Medicare For All – A Basic Primer on What Might Be Coming

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It’s often been said that the US is one of the few industrialized countries in the world without a public health insurance program.

However, that is not completely true, there are systems that specifically target certain demographics. Medicare for all as a single-payer system is a long story. We could easily write a small book on this topic.

Different Democratic Presidential Candidates had various versions of the plan that they presented during their 2020 election campaigns. Many with significant restructurings and unimaginable cost figures. We’ll tie the pieces together for you and lay out some likely scenarios that the new Biden administration could be leaning towards.

So, let’s have a look at it from the beginning.

 

In a nutshell, how does Medicare work now?


Medicaid helps those with minimal resources get health care if you meet the guidelines. It is a plan administered by the state and the federal government. This is a type of single-payer system, as is the VA program.

Medicare helps the elderly and disabled.

Of course, Tricare is a payer of last resort for military families, it pays before Medicaid pays. All other insurance pays first.

Does Medicare pay one hundred percent of covered people’s bills? The answer is in most cases no.  How is Medicare structured?  Medicare Part A is hospital insurance and Part B Medical Insurance.

Unlike Medicaid, Medicare requires contribution and it pays 80% of approved charges. That means you need a supplement for the other 20%. Then there is the drug plan known as Part D. This is also administered by independent providers.

Lastly, Medicare advantage provides other services as a supplement program. Basically, in the US we have a private insurance system, a semiprivate, and a semi single-payer system with Medicare along with a private carrier paying the last 20%.

Medicare is currently paying less than private carriers.

 

So, what happens if the US shifts to a single-payer model with Medicare?


How great in qualitative terms will the single-payer system be? It is hard to say as there is more than one proposal. There are those that see the economy slowing along with mounting unemployment. The darker concern is a rise in demand for doctors, at a time when there will be a shortage of them. This bottleneck in the system could result in potentially dangerous delays in treatment. One source sees hospital closures.

If Medicare for all arrives using the vision Bernie Sander’s plan contemplates – meaning the elimination of private insurers, hospitals could be hurt. Use for example knee replacements, Medicare pays $4,200 compared with private insurance paying $17,000.

The payment differences exist for all categories of services. People have clamored for Medicare for all because of the meteoric rise in insurance costs, huge deductibles, and hospital bills, while simultaneously facing lesser quality care.

If hospitals were to receive more than Medicare rates, it is estimated that the program could cost $30 trillion over a decade. One CBO estimate comes to $38 trillion to our national debt over ten years in 2019 dollars. Another source looking at Elizabeth Warren’s version estimates the annual cost at $4.2 trillion per year.

Some see this as universal coverage but the CBO reminds us that those here illegally may not be eligible to participate. Eligibility is key as that population both benefits and contributes to the plan.

At present when you go to a doctor in Maine, Maine Health uses one computer service. If you then go to Massachusetts General, they have an entirely different, not completely compatible computer service. That would need to change and become one huge IT system. This system would hold your records and allow a doctor anywhere in the country to pull your history and it would also interface with several state and federal agencies as well.

An advantage of Medicare for all is administrative costs.

In 2017 the government cost for running Medicare was 1.4 percent of total expenses. Adding Part D and Medicare advantage, the cost rose to 6% of expenses. Private insurance was actually less efficient, where administrative costs ran 12% of expenses for the same year.

 

What would be covered?


The CBO suggests that coverage would likely resemble that of Medicare, Medicaid, or the Affordable Care Act. The latter you probably know by the name Obama Care. Of course, newer technologies and technologies would likely be reviewed for cost-effectiveness.

If Medicare becomes a single-payer model, most likely they will cover dental, hearing, and vision as well. At the present time, most Medicare recipients don’t get those services.

Obviously, LTSS aka Long-Term Service and Support would need to be covered. These are not always covered by private insurance. These items are the assistance of a personal nature bathing, preparing meals, or expenses of a chronic illness.

The CBO source suggests potential cost-sharing with states for LTSS items with state Medicaid programs. In Maine for example several years elapsed between Medicaid programs billed and when the state paid the hospitals.

 

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Cost factors


There will be people that will be insured for the first time in years. It is theorized that these people have unmet needs which will cause them to burden the system. One suggestion offered is a cost-sharing system to reduce overutilization.

Under a single-payer program, new enrollees typically don’t pay a thing or only a small part. However, there is evidence that if the users don’t pay, they will potentially over-utilize the system. Perhaps a deductible or co-payment with an out of pocket maximum would give the users some skin in the game to make better use of these services.

Might there be a use for private insurance?

Perhaps there may be a role for private insurance after all. In England, private insurance would provide access to private providers or higher-quality providers. Of course, it could function as it does with Medicare now covering 20% of the cost.

What about the hospitals and doctors?

At the present time in the US, 70% of hospitals are privately owned and most doctors are either part of a private group or self-employed. One possible solution would involve the government taking ownership of hospitals and hiring doctors. That is the model used by the Veterans Administration. Or a rate structure could be arrived at to pay doctors either using negotiated rates via perhaps the American Medical Association or a set of set guidelines.

How could we finance such an undertaking?

First of all, if you are replacing the private sector insurance the CBO document tells us that nearly half of the $3.5 trillion spent on health care in the US came from the private sector. This shift would be an enormous jump in government spending.

Money for this could come from federal and state levels assuming it takes over for Medicaid. Another method could be income-based premiums and taxes. Sin taxes on alcohol, for example, higher income tax on a progressive basis are possibilities. Cost-sharing meaning out of pocket expenses could also be part of a mix. The issue with using taxes could impact the labor supply as well as private consumption.

 

What can we draw from this?


The CBO and other government sources suggest that heavy use of taxation to fund a single-payer system would have a negative impact on private consumption. The less we buy has an effect on employment.

What was not mentioned in the report was the potential cost estimates for buying or subsidizing the hospitals. In a country known for the free enterprise should the government be engaged with nationalizing hospitals?

That is not only a fiscal question but also a philosophical question. Underpaying hospitals may cause them to dial back the level of services. This could even cause hospitals to close. Especially if the reduced rates are coupled with Medicaid payments not coming from the state.

If doctors are paid too little their practices could fail. One doctor familiar to this author spent $500,000 in student loans. In 2008 he also spent $90,000 on January 2 in malpractice insurance. He has a staff of three. One had to get special training in Medicare billing codes. These do not include special training to keep up his license, office rent, various other insurance, and other operational costs.

While a doctor may seem to charge a high fee for service, there are a lot of things that come out of it before he or she gets a paycheck. Medicare for all articles talks about different ways in which rates doctors earn may be developed. If doctors, see their practices fail they may move to a new location or retire from the industry.

America has a healthcare funding crisis.

The Novel Coronavirus otherwise known as the pandemic has left millions without both jobs and insurance. It has been widely reported that Biden is considering a different approach. Biden hopes to expand Obamacare (the new Biden-Obamacare) as a means of solving the issue of uninsured Americans. It is not clear what the costs of such a program are at this stage.

When looking at the costs, potential taxation, and potential industry economic disarray that Medicare-for-all would inflict makes is probably unlikely to go through. If it does, it will likely require employing the tools of Modern Monetary Theory. Big time. This essentially involves printing massive amounts of money.

We could simply call it print and pray there is no inflation.

President Biden is in the unenviable position of being the rope in a tug of war within his own party. On one side the extreme left favor high taxes and regulation regardless of economic results. On the other, more moderate voices.

Mr. Biden also lacks a mandate. Somewhere near fifty percent of the country voted for a free market capitalist approach vs a socialist approach.

It is probable that all sides recognize that the lack of affordable healthcare in the US has been a serious issue for a long time.

 

William Ward Jr.
William Ward Jr.

Bill holds a MS in Finance with a Capital Markets concentration and has invested in both equity markets and forex for the last decade. In the past, Bill has worked in the airline industry as a Station Manager. Working in middle management for small airlines helped him develop a deep understanding of the economics and operational environment of the airline industry. Bill also worked as a manager in the clothing industry setting up and managing Mill Outlet retail stores across the US, where he developed a strong understanding of the retail business. In the mid-80s Bill was an entrepreneur running two video retail stores for ten years while attending University. He later worked for Gateway Computers as a PC technician and thereafter opening his own PC Business. Through these experiences, Bill is able to leverage his deep knowledge and provide unique investing insights. When he is not working, Bill dabbles at golf, spends time with his yellow lab Killian, and gives back to his community by helping solve municipal issues.

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