In politics, people rarely admit that they were wrong. Instead, they try to change the subject.
A decade ago, Democrats insisted that the Affordable Care Act would reduce the health-care costs of Americans and give the nation universal coverage. But the legislation has fallen so far short of its objectives that the party’s new generation is eager to sweep it aside in favor of Medicare for All. The associated promises are even more implausible than those made regarding the ACA, and have been privately disparaged by establishment Democratic policymakers. Nonetheless, the distraction of single-payer matters, in that it is preventing the center-left from having an honest reckoning with the ACA’s flaws.
When campaigning for the White House in 2008, Barack Obama claimed that his health-care-reform proposals would “lower premiums by up to $2,500 for a typical family per year . . . by the end of [his] first term as president of the United States.” Instead, the opposite proved to be true. By requiring all health insurance to be priced the same, regardless of the buyer’s medical risk, the ACA encouraged people to wait until getting sick before purchasing coverage. As a result, health-insurance premiums for individual purchasers more than doubled in the first three years following the legislation’s enactment. Premiums for ACA-compliant plans now average $4,700 per year, and deductibles also typically exceed $3,900 — a level far beyond the median health spending of $709 per year.
While the Trump administration has a clear strategy of making available affordable alternatives to ACA-regulated plans — an approach that repurposes the ACA’s exchange as a safety net for low-income individuals and those with pre-existing conditions — the center-left remains in intellectual disarray. It seemingly has few ideas other than doubling down on the ACA’s original design: reimposing the individual mandate, expanding federal subsidies, and banning the affordable sources of coverage that the Trump administration has made available.
Yet many of those further left, who had reservations about the ACA’s generosity to private insurers from the outset, have largely given up on the increasingly hard task of defending Obamacare. As the painful trade-offs between coverage and affordability inherent in the ACA have become clear, this group has begun to dream of more-sweeping reforms, whereby the government would displace all private insurance by directly purchasing all medical services.
Advocates of this idea, known as single-payer health care and widely branded as “Medicare for All,” believe that enormous inefficiency is the result of private insurance. They believe that this explains why other countries are able to spend less on health care but get consistently better health outcomes. They believe that insurance companies could be eliminated without any adverse effects, that making the government responsible for medical procurement would save billions every year in administrative expenses, and that hospital costs could be slashed simply by mandating that facilities accept lower reimbursement rates.
But health-care costs ultimately reflect the efficiency of the medical-delivery system, the level of intensity of care, wage levels, the generosity of covered benefits, and the medical needs of the population. More than anything, health-care costs reflect the number of skilled people employed in the health-care sector. While single-payer advocates argue that the government could pay less for hospital care, they have a long wish list of additional medical expenditures — and essentially none that they desire to see eliminated. The main features of private insurance to which they object (claim reviews, preferred networks of providers, and cost sharing) are the elements that serve to constrain prices.
Over recent decades, a core health-care strategy of Democrats has been to expand the scope and generosity of medical coverage by imposing an array of unfunded mandates on insurers, hospitals, and other medical providers. They have done this because it is politically much easier than making direct appropriations, which in turn require unpopular tax increases. As a result, before Medicare for All does anything to reduce the number of Americans uninsured, or to expand the generosity of medical coverage for those who are currently insured, its advocates would face the enormous challenge of adding previously obscured costs to the government’s balance sheet.
This has been made perfectly clear at the state level. States could unilaterally enact a single-payer system, but even the bluest of them — most conspicuously, Vermont in 2014 — have determined that doing so would be unaffordable. Estimates by the liberal Urban Institute and the conservative Mercatus Center agree that single-payer proposals would cost over $3 trillion per year — more than double the amount currently raised by the federal government in individual income taxes.
Democrats with extensive experience in health policy are aware that the efficiency gains associated with single-payer are illusory but are reluctant to dampen the enthusiasm of rank-and-file party activists. Nancy Pelosi’s health-policy adviser, Wendell Primus, recently noted as fundamental obstacles to Medicare for All the large number of potential losers, widespread opposition from stakeholders, and the desire to reserve funds for other priorities. As the party’s presidential candidates for 2020 have jockeyed for position, many have endorsed proposals in full knowledge that they cannot be implemented. Indeed, even Bernie Sanders of Vermont, whose state enacted single-payer but abandoned the plan when the scale of associated tax increases became clear, has refused to advocate abolishing the filibuster in order to enact Medicare for All.
Nonetheless, to avoid disillusioning their core supporters, establishment Democrats are looking for incremental reforms that can plausibly be packaged as Medicare for All. The preferred strategy tends to be establishing a buy-in option — though that could refer to almost anything from a publicly managed plan competing against tax-advantaged, employer-sponsored private insurance to a policy environment tilted heavily toward a public option.
At first glance, the terms of a Medicare buy-in (which already exists for seniors who have not contributed payroll taxes long enough to qualify for the program’s benefits) appear unappealing. The buy-in premium for Medicare Part A (hospital insurance) is $437 per month, that for Part B (physician services) is up to $460 per month depending on income, and that for Part D (prescription-drug coverage) a further $77 per month. Together, this means that the current premium for a Medicare buy-in can be $974 per month — well above the average rate of $477 already available to unsubsidized upper-income earners on the exchange.
From the perspective of a 55-year-old, it is better to be in a risk pool linked to 30-year-olds under ACA rules on the exchange than to be in such a pool with 80-year-olds in Medicare. Of course, policymakers may require that Medicare buy-in premiums vary for different age groups, but if a voluntary buy-in is to be broadly self-financing, then it would likely appeal disproportionately to the very ill — and hence suffer the upward-spiraling premiums that the exchange has seen. If premiums are to be pushed below those currently available on the exchange and through employer-sponsored insurance via taxpayer subsidies, then the need for trillion-dollar tax increases again makes a buy-in politically unrealistic. To the extent that it is designed to lead to single-payer, people will oppose it out of fear that it will lead to single-payer.
The consequences of a Medicare buy-in therefore depend entirely on specifics of how premiums are set, the nature of taxpayer subsidies, and rules regarding payments to hospitals and physicians. That is to say, the difficult trade-offs that form the essence of policymaking under a Medicare buy-in are very similar to the painful trade-offs with respect to incremental changes being made to the rules and provision of subsidies for Obamacare’s exchange.
The main difference between a Medicare buy-in and the expansion of subsidies to the exchange would be the extension of the program’s government-set prices. Advocates claim that this could reduce the cost per enrollee, but it is unlikely that Congress would be able to use the buying power of the existing Medicare program to get discounted rates: It would surely be politically toxic to credibly threaten to cut off payments for existing Medicare patients to force providers to accept reduced reimbursements for those switching from private coverage to a Medicare buy-in.
There is little evidence that Medicare for All advocates have thought through these difficult questions. Indeed, incidents such as Kamala Harris’s endorsing the elimination of private insurance before backtracking suggest that Democratic candidates could easily spend much of the next year stumbling through a complex policy minefield in search of an elusive free lunch, learning the downside of each approach the hard way.
American health care is like a 50-year-old Jenga tower: Various policies have been delicately layered upon one another to solve an array of challenges and shortcomings over time. But its flaws have been greatly exaggerated. According to Gallup, 80 percent of Americans rate the quality of their health care “excellent” or “good,” and the average level of out-of-pocket costs faced by Americans as a share of household consumption (3 percent) is actually already slightly lower than the average among developed countries.
Entitlement programs such as Medicaid and Medicare were established long ago to extend care to the neediest groups, and each incremental expansion has extended assistance to slightly less-needy groups (most recently with subsidies to low-income, able-bodied adults through the ACA). Medicare for All would not do much for those already enrolled in Medicare or Medicaid, but it would pick up the full range of medical costs currently incurred by relatively affluent Americans (who are mostly already well insured by their employers), paid for with an enormous tax increase on all.
Bernie Sanders has criticized Amazon for relying on Medicaid to pay for its employees’ health care, but Medicare for All would make federal taxpayers do this for all firms — shifting costs from employers to individual taxpayers across the board. It is extraordinary that so many Democrats are contemplating the largest tax increase in American history simply to pay for services that affluent Americans are already getting.
Of course, none of the Democratic presidential candidates has yet specified who would be made to pay for Medicare for All, but proposals to increase federal spending by over $3 trillion per year are almost certainly incompatible with pledges not to increase taxes on the middle class. The political reality is that, having spent several years campaigning on Medicare for All, a newly elected Democratic president in 2021 would almost certainly double down on the ACA by throwing more money at Obamacare and trying to prop up its failed structure. Yet even if Medicare for All bears little resemblance to the likely policies of a future Democratic administration, it may still succeed at one important purpose: to distract from fully accounting for the failures of Obamacare in the meantime.