is pretty clear that we will not get to Medicare for All in a single step. Even if Sanders had won it would have been a long shot, but without a president committed to the program, there is not even a possibility.
Still, we can look for ways to get to M4A incrementally, with the idea that we will make progress wherever and whenever we can. In order to do this, we need policies that can be politically feasible even without a M4A advocate leading the charge in the White House. In order to maintain momentum, these incremental steps must offer real and visible gains. They also should be stepping stones that advance us toward the goal of M4A.
With this in mind, I would recommend four policies:
- Lowering the Medicare age to 64;
- Beating down the cost of health care inputs;
- Improving the traditional Medicare program
- Allowing everyone to buy into Medicare.
Lowering the Medicare Age
Starting with the simplest, lowering the Medicare age to 64 might sound trivial, but it is likely to be a big deal politically and mean a lot to millions of people.[1] In terms of politics, there are millions of people in their early sixties with, either or both, bad health and questionable access to health insurance. For these people, hitting the Medicare age is a huge relief, since they finally know that most of their health care expenses will be covered.
Lowering the age by a year moves that date closer. For someone who is 62, it means waiting two years rather than three years. That has to sound a lot better to millions of people. And, to add an important consideration, these people vote in very high numbers. This is a change that is likely to make many people very grateful.
Lowering the age by one year should also provide a great lesson in the difficulties in extending Medicare by one year. This will roughly double the number of people who are newly enrolled in a given year. We will be able to see the difficulties in expanding coverage. Clearly, there will be some, and it will be good to know what they are with a relatively small expansion, so that we can be better prepared for a larger expansion in future years.
The expense of adding an additional year of coverage is likely to be limited, probably between $10-20 billion annually (0.2-0.4 percent of federal spending). This age group will be healthier than the average Medicare beneficiary. Furthermore, most of the people in this age group with high expenses are likely already receiving government-funded health care, either through Medicaid or already qualify for Medicare through the Social Security disability program.
This step will also show people that expanding Medicare eligibility is possible. If the age reduction is done successfully, people will inevitably ask why can’t we go further. Ideally, we would be prepared to lower the age to 62 or 60 in a relatively short period after the successful completion of a simple one-year reduction.
Also, from a political perspective, a one-year reduction in the age of eligibility may be the sort of step that a centrist Democrat like Joe Biden might be persuaded to try. And, in terms of getting this through the Senate, one could imagine a Joe Manchin going along with it.
Getting Health Care Input Costs Down
While the administrative costs and profits associated with our private health insurance system are a source of enormous waste, the fact that we pay twice as much for everything as people in other countries is an even larger source of waste. This is true pretty much across the board, we pay twice as much for our drugs, twice as much for our medical equipment, and twice as much for our doctors. If we got these costs in line with what other countries pay, the savings would be in the neighborhood of $350 billion to $400 billion a year, or $2,700 to $3,000 per family.
The story with drugs and medical equipment is straightforward; we give these industries patent monopolies and then allow them to charge whatever they want. By contrast, every other wealthy country imposes some sort of price control or negotiates prices with these companies. If we did the same in the United States, we would pay similar prices.
However, we can and should go much further. The patent monopoly system is an incredibly inefficient mechanism for supporting innovation, especially in the health care sector. None of the normal logic of the benefits of consumer choice applies here. There almost always is a third-party payer for drugs or medical equipment (either the government or an insurer) so the idea that we are somehow measuring consumers’ willingness to pay is basically nuts. What drug companies can get away with charging is overwhelming a political decision.
Furthermore, there are enormous problems of asymmetric information. The drug companies know far more about their drugs than patients or doctors. Patent monopolies gives them enormous incentives to conceal evidence that their drugs are less effective than claimed or even harmful. We see this all the time, most obviously in the case of the opioid crisis where drug manufacturers deliberately misled doctors about the addictiveness of their drugs. The costs in terms of needless deaths and ruined lives has been enormous. The opioid example is an extreme case, but misrepresenting evidence to promote sales is standard practice. These are the sort of abuses that anyone who took an intro econ course would expect when the government creates a monopoly in a market.
There is an alternative to patent monopoly financing of research. The government already spends more than $40 billion a year in biomedical research through the National Institutes of Health. We can double or triple this amount to replace the $70 billion or so of patent-supported research done by the industry.[2] Under a publicly funded system, private drug companies could still do the research, but the condition of getting money is that all research is made fully public as soon as practical (the model here is the Bermuda Principles for the Human Genome Project) and all patents are placed in the public domain. This means that new drugs would be sold as cheap generics from the first day they are introduced into the market.
Having all research fully open should substantially hasten medical progress. Researchers everywhere in the world would be able to quickly benefit from learning of the successes and failures of colleagues working elsewhere. This would certainly be an enormous help in a case like the coronavirus where scientists researching treatments and vaccines would be sharing findings rather than hoping to win a patent race.
If all drugs were sold as generics from the first day, that would save us more than $400 billion a year. If we had the same practice with medical equipment and supplies the savings would rise to around $600 billion a year, more than 15 percent of health care spending. In addition to yielding enormous savings, having these items sold in a free market would change the way medical practitioners thought about their work. There would be no reason ever to not use the best drug or recommend the best scan for a patient when the cost differences would be trivial.
Drugs are rarely expensive to manufacture and the same is true of medical equipment. Why wouldn’t a doctor prescribe the best drug if it carried a price tag of $20 or $30, rather than $20,000 or $30,000?
The best thing about going this route is that it can be done incrementally. We could appropriate money for developing drugs in specific areas, like heart disease or cancer. The drugs produced would all be cheap and all the test results from clinical trials would be fully public. People would then be able to see that public funding could produce great innovations and that drugs are cheap. The industry could even keep patent monopolies on the research it funded. The only problem is that they may find that the new drug they hoped to sell for $200,000 is competing against a generic that is every bit as good and sells for 0.1 percent of this price.
The last major area where are prices are grossly out of line is the pay of physicians and dentists. They get roughly twice as much as their counterparts in other wealthy countries. If we got the pay of our physicians and dentists down to the levels in places like Germany and Canada we would save roughly $100 billion a year or $700 per family.
The high pay of these professionals is due to good old-fashioned protectionism. Licensing restrictions prevent competition from both qualified foreign doctors and dentists and lesser paid health professionals like nurse practitioners and dental hygienists.
The route to getting the pay for these professionals in line with their counterparts in other wealthy countries is to weaken or find ways around these restrictions.[3] Just this week, one of these restrictions was removed when the government allowed doctors who had not completed a U.S. residency program to practice here. This is a great precedent. We can have requirements that ensure competence, but allow many more doctors to practice here. We can also broaden the scope of practice rules to allow other health care professionals to carry through tasks for which they are qualified.
We can also encourage people to take advantage of lower-cost health care elsewhere. The cost of major medical procedures is a fraction of the cost in the United States. Major procedures that can cost $100,000 or $200,000 here, can often be performed for 10-20 percent of this price in places like Canada and Germany. If we allowed people to travel to these countries (with a family member) and share in the savings, it would both lead to direct savings and also educate people about the fact that people get high-quality health care in other countries for a fraction of the price here.
Are these steps at lowering input costs politically feasible? Well, the affected industries and doctors and dentists lobby will fight like crazy, but we can put them on difficult political turf. In the case of drugs, we would be starting with relatively small sums of research spending (relative to the federal budget).
The industry, which is the biggest lobbyist for NIH funding, has to claim that public funding for the development and testing of new drugs would be the same thing as throwing money in the toilet. It seems kind of hard to argue that the dollars currently spent at NIH are tremendously valuable but additional funding to support later stages of development (which already often happens with NIH funding) is a complete waste. If we do get a foot in the door with funding in some important health areas, and people can see new effective drugs selling as cheap generics, it would likely create powerful momentum for going further down this road.
The doctors’ lobby will go nuts at anything that threatens their income (the worst hate mail I ever have received has been from doctors or people claiming to be doctors), but here too we can move forward with baby steps. Are the doctors going to try to prevent people from going to other countries and take advantage of lower-cost care? That would seem to put them in an awkward position. In the health care emergency we are now facing, the federal government is allowing doctors who have not passed a U.S. residency program to practice in the United States. Assuming we don’t see bad outcomes, this could be made permanent.
Substantially lowering the income of drug companies, medical equipment makers and doctors and dentists will be a huge lift politically, but it is hard to defend government interventions that have the sole purpose of transferring money from everyone else to these groups. That is the world we see now and we should be able to find ways to incrementally move away from it.
Fixing Traditional Medicare
Many people are not aware of the extent to which the quality of the traditional Medicare program has deteriorated in recent decades. This is the direct result of efforts to sabotage the traditional Medicare program in order to drive people into private Medicare Advantage plans. Nearly 40 percent of new beneficiaries opt for Medicare Advantage. If they do go into the traditional Medicare program, most non-Medicaid eligible people buy private supplemental insurance, another money-making opportunity for private insurers.
The most immediate fix to the traditional Medicare program would be to have an out-of-pocket cap on spending. This is actually required for Medicare Advantage plans, but for some reason, no cap was ever put in place for traditional Medicare. We can start with a cap of $6,000, which is roughly the cap for Medicare Advantage. As we move towards the more comprehensive system envisioned by proponents of Medicare for All, this cap can be lowered, but the first step is simply to have a cap in place comparable to the cap for Medicare Advantage plans.
The second important fix is to roll part D drug benefits into the traditional Medicare program. Requiring a separate insurance package for prescription drugs makes little sense except as a way to force beneficiaries to give money to the insurance industry. Stand-alone prescription drug insurance plans do not exist in the private sector; it is absurd that the Bush administration insisted on going this route on 2003 as a condition of providing a prescription drug benefit.
It would also be desirable to merge Medicare Part A and Part B as part of a single system, to reduce complexity. This would require some fundamental revamping of the program (Part A is financed by the designated payroll tax, while Part B is paid partly by premiums and mostly out of general revenue), but this revamping will be necessary at some point in the movement towards Medicare for All in any case. Even if Part A and Part B are not immediately merged for current beneficiaries, they should certainly be merged for those opting to buy into the program.
Also, the scope of Medicare coverage has to be expanded to include all health care. This means adding in coverage for dental, hearing aids, and other items that were deemed less important when the program was created almost sixty years ago.
Finally, if we can’t eliminate the private Medicare Advantage plans, we should at least eliminate the effective subsidies they enjoy as a result of “upcoding” their enrollees. Medicare reimburses Medicare Advantage plans based on the health of the people they have enrolled. Recent research indicates Medicare Advantage plans systematically upcode their enrollees, implying their health is worse than is actually the case. This upcoding increases payments by as much as 16 percent.
The program should move quickly to end these excess payments. One route would be to assume that the insurers lie about the health of their enrollees and adjust payments according. For example, if the average overpayment is found to be 10 percent, then the payment to Medicare Advantage plans can simply be reduced by 10 percent.
Alternatively, improper coding of enrollees could be treated like the fraud which it is. This would mean severe civil penalties for the companies that engage in the practice and possible criminal penalties for the corporate executives that design the policy. There are plenty of people in prison for stealing cars that might be worth just a few thousand dollars. There is no reason that insurance executives, who might be stealing tens of millions from Medicare, should not face punishment that is at least as harsh.
We should also merge Medicare and Medicaid. There is no reason for the government to run parallel health care programs, one for seniors and the disabled, and one for low-income people. There will be problems with this sort of merger since states administer the Medicaid program, but this would have to be easier to overcome than a quick move to Medicare for All.
In terms of the politics of these changes, all of the improvements and simplifications of Medicare would almost certainly be hugely popular with beneficiaries. Taking away the subsidies for Medicare Advantage plan will be somewhat of a problem, as the insurers who provide these plans will fight vigorously to save their subsidies. There will also be objections by some Medicare beneficiaries to merging Medicare and Medicaid, but with enough new benefits, this can likely be overcome. It is also likely to be the case that hospitals and other providers will be very happy to see a simplification of the billing related to these programs.
Allowing a Medicare Buy-In
After putting in the fixes discussed above (which should be doable over a reasonable time frame), people of all ages should be allowed to buy into the Medicare program, so that the system competes directly with private insurers. This buy-in would be either through the exchanges, with households being able to apply whatever subsidies for which they are eligible under the exchanges, or alternatively through employer-based coverage, with employers able to pay an age-adjusted rate for their workers, as is the case now for private insurers under the Affordable Care Act (ACA).
This buy-in would serve four purposes. First, it should give every person in the country access to a decent insurance plan. A reformed Medicare plan will provide access to a large number of providers and avoid the harassment in paying claims that often proves so profitable for private insurers. It also is likely to provide an attractive option to employers who currently provide insurance for their workers. There is no reason not to allow employers to replace a private plan with Medicare, and undoubtedly many would choose to do so.
The second benefit is that it would provide a serious competitor for private insurers. This is especially important in markets where consolidation of insurers have limited the availability of plans to just one or two insurers. A reformed Medicare plan, if priced at cost, should be an attractive option everywhere.
The third benefit is that a reformed Medicare program, with a buy-in option, should have enormous market power. The existing plan, with 40 million enrollees, already has substantially market power. But if we assume that half of those currently enrolled in Medicare Advantage switch to a reformed Medicare plan, along with 10 percent of the pre-Medicare age population, the reformed Medicare plan would have almost 80 million people enrolled, or just under a quarter of the population.
Since this group includes most of the elderly and disabled, it would account for an even larger share of health care spending. If we add in 60 million Medicaid beneficiaries, we’re up to 140 million people, who would almost certainly account for well more than half of national health care spending, and far more than half in some markets.
This would be such a large share of the market that it is likely that providers in many areas would opt only to deal with Medicare in order to avoid the administrative costs associated with dealing with a variety of smaller insurers. In this way, the administrative efficiencies associated with a single-payer system can go far towards getting us there. There is no reason for providers to want to incur additional expenses to keep insurers happy.
The last advantage of a buy-in is that it would increase people’s familiarity and comfort with getting their insurance through Medicare. It would make the step to a universal Medicare program seem far less drastic.
The Multi-Step Approach to Medicare for All
It’s hard to put any precise time-frame on this sort of incremental approach. While it is desirable to move as fast as possible, taking steps for which we are not prepared administratively will be self-defeating. It could both mean that people are not getting the care they should and it will provide the foes of Medicare for All with powerful ammunition to use to block further changes.
None off the items on this list should be politically impossible, but all will face tremendous opposition. Getting to Medicare for All means confronting the most powerful interest groups in the country. If they are going to be defeated, we have to be able to put them in a position where the only thing they are arguing for is higher incomes for themselves, not the public’s health. This can be done, but it will be a long and difficult task.
[1] I’ll save folks from doing the arithmetic for the cheap joke here. If it takes us 60 years to lower the age one year then it will take us 3900 years to get universal Medicare. Of course if we insist on getting there all at once, and don’t ever have the political force to bring it about, then we will get to universal Medicare exactly never.
[2] I go through some of these numbers here. The fullest picture of my proposed alternative system is probably in chapter 5 of Rigged (it’s free).
[3] As we bring our pay in line with other countries, we should also reduce the cost of medical education here. It is either free or relatively cheap elsewhere. We should also reduce the debt that most medical school graduates accumulated in their training.
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