M4A Has Its Flaws, but Let’s Not Whitewash the Status Quo

Michael Cannon wrote his post about M4A an eon ago, when Senator Bernie Sanders still had a decent chance of winning the Democratic presidential nomination and COVID-19 was causing lockdowns only in distant China. I write today, barely a week later, in self-isolation in New York City and–with Vice President Biden, who does not favor M4A, well ahead in the Democratic primaries. Biden’s success means that whatever happens in November, we are now unlikely to move directly to M4A; as I discuss below, the COVID-19 experience is one more push away from the status quo ante. What can we learn about the debate over M4A that will inform the next steps we will need to take? Michael’s post offers a starting point for this learning.

Michael makes several sound points in his post. First, other nations do not operate M4A systems–most allow some private insurance, most incorporate some cost-sharing, most are much less highly centralized than M4A. Second, governments do not do well at setting prices in general, and our government is particularly bad at it. Third, other countries use forms of rationing different from ours, such as waiting lists, and regulatory price setting schemes here and elsewhere do not provide adequate incentives for high quality. These points are valid–and they do point away from M4A–but to an even greater extent, they also point away from the U.S. status quo. M4A has its problems–but the existing US health care system has even more. The current crisis will shine a harsh light on some of those problems.

To date, the weaknesses of the U.S. response to COVID-19 have had little to do with the fragmented, relatively private nature of the health care system. Other countries with universal systems are also struggling with what is, largely, a public health response. But that will change in the next few weeks as people continue to become ill and need care.

Absent intervention–and such intervention is very likely -the U.S. health care system will produce two outcomes that would never occur in our counterpart countries. First, families who become very ill and hold private insurance will face very substantial medical bills, especially if they need services delivered by hospitals or providers outside their insurance networks. As Michael points out, other countries do incorporate cost-sharing in their health plans–but in other countries, cost-sharing is modest and often linked to income. Here, the median out-of-pocket maximum payment for in-network covered services in single coverage plans is above $4,000. The effects of high cost-sharing will likely be exacerbated in the case of an infectious disease, since there’s a chance that multiple family members will become ill at the same time. It’s no surprise that President Trump and other politicians are already trying (so far unsuccessfully) to mitigate this financial impact. Rationing care for critical illnesses through high cost-sharing raises distributional questions that even relatively conservative governments find troubling. For illnesses where patients have little control over the course of treatment, rationing care in this way also doesn’t make sense from an economic perspective. The effect of high cost-sharing on patients’ financial well-being with COVID-19 is visible and immediate–but it is not fundamentally different from the effect of that same cost-sharing on the financial well-being of patients with other serious and costly illnesses. With or without M4A, we will need to move away from this approach.

An even greater ethical–and political–challenge will face our system if, as many observers expect, the supply of ventilators and other essential equipment is inadequate to the need generated by COVID-19. The current logic of the U.S. health care system suggests that a hospital, particularly a for-profit hospital, ought to prioritize access to costly services, such as ventilators, to privately insured patients who pay the most for services, even if an uninsured patient, or a Medicaid patient, would gain more health benefit from that service. Heightened media attention to COVID-19 makes the scenario of rationing access to life-saving ventilators by price somewhat unlikely in this case–but uninsured Americans routinely face limited access to life-saving therapies that are in short supply. That doesn’t happen elsewhere.

As Michael notes, private insurance in other countries does enable purchasers to get faster access, more choices, and greater amenities than those who rely exclusively on public insurance. But in other countries, this improved private insurance access is limited to discretionary procedures, choices among similarly credentialed practitioners, and non-essential amenities. Other countries may not have single-tiered insurance, but they do have universal and rather egalitarian coverage for critical care. That is likely to be an even more widely held perspective in the United States after this crisis.

Michael’s second point is that the U.S. government is likely to do a poor job of cost containment. Private insurers do pay much more than Medicare does for most hospital and physician services, but Michael is right–not for everything. Until recently, Medicare paid more than private insurance for lab tests and medical equipment. Medicare payments are on a par with private prices paid for primary care doctors and mental health professionals. What’s special about these cases? They are all situations where there is a large set of relatively similar suppliers and entry is relatively easy, so that there are multiple competitors; and where the quality of a good or service is readily apparent to the purchaser. Moving forward, we should build a health system that enables the use of market forces in these situations, perhaps through a supplemental private insurance mechanism.

Unfortunately, for structural reasons, those two critical conditions are rarely present in the health care system–and they certainly don’t obtain for ICU care and other critical services needed now. Most health care markets are simply too small to support robust competition, and health care services like these are too complex to be easily evaluated by purchasers.

In circumstances where those conditions don’t currently hold, do private prices make more sense than Medicare prices? The argument for relying on the market to set prices is that private actors will be more responsive to new information than governments can be, and that they will incorporate that information into prices. We can test that proposition by looking at the services for which these prices diverge. It turns out there aren’t many–private insurers mostly just follow Medicare relative pricing patterns–that is, the relationship between the price of a complex service and a simple service is just about identical among private insurers, as in Medicare. Deviations occur most often when providers have more bargaining power and can negotiate for higher payments and more attractive terms. Michael is right–governments are often lousy at establishing appropriate prices–but in the absence of robust competition and observable quality, they seem to do at least as well as the private sector.

Michael ends his piece with the claim that the quality of health care is meaningfully better in the United States than elsewhere. There are studies that find better quality for specific conditions at specific times, but the overwhelming preponderance of evidence finds that health care quality, at least measured in terms of outcomes, is generally worse in the United States than in most other high-income countries. In part, that is because average quality includes both those with good coverage and those with limited access. But recent research finds that health outcomes even among the richest Americans are no better than among their counterparts in Norway, which spends far less on care, while outcomes for lower-income Americans significantly lag those of their Norwegian counterparts. The COVID-19 epidemic will provide another data point. I hope that American hospitals, which spend about twice as much per hospital day as the OECD average, will obtain better outcomes in the treatment of patients with severe disease–but nothing I’ve read or seen suggests that they will.

M4A is not, in my view, the best direction forward for the United States. Like Michael, I think that the very high degree of centralization implied by that plan is both anomalous in an international context and problematic for budgetary and political economy reasons. But that’s no pitch for the status quo. It’s much worse than Michael suggests–and much worse than M4A as well.

Also from this issue

Lead Essay

  • Michael F. Cannon finds many faults with Medicare for All, starting with the fact that it would reduce patient choice in ways that even citizens of Canada, the United Kingdom, and the Scandinavian countries do not experience. He rejects the idea that M4A would save money, and he describes the existing Medicare program’s history of failing to correct itself when it delivers inefficient and substandard care.

Response Essays

  • The health care status quo in the United States is nothing to be proud of, writes Sherry Glied. The U.S. response to COVID-19 in particular highlights the weaknesses of a system that is too expensive and that prioritizes the rich to an unacceptable degree. We face shortages of basic equipment that other countries do not, and this isn’t a failing limited to the pandemic. While she does not see Medicare for All as an especially good alternative, she concludes that it would nonetheless be much better than the status quo.

  • Writing with Jonathan Ketcham, Jay Bhattacharya explains how health care providers under Medicare face a series of perverse incentives—rewards, in essence, for inefficient and costly medical care. A system like this one can’t be expected to correct itself if and when the law makes it the only system around. Other countries’ socialized health care systems have also failed to deliver life expectancy or lower costs.

  • Micah Johnson disputes several of Michael Cannon’s empirical findings and argues that Medicare for All would indeed give all Americans a health care plan that was safe and affordable. Selling health insurance on the open market has failed to control prices; other countries, which use a variety of single-payer, government-administered systems, generally enjoy lower spending per capita and a higher standard of health than we do. He concludes that within a wide range of possible variants, any form of medicare for all would be closer to this appealing international norm.