Medicare for All has become a core campaign issue for Democratic candidates this year. They just might win with it — if they can show how they could realistically pay for it. With the election coming soon, it is time to think about what Medicare for All actually means, not just as a slogan, but as someting that could actually be made to work.
For many, Medicare for All it means a something like the Sanders plan, under which everyone would get first-dollar coverage for every kind of medical expense from a single government agency. For others, it means something much more modest, like adding a government option, modeled on Medicare, to the plans offered by ACA exchanges. This post outlines something in between — a practical and affordable version of Medicare for All that is consistent with the goals of protecting everyone against the threat of ruinous medical expenses, ensuring that everyone pays their fair share of the cost, and making health care efficient, and consumer-friendly.
What we can we learn from other countries?
Some who support Medicare for All seem to think that all America needs is do is adopt the kind of single-payer health care that other rich democratic countries already have. After all, as shown by the following chart, based on data from the Commonwealth Fund, U.S. health care performs less well, yet costs more, than the best systems in other high-income countries.
Is there something the health care systems of all those other countries have in common, something that we can learn from? Yes. Is that something a single-payer model? Not really. If we take even a superficial look at the three top-ranked countries in the Commonwealth study, we find that they are less comprehensive, less centralized, and much more diverse than many Americans suppose.
- The British National Health Service (NHS) provides a wide range of services without charge, but its English, Scottish, Welsh, and Northern Irish branches operate with considerable autonomy. Within the English NHS, administration and policy are further decentralized into more than a hundred NHS Trusts. Furthermore, the NHS does not pay for everything for everyone. For example, it requires most people to make copayments for prescription drugs and dental care, although charges are waived for people who cannot afford them. The UK also has a small but flourishing private health care sector that caters to people who choose not to use the NHS. All in all, the government pays 79 percent of all health care expenses — much more than in the United States, but only the twelfth-highest percentage in the OECD.
- In Australia, ranked second-highest in performance by the Commonwealth Fund, the federal government provides much of the financing, but plays a more limited role than the British NHS in the actual delivery of services. Additional funding comes from state governments, which are responsible for public hospitals, ambulance services, mental health, and some other services. Local governments provide community and preventive health services. Out-of-pocket payments account for 18 percent of total health care spending. Nearly half of the population has supplemental private insurance to help cover deductibles and copays, and also to get shorter waiting times and a greater choice among providers. Overall, government at all levels covers 68 percent of total health care spending.
- The Netherlands, ranked third by the Commonwealth Fund, has a different system still. It covers about the same share of total health care costs as the UK, but it is even more decentralized. Rather than having a single national insurance fund, the Dutch system relies on mandatory purchase of private health insurance. Tax-financed subsidies keep premiums low, but some services are subject to deductibles and copays. Additional subsidies are available to people with low incomes, so that coverage is kept affordable for everyone.
Other countries in the Commonwealth study use variants of these three models. None has a true single-payer system. What they do have in common that earns them such high ratings is universal, affordable access to basic health care. That is the goal that we should focus on if we want America to join the club. Then we are ready to think about designing a system that borrows from the best practices of others while recognizing unique American circumstances.
Paying a fair share
Let’s start with the need for everyone to pay a fair share. One way to do that is to redistribute the burden of health care costs through taxation. For example, the Sanders version of Medicare for All calls for new taxes on employers, an income-based premium for individuals, and increased tax rates for high-income households.
That approach is conceptually workable, but it is not the only way. An alternative approach, known as universal catastrophic coverage (UCC), uses income-based deductibles to distribute the burden of health care costs. In that way, it ensures that no one ever has to forego medical services because of they can’t afford them, while asking those who can to pitch in.
Under a UCC version of Medicare for All, everyone would automatically get coverage similar to today’s Medicare or Medicare Advantage policy, with no premium and no copays. For families below the poverty level (about $25,000 for a family of four), the deductible of the policy would be set at zero. For others, it would be set as a percentage (say, 10 percent) of the amount by which household income exceeds the poverty threshold. For example, a middle-class family of four earning $75,000 of income might face a deductible of $5,000. A similar family with an annual income of $1 million might have a deductible of $97,500, which they might decide to cover, in part, with some form of supplemental insurance.
Careful cost analysis shows that such a program could be fully funded using money that the federal government already spends on health care through the ACA, Medicare, conventional Medicare, and the tax expenditures that subsidize employer-sponsored insurance. No new taxes would be required at the federal level.
Which way is better?
In principle, the tax formulas of a Sanders-type Medicare for All plan and the deductibles of a UCC version could be tweaked to produce exactly the same average burden on households at each level of income. In that sense, neither version is inherently more “progressive” than the other. But even so, there are two reasons to prefer the UCC approach.
One is that using deductibles rather than taxes to achieve a fair distribution of the economic burden of health care would help to control administrative costs — a major factor that drags down the U.S. system in international rankings. A plan like Sanders’ would have to collect billions of dollars in taxes from wealthy Americans and then give a large part of them right back in the form of generous health care benefits . That would be a colossal waste of administrative effort.
Incentives for more careful healthcare shopping are a second point in favor of deductibles. Studies show that when pricing is transparent and consumers can make informed choices among providers, they spend less. Of course, even under a UCC version of Medicare for All, not everyone would be a careful shopper all the time. Some people might be too stressed by their health problems to shop around and others just might not care. However, much the same can be said about shopping in a supermarket. Even if comparison shoppers are a minority, they create competitive pressure to keep prices down and quality up.
Market incentives would work better still if they were backed by a full range of administrative cost control measures — another feature that the best health care systems of other countries have in common. That would be true as much for a UCC version of Medicare for All as for a pure single-payer version.
Looking beyond the campaign
During the campaign season, the very ambiguity of Medicare for All could play well for Democrats. Behind the scenes, though, someone is going to have to draw up a specific plan. Insisting on a pure single-payer version would not mean learning from the experience of other countries, but rather, rejecting their experience. Instead, why not put together a version of Medicare for All that would be pragmatic and affordable but would still protect everyone against the threat of ruinous medical expenses, ensure that everyone pays their fair share of the cost, and makes health care efficient and consumer-friendly?
A longer version of this post is available at NiskanenCenter.org