A doctor explains the 3 essential features Medicare for All must have — and 2 serious distractions

by Dr. Caroline Poplin

Medicare for All became the unexpected flashpoint in the first Democratic primary debates. There are analysts who believe it can cause the Democrats to lose another election they should win.

I am a primary care physician, an attorney (I prosecute Medicare and Medicaid fraud), a patient, until recently a daughter-caregiver, and now a Medicare beneficiary myself. Medicare saved my family from financial distress when my father, who worked hard, played tennis every week and (reluctantly) ate right, was terribly sick for his last ten years from a disease he inherited.

From the time I finished medical school in 1991, I have been a fan of Medicare for All.

Properly implemented, it will be as popular—for many, a godsend—as original Medicare has been since 1965.

As I see it, there are three essential elements to a successful Medicare for All program, and two distractions, which are causing considerable concern and unnecessary opposition.

The Three Essential Elements of Medicare for All

The three essential elements of Medicare for All are, first, a single, comprehensive plan covering all medically necessary services, including prescription drugs, hearing aids, glasses, and so on with an annual out-of-pocket maximum. Second, all institutional providers—hospitals, skilled nursing facilities, nursing homes, etc.—must be nonprofit. Third, federal price controls must be extended from those which currently cover physicians (“Resource-Based Relative Value Units”) and hospitals (“Diagnosis Related Groups”) to most other medical services. Why? Today’s market-based systems have failed to reduce prices, the most important driver of excess U.S. health care spending. At the same time, current markets for health care insurance and services impose high transaction (administrative) costs that add no value but much hassle for consumers.

A Single Comprehensive Plan Covering Everything Medically Necessary

Behavioral economists have come to understand why choosing a health insurance plan is much harder and more unpleasant than buying, say, automobile insurance (which even so is tightly regulated by the states). Choosing car insurance requires an owner to consider only a few variables with which she is likely familiar: how much her car is worth, how much she needs to use it, how much it would cost to repair, how much she can afford to pay.

Identifying a suitable health plan couldn’t be more different. A 2019 National Bureau of Economic Research paper explains why choosing a health plan is so frustrating: wise choices are particularly difficult when decisions “involve uncertainty, tradeoffs between current and future costs and benefits, or significant complexity”—and, I would add, significant expense and risk. Americans dread having to “shop” for health plans every year.

Medicare beneficiaries, on the other hand, are confident that almost everything medically necessary is covered, except glasses, hearing aids, drugs, and home health services. Medicare for All will be tweaked so that everything is covered.

Having a “choice” of dozens of different plans with different sponsors, restrictions, premiums, co-pays, and deductibles adds considerable expense to our health care system—the cost of setting them up, costing them out, advertising, explaining, negotiating with providers—without adding any value to patient care. Americans will save money by eliminating them, and instead allowing a choice of any qualified provider.

Yes, insurers will eventually need to find different markets, but companies in a dynamic capitalist economy must expect “creative destruction.”

Nonprofit Institutional Providers

The second requirement of Medicare for All is that all institutional providers, like hospitals, nursing homes, and “Accountable Care Organizations,” be strictly nonprofit.

Yes, it is true (and analysts have demonstrated) that for-profit hospitals and nonprofits often look very much alike. That may be because they are often competing for the same patients, the profitable ones—for the nonprofits, it’s “no money, no mission.” Their margins are slimmer than the for-profits’ and they fail more easily, leaving needy patients with no health care at all. Nonprofit providers of medical services must plow any extra “margin” back into their mission. Other regulations restricting nonprofits need to be energetically enforced.

Why no for-profits? The missions of medicine and business are different.

The mission of medicine, since time immemorial, is to care for the sick: “to cure sometimes, to relieve often, to comfort always.” (Note, it is not population health; that is the mission of public health, and primarily a function of the so-called social determinants of health—housing, jobs, education, environment, and social supports—that is, your zip code, not your genetic code.)

Compare the goal of business. Since 1980, American business (and the stock market) has become serious about Nobel laureate Milton Friedman’s directive: the sole purpose of a corporation is to “maximize shareholder value.” Active investors punish corporations that don’t cut costs to the bone. Worse, private equity investors are moving into health care. They have an “extractive” model, which strips an acquired company of all its valuable assets, levers it up with debt, and sells what remains back into the public market.

At the end of the day, health care is just another business, says Leemore Dafny, the Bruce V. Rauner Professor of Business Administration at Harvard Business School.

Unfortunately, the sponsors of the ACA bought into this for-profit model. There is little persuasive evidence that business models have improved care. But the consolidation of hospitals into large chains, the “requirement” for expensive health IT, metrics and analytics, and the vast expansion of administration to manage all that have increased cost, increased price and moved decisions from the bedside to the C-suite.

Price Control—by Negotiation or Regulation—Your Choice

For years, insurers, hospitals and other large institutions have convinced almost everyone (including Congress and the Obama administration) that it is fee-for-service—paying doctors separately for each service they provide—that drives U.S. health care costs into the stratosphere: greedy doctors order or perform unnecessary, even harmful, services, and heedless patients covered by insurance go along. The solution: force doctors to produce “value” instead of “volume” by paying only for “high value services,” or, better still, paying a fixed amount per patient, “capitation.” If the capitated fee doesn’t cover everything a sick patient needs, well, that’s the doctor’s problem.

However, total cost of a set of products or services is determined by two factors: volume, multiplied by price.

In 2003, a small group of highly respected economists, including the late Professor Uwe Reinhardt from Princeton University and Professor Gerard Anderson from Johns Hopkins School of Public Health published a significant paper: “It’s the Prices, Stupid: Why the United States Is So Different from Other Countries.” The paper was largely ignored. The authors showed that utilization was not much different in the U.S. than in other OECD countries. This year, the remaining authors published another paper confirming their initial findings. In addition, they found that the price problem is now much worse for private insurers than the public sector. To reduce costs, they conclude “U.S. policy makers should focus on prices in the private sector.” To see just how outrageous market prices can be, read An American Sickness by Elisabeth Rosenthal, M.D., head of Kaiser Health News, or consider the rapidly rising prices of prescription drugs, both new and old, like the EpiPen, first approved by the FDA in 1987. (It costs $30 to manufacture.) It is lifesaving for someone in anaphylactic shock. Mylan raised the price from $100 per two-unit pack in 2007 to $600 in 2015.

Health policy leaders believe that the way to get prices down to cost of production is market competition. However, that only happens in a perfectly competitive market: that is, easy entrance and exit, perfectly transparent to all sellers and buyers, indistinguishable product, no one on either side with market power. It works for groceries and gasoline; it doesn’t work in medicine.

In fact, medicine is the exact opposite of a perfect market. The array of wildly different prices for the same service, even in the same hospital, depending on one’s insurance carrier and one’s plan, demonstrates that fact. Uninsured patients pay the full sticker price. Each insurer negotiates prices with each network hospital. The result depends on relative market power, not cost.

This system cannot be unwound—it is the result of monopoly power. The fairest thing to do—and an excellent way to reduce costs—is to regulate, or negotiate the prices of everything covered by insurance wherever there is not true price competition. No more $15 for a single Tylenol pill.

Organized medicine will object that the current Medicare fees for physicians are too low, and physicians will leave medicine. Yes, it is true that some fees are too low, particularly for cognitive services, such as office visits (not just primary care, but oncologists, rheumatologists, and endocrinologists; telephone calls are “free”). But other fees are too high, especially for surgery and procedures, so we get too few cognitive visits, and too many procedures. This can, and should, be fixed administratively, with due process for all.

Two Serious Distractions

There are two serious distractions to a successful Medicare for All program. They are related.

First, and most important, there is no reason to force everyone to give up their employer-sponsored insurance in four years (as in H.R. 1384). Medicare and employer-sponsored insurance have coexisted since 1965 without a problem; requiring such a rapid transition without adequate preparation would cause tremendous disruption—not to mention massive opposition—without serving any important purpose. The existing Medicare risk pool is large enough to accommodate a more gradual transition.

Employer-sponsored insurance works reasonably well because large employers have market power and benefit expertise sufficient to counter that of insurers. Nonetheless, employer-sponsored insurance has been declining for more than 40 years, covering a smaller percentage of non-elderly Americans each year. It has also become steadily less attractive: as employers shift rising health care costs onto employees, workers are paying higher premiums and higher deductibles, so high in some cases that employees cannot afford to use their insurance because they cannot meet the deductible (average for a family in 2017: about $3,400). At the same time, benefits packages shrink.

It is likely that employer-sponsored insurance will continue to decline, and workers will be more comfortable switching as they watch the new program work.

Second, Americans may also worry about losing the employer contribution to their health insurance premiums, about 70 percent (although employers get a tax deduction, so there is a federal contribution also). Insurance premiums in the ACA exchanges are lower, but families with incomes above 400 percent poverty must pay the whole thing—no subsidies for them. ACA premiums may be twice what they pay for employer-sponsored insurance.

No wonder people are concerned.

However, Medicare for All, like current Medicare, is social insurance, not private commercial insurance. Indeed Medicare is part of the Social Security Act. Everyone pays, everyone benefits. As with Social Security, all employers (including those who do not currently provide insurance for their employees) would pay an additional payroll tax for employees. Individual taxes would be progressive, so by definition, affordable to all.

Medicare for All is the most efficient, cost-effective way to protect American families from risks they cannot foresee, prevent, or afford to remedy, just as Social Security prevents them from want in old age. As President Roosevelt declared in 1939: “a comprehensive health program [is] required as an essential link in our national defenses against individual and social insecurity.”

Finally, this is a free country. Those who can afford expensive private insurance should be free to do so, at their own expense (no subsidies), and must continue to pay whatever payroll taxes would otherwise apply. Private insurers must pay providers whatever they charge (even if above Medicare rates).

Conclusion

Medicare is not some exotic socialist import. It is instead the most popular government program in the country after Social Security among all Americans, even Republicans; it is as American as apple pie, and as familiar. People only worry that at some point the program will run out of money.

Good news! By reducing exorbitant prices across the board, also the extra costs associated with for-profit business and commercial insurers, Medicare for All will reduce the cost of current Medicare while expanding the benefits, and make Medicare for All sustainable.

Dr. Caroline Poplin is a primary care physician (board-certified in internal medicine) and an attorney who graduated from Yale Law School. She spent 20 years working for the federal government (FDA, EPA, DeWitt Army Community Hospital) and retired from (then) Bethesda Naval Hospital. Today, she is of counsel and medical director at Guttman, Buschner & Brooks, a specialized law firm that represents whistleblowers who allege Medicare and Medicaid fraud. She is a member of the National Academy of Social Insurance, as well as a fellow of the American College of Physicians.

This article was produced by Economy for All, a project of the Independent Media Institute.