Medicare for All— Really?

Editor’s note: This article continues First Report Managed Care’s coverage analyzing what the presidential candidates are saying—and not saying—about health care spending. This installment takes a look the Medicare for All plan proposed by Democrat Bernie Sanders.  

If you haven’t heard of Medicare for All by now, you’re probably not paying attention. It may not matter, though, since few give the health plan, put forth by Senator Bernie Sanders, a chance of seeing the light of day. 

Even those who lean left question how Sanders’ universal health plan could stand on its own two feet. 

“The numbers don’t remotely add up,” Austan Goolbee, a respected economist at the University of Chicago and former chairman of President Obama’s Council of Economic Advisers, recently told The New York Times. 

“Wishful thinking,” added Jared Bernstein in the same article. Bernstein is an economist at the liberal Center on Budget and Policy Priorities, and former economic adviser to Vice President Biden.

“Puppies and rainbows,” concluded liberal blogger Ezra Klein of Vox. 

With friends like these, who needs enemies? 

The Single-Payer Conversation

Still, Sanders has started a conversation, and has the ear of a significant portion of Democratic voters, particularly young people. And after dueling his rival Hillary Clinton to a virtual draw in the Iowa caucuses and trouncing her in the New Hampshire primary, people started to take more notice. 

Even though Clinton gained significant ground on Super Tuesday, Sanders held his own, winning the states he was supposed to, and vowing to fight on. Which means the discussion about single-payer health care is not going to disappear. In fact, during the Democratic debates, even his rival reminded voters that she is a proponent of universal health care. And her campaign website notes that she “has never given up on the fight for universal coverage—and she won’t stop now” as she seeks to build on the Affordable Care Act. 

Both candidates are aiming for universal coverage, but an impatient Sanders wants to get there sooner. His Medicare for All plan would create a federally administered single-payer program that provides comprehensive coverage for all Americans (no copays or deductibles). Workers and employers would no longer be required to pay health premiums; the plan would be funded primarily through increased taxes.

Though his plan has been criticized as unrealistic, some see its merits, and at least one expert says the goals are attainable. Gerald Friedman, PhD, an economics professor that University of Massachusetts at Amherst, has defended against questions about the program’s cost, providing detailed analysis in a memo to the campaign in January.  

In an interview with FRMC, Dr Friedman responded to criticism that Sanders’ plan is too disruptive, especially for those who currently receive decent health benefits from their employers. He believes even those with employer-provided insurance will come out ahead. “There are no coverage gaps,” says Dr Friedman.  “No copays, no deductibles, and an actuarial rate of 98%. The only remaining out out-of-pocket medical expenses will be over-the-counter drugs and some optional cosmetic procedures.”

We asked a panel of managed care experts to analyze Sanders’ plan, assuming he wins the Democratic nomination this summer and bests his Republican challenger in November. Obviously two big “Ifs.” But should he prevail, does Medicare for All 1) stand a chance of becoming law and, 2) if it does, will it work the way Sanders says it will?

Not to give away the ending, but few give either a fighting chance. 

Legislative Opposition Assured

Looking to the future, as President Sanders (again, assuming he is elected), steps off the dais after his inauguration next January 20, his constituents will be eager to see the wheels start turning on his plan. And that’s where our experts see his challenges beginning. 

First of all, he is likely to face a legislative branch that still maintains a Republican majority. 

“If the Republicans hold Congress no part of the plan has a chance,” says Anthony Morreale, PharmD, assistant chief consultant for clinical pharmacy services and health services research, Department of Veterans Affairs. He added that there is no tolerance for new taxes as the economy see-saws through declining oil prices and weakness worldwide. The fear is that new taxes would inhibit spending and catapult the country into recession. 

“Even if the Republicans can’t hold Congress there is likely to be inadequate support,” notes Dr Morreale, who is also a member of the FRMC editorial advisory board (EAB). “There would be too much political pressure.”

Gary Owens, MD, president of Gary Owens Associates, a medical management and pharmaceutical consultancy firm, sees it the same way. “Chances are zero with a Republican Congress. Even if he ends up with a majority on both sides of Congress, I am not sure if his concept is ready for mainstream Democrats. Don’t forget that they want to be reelected.”

Matthew Palmgren, PharmD, president of Int’Ovation, and former director of government business and emerging markets at Blue Cross Blue Shield of
Tennessee, doesn’t even see the Sanders plan getting to Congress. “The cost impact is so high—compared to the Affordable Care Act (ACA)—that I believe the Congressional Budget Office wouldn’t even give Congress a chance to look at it.”

Is there a scenario where it might pass? Norm Smith, president of Viewpoint Consulting, Inc, which surveys managed markets decision-makers for the pharmaceutical industry, says the Democrats would need to gain a supermajority in the Senate. “But that’s not going to happen this year. There are currently 5 seats at risk, so even if the Democrats took all 5, they’d be one short of a supermajority.”

Additional External Pressure

In addition to an oppositional Congress, Sanders and his allies would face all manner of external pressure. “Both insurance and pharma are powerful forces with significant economic and political clout,” notes Dr Morreale. “And don’t forget Wall Street and banking, which are highly intertwined with insurance and pharma.” 

Health systems and hospitals might also throw up resistance, especially if the government tries to limit payments. Plus, Dr Morreale points out that even the very individuals that the program is designed to benefit might think twice once they realize that as the value of these market segments decline, it will negatively impact 401k programs that invest in them.  

Sanders’ tough row to hoe is made even tougher because he is unwilling to compromise, at least judging from his campaign rhetoric. Smith notes that the ACA is a product of compromise. The Obama plan originally included the public option, which was eventually dropped in favor of health exchanges. The plan also called for more spending on setting up the exchanges, but this amount was eventually ratcheted down. 

Some Compromise Expected

Though Sanders appears to be standing firm, a representative from his campaign’s communications department acknowledges the reality that negotiation will be necessary. “People would have to come together and find common ground in order to reach this goal,” Rania Batrice told FRMC.  “I think it’s fair to say there is an expectation that there will be extensive discussions and some compromise in order to get this done in the best and most effective way possible.”

Batrice did not provide specifics, but one area that could be negotiated is cost-sharing by the consumer. Even Medicare today expects consumers to share some of the burden (20% coinsurance under Part B, and a deductible under Part A), or purchase insurance that covers the gap. Doing the same with Medicare for All might make the program easier to justify, and make it less cost-prohibitive. But that would take away a key feature of the program: no coverage gaps, and the promise to consumers that they would only be on the hook for over the counter drugs and optional cosmetic procedures. 

This points to yet another problem, notes Dr Owens, also a member of the FRMC EAB. Is the Sanders plan fair? “Current Medicare beneficiaries must be thinking, ‘What the heck? I’ve been paying into Medicare for a long time, and I don’t have 100% coverage. Does that mean everyone behind me gets better coverage just because they happened to be born later?’” he asks. 

If the answer is no, and Medicare for All truly means all, including seniors, most agree that it becomes even more unsustainable. 

“Our government can’t operate the current Medicare and Medicaid systems, which are proving to be big financial drains,” offers Arthur F. Shinn, PharmD, president of Managed Pharmacy Consultants, LLC, and a member of the FRMC EAB. Smith echoed the point, wondering how the government will be able to foot the full bill of the entire population when it is having trouble paying 80% of expenses of those currently covered by Medicare.

Overutilization in the Offing

And then there is the issue of utilization, which Smith says is bound to increase. Dr Owens wonders if anyone is thinking about that. “How do you deal with the moral hazard that occurs when everything is 100% covered?” he asks.   

Even in today’s system where people have skin in the game, overutilization and nonadherence is a problem, explains David Claud, chief medical officer at Activate Healthcare. How much more of an issue will it be when the consumer bears no cost? Which brings Dr Claud, a member of the FRMC EAB, to this: Medicare for All does not carry the promise of better health care. “Simply providing health insurance by itself won’t achieve the Triple Aim” of optimizing patients experience, population health, and cost reduction. It doesn’t improve quality even though many of Sanders’ supporters may be assuming that it will.

In fact, Dr Claud wonders if quality and care coordination will suffer. He is a proponent of the “Quadruple Aim,” which adds provider satisfaction to the Triple Aim. He worries that if reimbursement is lowered under the Sanders plan, it might push clinicians to see more patients per hour to maintain income. “Having sufficient time with patients is, in my opinion, a necessary ingredient to improve the patient’s experience and satisfaction. So my big question is how does changing the payment mechanism improve the health of the population, and improve patient satisfaction?” 

He points not just to overutilization, but possible misutilization, as patients elect to bypass primary care to see specialists.  

All of our experts agreed that not giving patients some responsibility in the form of shared cost will be detrimental. “There are some things you want patients to think about before proceeding. Copays help in that regard,” notes Dr Claud. Smith provided a concrete illustration from a recent conversation his group had with patients about a drug to treat metastatic prostate cancer. “We told them it would cost $85,000, and extend their life by 3 years. More than a third said they would not weigh their family down with that expense,” he said. But if Medicare for All foots the bill, the decision might be very different.

Costs and Assumptions Ignored

Beyond utilization are potential costs and assumptions that some believe the Sanders plan has ignored. For instance, Dr Claud says that it’s naïve to tell
employers they will save on insurance premiums without making some calculation for decreased employee productivity due to the lack of care coordination. 

Dr Owens thinks the plan will not realize as much savings as estimated from reducing waste and hard bargaining with pharmaceutical companies. “It’s a noble cause, but I’ve been doing this for nearly 30 years, and if you can wring 5% to 10% excess out you have done an extraordinary job. But you’re going to need a lot more than that to make [Medicare for All] work.”

A Plank in the Democratic Platform

No matter who wins the White House come November, our panel unanimously agrees that the Sanders plan will either be dead on arrival or non-existent. But the debate over universal health will continue, especially if Clinton prevails. 

Dr Shinn turned from managed care analyst to political forecaster, offering that he thinks Sanders knows that Clinton will get the nomination. “His goal is to get the party to move to the left.”

Adds Mr Smith: “We all know the chances of something like [Medicare for All] coming to fruition are very low. On the other hand, Sanders has a sizable backing, enough to be heard. It will be interesting to see how much of what he espouses ends up being a part of the Democratic platform.”

Sidebar A

An Overview of Medicare for All

Here is a snapshot of the Sen Bernie Sanders Medicare for All plan, as outlined in two briefings provided by his campaign.

Overview

The plan would create a federally administered single-payer health care program that would provide “comprehensive coverage for all Americans,” according to the briefing. Coverage would include all inpatient and outpatient care, preventive and emergency services, vision, dental care, mental health/substance abuse services, as well as prescription medications, medical equipment, supplies, diagnostics and treatments. Patients will be able to choose any provider, and will pay no premiums, copays, or deductibles.

How It Will Save Money

A single-payer system will enable the government to negotiate fees with practitioners, according to a second briefing. The government will also have purchasing power with pharmaceutical companies and medical equipment manufacturers. Plus, it is designed to reduce costs related to billing and administration.

The briefing pulls no punches in explaining where the Sanders camp believes some of the savings lie. “We will no longer be paying CEO bonuses or other insurance company profit. There is no profit motive in a public health care system.”

Proposed Savings to Families and Businesses

Currently the US spends about $3 trillion annually, which Mr Sanders says comes to about $10,000 per person. Simplifying the payment structure and incentives to ensure proper care “will generate massive savings.” The Sanders plan is projected to costs $6 trillion less than the current health care system over the next 10 years, says the briefing. Specifically, a typical middle class family will pocket more than $5,000 annually, and businesses will save an average of $9,400 each year.

Mr Sanders believes his plan will create jobs as companies gain savings that they can theoretically invest back into the business.

What It Will Cost ... And Who Will Pay

Medicare for All will cost an estimated $1.38 trillion per year, according to the briefing. The plan will be funded by:

• A 6.2% percent income-based health care premium paid by employers.
  Revenue raised: $630 billion per year.
• A 2.2%income-based premium paid by households.
  Revenue raised: $210 billion per year.
• Progressive income tax rates for higher-earning households (starting at $250,000).
  Revenue raised: $110 billion a year.
• Taxing capital gains and dividends similar to the way work income is taxed (starting at $250,000).
  Revenue raised: $92 billion per year.
• Limit tax deductions for those earning more than $250,000.
  Revenue raised: $15 billion per year.
• Revise estate tax rates for the ultra-rich (the top 0.3% of earners).
  Revenue raised: $21 billion per year.
• Savings from health tax expenditures in the form of tax breaks that would become obsolete under single-payer health (for example, health care provided by employers is compensation that is not subject to payroll or income taxes under current law).
  Revenue raised: $310 billion per year.

Will the Government Run Health Care?

The Sanders campaign emphasizes that the government will not take over the health care system; rather, his plan is more closely aligned with programs in Canada and continental Europe.  Care would still be provided by independent practitioners, allowing for private delivery and public financing. It is not modeled after the UK system, in which the government owns and operates public hospitals and staffs them.

Sidebar B

Medicare for All by the Numbers

One economist’s perspective:

If you’ve watched the Democratic presidential debates and town hall meetings, you’ve probably heard Sen Bernie Sanders mention that his health plan has been vetted by experts, most notably Gerald Friedman, PhD, an economics professor that University of Massachusetts at Amherst.

In January, Dr Friedman sent a memo to Warren Gunnels, Mr Sanders’ policy director. In it he responds to questions raised about the Sanders plan. Chief among them is the program’s cost.

Although it is estimated that the program will cost nearly $13.8 billion over 10 years, Dr Friedman notes that it will not require that amount of additional revenue. That’s because “replacing employer-provided health insurance with a public program will also remove trillions of dollars of tax expenditures going with the tax deduction accorded employment-related health insurance premiums,” he writes. An estimated $3.092 billion in reduced tax expenditures means that “only $10.682 billion need be raised.”

Dr Friedman provided a table that shows a small surplus:

Dr Friedman also explains the savings at a granular level for the typical family. He notes that a middle class family earning $50,000 would save nearly $6,000 annually, and that employers would save more than $9,000 per employee:

In the example above, the $466 premium tax was calculated assuming the family uses the $12,600 standard deduction and a personal exemption of $4050 for each family member. Thus, the 2.2% tax is applied to the remaining $21,200 in income.

As for employers, they stand to save more than $9000 per worker, says Dr Freidman:

Meanwhile marginal income tax rates would be as follows under the Sanders plan, part of his vow to voters to even the playing field:

• 37% on income between $250,000 and $500,000.
• 43% on income between $500,000 and $2 million.
• 48% on income between $2 million and $10 million (affects 113,000 households).
• 52% on income above $10 million (affects 13,000 households).

The current tax rates are 33% between $250,000 and $500,000; 39.6% above $467,000, and 43% above $500,000.

A number of economists, including those who are considered left-leaning, are having trouble buying the logic. Paul Krugman, PhD, an economist and columnist for The New York Times, worries about the additional tax revenue required. He’s convinced that no matter how the numbers net out, the perception will be that taxes are rising for the middle class, “given the chorus of misinformation you know would dominate the airwaves,” he recently wrote. Even more important, he questions the need to upend those who currently enjoy decent benefits through their employers.

Still, Dr Friedman stands by Sanders plan, its numbers, and potential impact. He believes even those with employer-provided insurance will come out ahead. “There are no coverage gaps,” Dr Friedman told First Report Managed Care.  “No copays, no deductibles, and an actuarial rate of 98%.  The only remaining out out-of-pocket medical expenses will be over-the-counter drugs and some optional cosmetic procedures.”