31 Jul 2006 Medicare for All? No Thanks, Part III

The latest on the “Medicare for All” conversation between our David Hogberg and Alternet’s Joshua Holland:

Joshua Holland argues in favor of “opening up the Medicare program to anyone who wants to enroll.” He argues that such a system would cost Americans less than our current health care system for various reasons, one of which, he said, is that Medicare has lower administrative costs than private insurers.I dispatched that argument in my last post by showing that 1) administrative costs for Medicare are in fact higher than are commonly reported, and 2) Medicare’s lack of administrative oversight results in greater costs in waste and fraud than the amount incurred by the private sector.

Now let’s move on to Holland’s other reasons why a “Medicare for All” single-payer health care system would cost less.

This passage from Holland sums up his other reasons:

Medicare costs less than private insurance across the board, not only in terms of administrative costs but also because Medicare has a huge amount of bargaining power with healthcare providers (except for Bush’s new prescription drug plan, in which lobbyists from Big Pharma prevented the government from negotiating prices).So, opening up Medicare starts a virtuous cycle (what private insurers and doctors would view as a vicious cycle). Employers would switch in a flash. Sure, they dump millions into think-tanks that bemoan the evils of single-payer healthcare, but if they’re able to have contented employees and cut costs by 30-40 percent, they will. Then there are millions, like me, who want health insurance, are nowhere near the poverty line, but still can’t afford private insurance. They’d sign up in droves, and the number of uninsured patients would decrease.

Uninsured patients often forego preventative care, and only seek treatment when they get sick and have to be treated, which results in higher costs. Lowering the number of uninsured will decrease overall healthcare expenses in the U.S. Having many more patients in the system will, in turn, expand Medicare’s buying and negotiating power, resulting in further cost reductions (which would bring still more people into the system).

First, a point of clarification. Medicare does not bargain, per se. Rather, it sets its prices for both hospitals and physicians. It does so based on various formulas. (See here for hospitals and here (part (d)(4)) for physicians.)Exactly how employers dumping their employees into Medicare will cut employers’ costs is difficult to see. It will require money for Medicare to pay for all those new enrollees, and that money won’t grow on trees. It will take the form of new taxes; thereby offsetting whatever cost savings employers might get by eliminating their private coverage. (And that’s to say nothing of businesses that don’t currently offer coverage but will have to pay new taxes to fund “Medicare for All” — their costs will go up.)

Holland may believe most of that would be offset by lower costs due to newly-insured people seeking more preventative treatments, thereby reducing larger costs down the road. An examination of our past experiences with Medicare can help us evaluate that claim.

Despite funding preventative care, Medicare can’t seem to keep its costs down. For example, the monthly premiums for Medicare Part B — which funds doctor visits and other outpatient care — have risen from $50 in 2001, to $54 in 2002, $58.70 in 2003, $66 in 2004, $78.20 in 2005, and $88.60 in 2006. Those are increases of 8%, 8.7%, 12.4%, 18.5%, and 13.3%, respectively. While the deductible for Part B stayed steady at $100 for a number of years, in 2005 and 2006 it took jumps of 10% and 12.7%, respectively.

Looking at the doctors’ fees of Part B also shows that Medicare costs are growing rapidly. The formula used to determine these fees is set so that if Medicare expenses in Part B rise too quickly year-to-year, the fees are to be cut. That is exactly what has now happened. Indeed, it is possible the fees paid to doctors under Medicare may have to be cut annually for the next ten years (after doctors protested, Congress delayed the scheduled cut for this year and may do so again next year), which inevitably would cause many doctors to stop accepting new Medicare patients just as the huge “baby boom” generation begins becoming eligible for Medicare. As David Gratzer noted in the January 26 Wall Street Journal, over 30% of American doctors already do not accept new Medicare patients.

So why doesn’t Medicare reduce health care costs? It is likely due to two reasons. First, since Medicare is a government program, the bureaucrats who run it have to find ways to hold down costs. One way is to delay the approval of payments for new procedures until it is near certain that they are cost-effective. Consider colonoscopies. It was well established by the early 1990s that colonoscopies were good for preventing colon cancer. Yet, it wasn’t until 2001 that Medicare decided to fund them for most recipients. Thus, Medicare was slow to reap preventative benefits of colonoscopies. Medicare patients were as well.

A second reason is overuse. When people perceive that they are getting something for free or — in the case of Medicare — at a discount, they use more of it than if they were paying the full cost. As Medicare recipients overuse all types of services, it offsets any cost reduction that might be achieved from preventative care. (In fact, overuse of preventative care contributes to the cost, as this article on colonoscopies shows). Overuse is a reason why nations such as Canada and Britain have bursting health care budgets and resort to rationing measures such as waiting times and cancelled surgeries.

Opening Medicare to anyone who wants in would result in a vicious circle of escalating costs. As people overuse care, more and more taxes will be required to pay for Medicare. The government will respond by rationing care. This reduced quality of health care will eliminate preventive care cost savings, in turn leading to higher health care costs.

Wash, rinse, repeat.

Next up: Why one should be skeptical of claims the U.S. has worse health outcomes than nations with single-payer health systems.