Understanding Medicare for All
Some candidates for the Democratic presidential nomination are espousing Medicare for All. What do they mean by this?
Medicare is a program for seniors and the disabled; it was established in 1965 under President Johnson and has had many updates. I’ll describe it as it is now.
Part A of Medicare covers hospital care; it’s mandatory. Part B covers doctor’s bills; it’s optional, but most everyone opts in because it’s heavily subsidized. Part D covers prescription drugs; like Part B it’s optional, heavily subsidized, and most all opt in.
Part C, known as Medicare Advantage, combines all three elements into single coverage and is offered by private insurance companies -- non-profits like Kaiser, Blue Shield or for profits like United and Anthem. In California 40% of Medicare subscribers chose Part C; in Oregon, 43% chose Part C; in Wyoming only 3% chose Part C.
Medicare covers some but not a lot of long-term care; most of that is paid by another government program Medicaid. Medicare has a lot of copays and other requirements for patients to pay for their own care; many Medicare subscribers buy supplemental insurance from private insurers to reduce their exposure to these out of pocket costs.
Medicare sets the reimbursement rates for hospitals and doctors based on their “reasonable and necessary” costs and “usual and customary charges”. These are terms of art for a complex and antiquated method of setting provider reimbursement. By contrast, prescription drug prices are established by private insurance companies negotiating drug prices with private drug companies – often not too successfully where the conditions for robust price competition are absent.
Medicare is a fee for service system of reimbursement with complete patient freedom of choice of your doctor and hospital. There is very limited second-guessing of the doctor’s decisions about course of treatment or medications. Participation by providers in the program is very high, but not universal. Many think fee for service is inflationary and encourages inappropriate and unnecessary use
Medicare for All would eliminate private employer insurance and private individual insurance. It would/could retain a residual role for private insurance in Part C and in the supplemental health insurance market.
Medicare is very different from Medicaid, the public program for the poor. Medicaid covers more services – primarily long term care, dental care and vision care. MediCal, California’s version of Medicaid, requires enrollment in a HMO. It is unclear under the Medicare for All proposals whether Medicaid (MediCal) continues to exist at all or whether it is subsumed within Medicare and does this mean reduced benefits, higher copays and the elimination of the requirement to enroll in an HMO
Medicare is very different from most private insurance. Private insurance pays providers more and typically restricts choices of providers and medical treatments. Private insurance negotiates rates with providers, and the negotiated rates are often quite a bit more generous than Medicare. Most Californians with private employment-based insurance are enrolled in HMOs; enrollment in Kaiser HMO coverage is increasing while enrollment in non-Kaiser HMOs has been declining. The rest are enrolled in PPOs – a modified fee for service system. Under the private insurance PPO model, patients pay lower copays and deductibles if they choose to receive their care from a contracted provider and pay much higher medical bills if they choose to receive their care from a non-contract provider. These arrangements would be ended under Medicare for All, but would likely still be available in some modified form for those individuals choosing Part C, if that still exists.
Under Medicare for All, public financing (taxes) increase and private financing (premiums) fall. These financing changes are very large as half the current health system is financed privately and half is financed via taxes. In California alone that switch is $200 billion in increased taxes and $200 billion in decreased private premiums, copays and deductibles -- roughly the size of all state taxes. The magnitude of that shift is the biggest sticking point for those who prefer Medicare for All.
How would you finance it? You can pay for it with a payroll tax on employers, an income tax on individuals, a sales tax/value added tax on goods and/or services or some combination thereof. The payroll tax on employers could roughly equal what employers already pay in premiums. The income tax on individuals could roughly equal what individuals currently pay. The value added tax or sales tax could be calculated based on the amount of uncovered services, copays and deductibles that individuals currently pay that would be replaced by Medicare for All.
Would there be winners and losers? Yes, that is inescapable in a change of this magnitude. Depending on how the financing is designed; high-income individuals would probably pay more and low and moderate income individuals would pay less. The same would be true for employers; high wage employers might pay more and low wage employers less. This is true in large part because our current model of financing health care is very, very regressive – i.e. those with moderate wages and incomes and those who get ill or injured pay a much higher percentages of their income for health care and health coverage than do those in excellent health with high net incomes.
Can’t this be financed by savings from eliminating private insurance and making the system simpler? No, there are some savings to be had there, but not nearly enough to pay for Medicare for All.
Why do other nations pay so much less for health coverage as a percent of their GDP (Gross Domestic Product)? They pay their health care providers and drug manufacturers a good bit less than we do. We do not see doctors or get hospitalized more; we do pay our providers substantially more when we do go in to get care. Reimbursements for specialty care and prescription medicines in the US are particularly high as compared to other developed nations.
Prepared by: Lucien Wulsin
Dated: 1/31/19
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