Sen. Elizabeth Warren released significant details around her Medicare for All proposal last week. Much of the critical commentary has taken exception to the math and logic behind the Democratic presidential candidate’s analysis. She appears to have significantly underestimated the costs of the proposal and exaggerated or double-counted the revenue that could be raised from her new taxes.
Last week, the Committee for a Responsible Federal Budget released an independent analysis of how Medicare for All could be financed. The options all included massive tax increases or spending cuts so large they would devastate virtually every other part of the federal budget. One option would more than triple the payroll tax to 32% and apply it to all earned income. Another option would increase income tax rates by 25 percentage points — taking the lowest bracket from the current 10% of income to 35% of income.
The financing aspect of the proposal is enormously important, but other aspects of Warren’s plan deserve an equal amount of scrutiny.
Before now, Warren’s radical proposal would never have been introduced by someone with a serious shot at becoming president. But the health care status quo is failing too many Americans. Warren is right that politically connected groups, including big insurance companies and hospitals, benefit from the current rigged system. She is also right that health care prices are generally too high, that provider consolidation is a serious problem, and that health outcomes are generally disappointing.
Her prescription to address these problems is all wrong, however. The best hope to improve our nation’s health care system is explained this way by Harvard business professor Regina Herzlinger: “Choice supports competition, competition fuels innovation, and innovation is the only way to make things better and cheaper.” Medicare for All will remove people’s choices of how to pay for health care, lead providers to compete for government favors rather than to best serve patients, dramatically decrease innovation, and thus worsen outcomes.
The federal government currently causes huge market distortions in health care because of the political process underlying how Medicare sets rates. The process brings intense pressure from interest groups, with the process dominated by medical specialists who unsurprisingly secure better rates for themselves at the expense of general practitioners. The political process underpays for certain services, leading to shortages, and overpays for others, leading to excess utilization. Former senior Obama administration official and medical doctor Atul Gawande argues that it is striking that Medicare, a public program largely for seniors, underpays for general geriatric care, evidenced by the fact that the country has far too few geriatricians.
Medicare also inhibits innovation, and Warren’s proposal would likely lead to much worse health care over time. A whole separate piece should be written on her proposal to commit patent theft for drug manufacturers that don’t bend to the pricing wishes of the political powers that be.
As a result of bias toward maintaining the status quo and risk aversion of regulators, the political process behind Medicare rate setting can result in rates being very difficult to change even as technology improves and better alternatives emerge. This stifles innovation, since the success of any medical innovation depends on Medicare payment policy. That policy, in turn, benefits entrenched interests that thrive under the status quo and resist reforms that threaten existing arrangements they find beneficial.
For evidence of the devastating impact of Medicare’s control of payments, look no further than the sorry state of American kidney care, with high death rates and outdated, inefficient treatments. Only 12% of American patients undergo dialysis at home, where they could receive treatment while they sleep, compared to 80% in Hong Kong and 56% in Guatemala. One kidney care administrator has remarked: “The last 30 years as a country, all we’ve done is wait for kidneys to fail and we put people on dialysis.”
The reason for this devastating outcome? Medicare has covered all end-stage kidney disease treatment since 1973. Dialysis providers can send large bills to Washington to cover inefficient care. They stand in the way of reform while patients, particularly the most vulnerable, suffer. And Medicare — as the single payer for end-stage kidney disease — is the primary culprit for lack of market innovation and the resulting death and destruction.
We should continue to debate the budgetary cost of Medicare for All and the tradeoff of higher taxes and reduced government services in other areas. But we must not forget that Medicare for All would also inflict huge costs on consumers and patients as choice, competition, and innovation are replaced with bureaucracy, lobbying, and stagnation.