Better Care for All: A conservative alternative to Medicare for All | Pt. 2
This is Part Two in a series that lays out the principles, framing, and tangible policy solutions that comprise “Better Care for All,” a conservative alternative to Medicare for All. You can find Part One on the principles of this reform here. You can find Part Three on the first bundle of reforms targeted at reducing the demand for care here.
DISCLAIMER: My background is in both law and business. I am not a doctor or a medical professional, nor do I have a degree in either public health or public policy. My analysis and conclusions stem from years of independent study on the subject of healthcare reform and about six months of research on specific issues & thinking deeply about the problem from a citizen’s point of view. Take it for what it is worth.
Now that we have outlined some basic, non-negotiable principles of reform, we can start to conceptualize the policy problem we’re aiming to solve.
Healthcare reform efforts tend to focus on solving two key problems: the coverage problem and the cost problem. Democrats mostly focus on the coverage problem, while Republicans like to talk about the cost problem and either cede or ignore the coverage issue altogether. This narrow focus obscures the fact that the two problems are not actually distinct. Solving the coverage problem is impossible without reducing costs and it’s difficult to reduce costs without addressing the problem of un- and underinsurance. We’ll soon see that there are actually many problems to solve in our healthcare system and that the partisan lanes on this issue greatly misrepresent things.
A broader view of the problem is needed — one that focuses on making health care’s overall price tag affordable so that the extension of coverage to all Americans is sustainable. Likewise, we need to realize that expanding coverage alone won’t get the job done. Guaranteeing universal coverage without structurally reforming our broken system may temporarily solve one problem, but will surely exacerbate several others. Put another way, money doesn’t grow on trees — and finding new ways to temporarily finance an increasingly expensive product will ultimately just leave everyone unable to pay for it. Any conservative alternative should reduce overall costs and expand coverage while maintaining care quality and access. The question is how best to structure our system to achieve these goals.
Theory of reform: Conceptualizing the problem
Healthcare reform is obviously a complex challenge, but we can begin to conceptualize the issues by breaking them into chunks. The market for healthcare is actually comprised of several different markets: the market for care itself and the market for insurance to finance the purchase of that care. And even these two market categories are just shorthand for hundreds of different sub-markets by product and by insurance pool. But, at the theoretical level, since the market price for an insurance policy is driven by the average price and utilization in the market for care itself, I focus on the market for care first. If we can bring down the cost of actual health care, then the cost of insurance should come down for everyone, too.
Note: For now, this step-wise approach sets aside challenges specific to the market for insurance (e.g., risk-balancing between the healthy and the sick) and challenges related to healthcare goods for which there is no stable market (e.g., orphan drugs). Those challenges are big and will be addressed later.
Consider the market for health care at a very basic level. The overall cost of care in the United States is a function of both its price and utilization. Let’s start with price. As with any finite product or service, the price of American healthcare is a function of both its supply and demand. If the market for health care were a typical market, it would look something like this:
But, the market for healthcare isn’t a typical market. First, consumers are relatively price-inelastic: if you need a heart transplant to survive, you don’t have the luxury of holding out until a cheaper option comes along. You need a heart transplant immediately — no matter what it costs. Second, consumers are relatively uninformed about the care that they need or the quality of care they will receive before they buy it. This may lead them to demand more or less care than they actually need. Finally, the above also assumes that the sellers and buyers of care operate at parity when, in reality, the sellers (e.g., doctors, hospitals, pharmaceutical companies) are often more consolidated and enjoy significant market power that allows them to charge higher prices than they would receive in a purely competitive market. Taken together, relatively uninformed consumers with inelastic demand in a market dominated by consolidated sellers is not a recipe for low prices.
So, through a purely economic lens — the healthcare market seems ill-suited to perform the tasks that we’d like it to perform; namely, to deliver care to all who need it at the lowest possible price. As reformers who want to harness rather than eliminate the power of these markets to reform healthcare, we must craft policy that shifts the market’s dynamics in one of the two ways below to reduce price and increase access:
The charts above summarize the quandary of healthcare reform. If our ambition is to sustainably satisfy all demand, we have to somehow move price down the demand curve. But if we just artificially lower the price by government mandate without changing anything else, you can see this only creates an increasingly large supply deficit; that is, the quantity demanded at that price is greater than the quantity that the market is able to supply at that price.
This is the path that most developed countries around the world have pursued. While such an approach does cap the cost of care and “guarantee” access, it does so at the cost of a severe supply shortage. The governments that manage these systems are inevitably forced to make tough choices about the quality of care delivered. You have to wait longer to see a doctor, the doctors themselves are probably not as skilled, and the incentives to innovate may be non-existent. Better Care for All will examine these systems to see what lessons can be learned and how they might be improved upon in the United States.
Why “Medicare for All” Won’t Do
Medicare for All promises to double-down on the approach of other countries — guaranteeing access to a single government product at government-set rates while doing very little to structurally reform the delivery system. Proponents argue that the only path to lower prices is for patients to consolidate their buying power behind a single payer so that the government can successfully negotiate against big insurance companies who they claim essentially collude to raise premiums each year and line their own pockets at Americans’ expense. They also argue that a government-fixed price is the only tool that can effectively reduce “runaway” profits in an industry that shouldn’t have profits at all. (For context, the average profit margin for the health insurance industry is 4% — putting it just below the average profit margin of all other forms of insurance.) But, as the supply & demand curves above demonstrate, artificially shifting price downwards does nothing to bridge the resulting imbalance between supply and demand.
Nonetheless, it’s understandable that these arguments have gained traction. Healthcare prices have steadily risen and those of us who oppose a government-run system have failed to provide an alternative of our own. But, those failures don’t change the fact that there are real problems with Medicare for All. In truth, the reason costs have increased in the United States is not because our current system is a private market. Our current system isn’t a private market. It’s a confused patchwork of government mandates, price-fixing, and subsidies alongside a sizable employer-based “market” that largely shields the end-user from the price of care and provides only an illusion of choice. In the face of such a flawed status quo, it’s no wonder Americans so readily give favorable marks to something that, while changing things, might not actually improve the system.
The rebuttals flow: “But, look at Medicare as it currently exists! I have it and it’s great! Why wouldn’t it work for everyone else?” This is easy for beneficiaries to say. They receive a pretty robust healthcare package by sole virtue of their age. But for the rest of the healthcare system and for the Federal Treasury, the reviews aren’t so rosy. Medicare’s insurance trust fund is on track to run short of outlays in less than seven years. What’s more — according to the AHA — hospitals treat Medicare beneficiaries at a 12% loss, which they cover by increasing prices for everyone else. If the past is any guide, “Medicare for All” will really end up being something like: “Medicare for All, Worse Care for Many… (and only until we run out of money!).”
“Well it works pretty well for Canada! Why wouldn’t it work for us, too?” This is only true if you’re comfortable with a huge supply gap relative to demand — which is what happens when prices are artificially pegged substantially lower than market prices. Providers have to skimp on care and wait times increase. The Commonwealth Fund recently did a study that found that “only 43 percent of Canadians were able to see a doctor or nurse on the same or next day when they needed care… half of them had to wait two or more hours for care in the emergency room.. 30 percent had to wait two or more months to see a specialist… and 18 percent had to wait four or more months for elective surgery.” As the old saying goes, the only thing that the Canadian system proves is that “you get what you pay for.”
Like the Canadian system, Medicare for All does nothing to cure one of healthcare’s chief ills: central price-fixing. The CMS reimbursement schedule at the center of government insurance, which covers some 40% of total healthcare expenditures, creates adverse consequences that reverberate throughout the whole of our system. As Dan Pope has pointed out, these “politicized payment” schedules are wholly divorced from the economic value that each service delivers. Moreover, the hospital lobby has been able to steadily carve off incremental exceptions and kick-backs to the schedule to such an extent that almost no one receives the set fee. Instead, you get paid what you can politically earn. As a result, prices on the fee schedule increase each year whether quality improves or not. Boss Tweed would have been proud.
In addition, the fee-for-service model at the heart of the schedule incentivizes providers to crank out volume at set fees rather than deliver better health outcomes to their patients. It also kicks off a lobbying spree in state governments to ensure certain services make it onto the Medicaid coverage plan and into the schedule. So long as providers are paid by procedure and the consumers of their services (patients) have little say in the selection of their doctor and little information about the quality of the doctor’s service, our health system will remain structured to crank out volume without due regard for the health outcomes it generates.
The incentives that Medicare for All puts in place do nothing to shift either the supply or demand curves and will, if anything, reduce supply by pushing smaller providers out of the market and increase demand by doubling-down on the fee-for-service model, making it all the more difficult and expensive to supply quality care to all.
Are we really ready to shift 10% of our GDP onto this government-run system overnight? Given the chaotic condition of Washington today, what confidence can we have that government is well-equipped to do anything — much less something as personal as manage the healthcare of every single American? Conservatives should reject this approach, but that can’t be all we do.
The Alternative: “Better Care for All”
For conservatives, the chief focus must be to lower the price of care in a sustainable way that does not rely on a consequent reduction in quality or access. As noted earlier, the only ways to lower the price of care is to either reduce utilization, increase supply, or do both at the same time. Conservatives should strive to do both.
Lowering the price of care will help deliver better health care to all Americans. As the price of care comes down, access expands because the average American is more likely to be able to afford the care they need. Moreover, by keeping healthcare exposed to market forces, providers of care will be continually forced to compete and innovate.
To be sure, even after reducing the price of care, many Americans will still be unable to pay for the healthcare they need on their own. At the end of the day, healthcare is just plain expensive — and it’s often more expensive for those least able to afford it. As already noted, we’ll bracket the “for All” part of the financing equation and come back to it after we’ve addressed the underlying structural problems that are making it more expensive for society to pay for that care in the first place.
Some may criticize this approach as merely incremental relative to Medicare for All, which would radically transform the current system. But incrementalism is itself a policy choice and it’s an inherently conservative one, particularly in the face of such a monumental challenge. Incrementalism is humble with respect to the problems that a single government policy can correct overnight in one fell swoop. It recognizes that structural incentives are ultimately what will improve our healthcare system — not just more money.
As such, Better Care for All doesn’t switch to an entirely private market tomorrow, or get rid of Medicare and Medicaid as they exist today. It aims to legislate a host of reforms that better channel decentralized market forces like price transparency, consumer choice, and competition to deliver health care at lower prices.
Part Three will explore the first bundle of Better Care for All reforms that will reduce demand for health care and help make it cheaper.
