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Medicaid for All?

April 9, 2019

Democrats are calling the newest single-payer healthcare proposals “Medicare for All.” 

Democrats are calling the newest single-payer healthcare proposals “Medicare for All.”  America has three major systems of government healthcare: Medicare, Medicaid, and the Veterans’ Administration (VA).  Is a single-payer system more likely to resemble Medicare or Medicaid?

President Lyndon Johnson’s Great Society established Medicare and Medicaid in 1965 to cover elderly Americans and the poor and disabled.  The programs cover 55 and 66 million Americans respectively.  Medicare cost $706 billion in 2017, while Medicaid, a joint state and Federal program, cost $580 billion, with Washington paying about 60 percent of the tab.  The VA provides medical care for about 7 million veterans annually at a cost of $80 billion.

I certainly understand why proponents want to associate a single-payer system with Medicare, which is viewed positively.  By contrast, the 2014 scandal forced the resignation of VA Secretary Eric Shinseki.  Audits revealed 120,000 vets waiting for care that sometimes never came and systematic falsification of wait time statistics to hide the poor care.

Medicaid’s shortcomings are also well-documented.  Low reimbursement rates for services leave patients unable to find doctors.  Patients end up in emergency rooms after their conditions worsen.  Studies suggest that Medicaid patients might have worse health outcomes than the uninsured.

I suspect that scaling up Medicare to serve all Americans will prove impossible.  People disagree whether the current trajectory of spending will bankrupt the Federal government, but Medicare – which currently serves only one out of six Americans – is clearly the primary budget threat.  The Congressional Budget Office projects Medicare spending to increase from 3.6 percent of GDP to 7.0 percent by the 2040s.  Social Security, currently 4.9 percent of GDP, is expected to rise to (only!) 6.3 percent in the 2040s.

Current Medicare spending understates the program’s full cost.  Twelve million Americans, known as dual enrollees, currently draw both Medicare and Medicaid.  Over one third of Medicaid spending is on dual enrollees.  Medicare’s success today is partly a product of diverting Medicaid dollars.

Additionally, Medicare may be partly responsible for healthcare inflation; the medical Consumer Price Index has increased 800 percent more than inflation since 1970.  Overall healthcare spending has grown from 8 to 18 percent of GDP over this time.  New and improved medical care - improved cancer treatments, hip and knee replacements, and HIV drugs - surely explains some of this increase.  Yet Uncle Sam’s profligacy can drive up costs.  Consider that one of the only markets witnessing more cost inflation than medicine has been higher education, where Federal student aid and loans are important.

The Medicare-Medicaid divide illustrates how political considerations inevitably shape the quality of care in a single-payer system.  Hundreds of decisions about coverage determine the quality and cost of medical care.  Questions like whether experimental treatments, contraception and in-vitro fertilization, physical therapy, and travel to the doctor’s office or hospital will be covered.

The government makes these decisions as the single payer.  We cannot afford everything for everyone, and will have to say no sometimes.  Bureaucrats will make most decisions following rules set by Congress.  When people learn whether something is covered, some will complain and our representatives will sometimes respond to the complaints.

These decisions will reflect politics.  The complaining groups politicians find more sympathetic or deserving may well get favorable treatment.  This is essentially the Medicare-Medicaid divide.  Elderly Americans vote and are an influential political constituency; poor Americans vote infrequently and are politically marginal.  The VA scandals warn that groups we might expect to be highly deserving can face adverse decisions.

Private insurance and fee-for-service allow individuals more choice over coverage.  Employer purchase of most private health insurance and government regulation today limit our choices.  Freeing the market would allow Americans to choose the coverage they wish to pay for, not what politicians choose.

A single-payer health insurance system may well provide better care than Medicaid.  But our representatives and bureaucrats will have to deny some types of coverage.  Medicaid should remind us that politicians are not always generous when dispensing healthcare.

Article Tags
Health Care
Author
Daniel Sutter is Affiliated Senior Scholar at the Mercatus Center and Professor of Economics at the Manuel H. Johnson Center for Political Economy at Troy University.
dsutter@troy.edu