This post is part of our Eighth Annual Health Law Year in P/Review symposium. You can read all of the posts in the series here. Review the conference’s full agenda and register for the event on the Petrie-Flom Center’s website.
By Joseph Antos, American Enterprise Institute
Health spending in every major developed country is substantially below that of the U.S., and measured health outcomes appear to be better. Progressives have jumped to the conclusion that adopting single-payer health care would yield a simpler system in which everyone is covered, costs are reduced, and outcomes are improved. The truth is far more complicated.
Most other countries have a mix of public and private coverage. One size does not fit all, even in Europe. The government is the predominant purchaser of medical services in Canada and the U.K. In France and Australia, the government is the primary purchase but many people purchase private supplemental coverage. The government subsidizes individually-purchased insurance in Germany, the Netherlands, and Switzerland. Germany relies on employer coverage, akin to employer-sponsored coverage in the U.S.
Adopting single payer will not guarantee substantially lower health spending. Other countries adopted systems after World War II when they were spending 2 or 3 percent of GDP on health. They used price controls and rationing to limit spending growth since then. Bringing costs down is much more difficult than not letting them rise in the first place. Sen. Elizabeth Warren essentially admits that even holding payment rates to Medicare levels—about 40 percent less than commercial rates—health spending would not be significantly lower under her Medicare for All (M4A) plan than projected under current law.
That assumes Congress would allow Medicare prices to remain on their current downward trajectory. History teaches otherwise. The Sustainable Growth Rate (SGR) was enacted in 1997 to limit the growth of Medicare physician spending by controlling payment rates. Congress allowed a 4.4 percent rate reduction in 2001, but subsequently over-rode the formula until 2015 when the SGR was repealed. A similar pattern can be expected under single payer: initial price restraint followed by legislated increases in response to complaints from provider groups and patients. Politics, not formulas, drive payment policy in Washington.
Free health care is very expensive—and hard to get. Sen. Bernie Sanders’ M4A plan, cosponsored by Sen. Warren and other leading Democrats, eliminates all cost-sharing and adds coverage for dental, hearing, and long-term care services. No other country offers such expansive benefits, for good reason. At zero cost to consumers, demand for many services would skyrocket and waiting lines would lengthen. Providers, faced with substantial income losses under the government’s fee schedule, would try to recoup by delivering more services under the unmanaged fee-for-service system imagined by single-payer advocates. However, over the long term, lower income potential under M4A also will deter younger people from entering the medical field and discourage capital investment that fuels medical innovation.
Health outcomes will not necessarily improve. Access to appropriate medical services is one of many factors affecting a nation’s health outcomes. Unlike most European countries, the U.S. has a large, economically and demographically diverse population which makes it more difficult to manage health outcomes. Health status depends on personal behavior and numerous social determinants—including availability of adequate housing, neighborhood conditions, economic opportunities, and other factors outside the health sector. Cross-national comparisons of health indicators are unreliable guides to the performance of our health care system. Expanding insurance coverage does not by itself determine the health of the nation.
A “public option” eventually becomes mandatory. Americans like the idea of having access to a federal plan without being forced to drop their current coverage. A public option would only be attractive if it offered generous benefits and wide access to providers at a lower cost than private plans. That means paying providers substantially less than commercial rates and imposing a participation requirement—typically, requiring providers who have Medicare or Medicaid patients to accept the public option as well. A public option can work, but only because the government puts its thumb on the scales. Without the power of government regulation, private insurers would lose their customers to the public plan that is effectively more heavily subsidized through price controls.
System reform should build on—not tear down—our mixed public/private system. A bipartisan strategy to slow health spending growth, increase insurance coverage, and promote value over volume in health care would pursue a series of policies aimed at correcting specific problems in the way care is financed and delivered. Real reform is an ongoing process, and it is more likely to be successful if solutions are developed in local markets rather than dictated from Washington.
Joseph Antos is the Wilson H. Taylor Resident Scholar in Health Care and Retirement Policy at the American Enterprise Institute (AEI). He is also an adjunct associate professor of emergency medicine at the George Washington University and Vice-Chair of the Maryland Health Services Cost Review Commission. Prior to AEI, he held senior positions at the Congressional Budget Office, the U.S. Department of Health and Human Services, and other federal agencies. His Ph.D. in economics is from the University of Rochester.