Bernie Sanders stirred up a great deal of attention recently when he unveiled his “Medicare-for-All” bill calling for the creation of a single-payer health care system. In presenting it, Sanders sought to cast health care as a moral issue, stating “today we begin the long and difficult struggle to end the international disgrace of the United States of America … being the only major country on earth not to guarantee healthcare to all our people.” He went on to claim that his bill would guarantee coverage to everyone in a cost-effective way.
Such claims are a familiar refrain for Sanders, and it’s unsurprising that many people, especially millennials, find his rhetoric for a single-payer system persuasive. Who wouldn’t want a health-care system that guarantees all Americans comprehensive health-care benefits in a cost-effective way? This appeals to people on an emotional level. But while the idea of providing everyone with high-quality comprehensive health care sounds appealing, at the end of the day this care has to be paid for. So in evaluating a proposed health-care system, one must do so from an economic perspective, and the discussion must involve the costs and results of that system. While there are a number of economic problems with the Sanders bill, one particularly glaring one is the costly incentive it creates.
One of the principal tenets of the Sanders bill is the elimination of consumers’ out-of-pocket expenses for all health services besides prescription medications. It would replace copays, deductibles, coinsurance, and premiums with new taxes. Rather than having Americans be responsible for — and have control over — paying for part of their personal health-care needs, this system would have the government cover all the upfront costs of an individual’s health care, with taxpayers and businesses footing the bill through higher taxes. In other words, the upfront cost to consumers for the care they would receive would be the same regardless of how often they use health-care services.
This creates a strong incentive for individuals to use health-care services more frequently. If a young person with cold-like symptoms knows that he will have to pay $25 to go see the doctor about their sore throat, he might wait a couple days to see if his condition improves rather than risk spending money for an unnecessary visit. However if he faces no additional personal cost to go see the doctor, then he will be more likely to go in for a checkup. Each additional future visit to the doctor costs the consumer absolutely nothing upfront.
Proponents of such a system correctly say this is a positive thing because people who actually need care will be more likely to seek it. But they often fail to observe that the incentive created by this system also means that people who don’t need to use medical services will be more likely to seek care.
As the RAND corporation’s decade-long Health Insurance Experiment showed, the less health-care services cost a consumer upfront, the more likely consumers are to use those services, thereby leading to higher overall costs. The study found that participants who had free care used medical services more often, and, as a result, cost the system 20 percent more than participants who had to pay 25 percent coinsurance. Coinsurance is a form of cost sharing that involves having individuals pay a percentage of their upfront medical costs until they reach their deductibles. So a person with a 25 percent coinsurance who hasn’t reached her deductible would pay $25 if the cost of a doctor visit was $100. Since the upfront cost to consumers for additional health services under the Sanders plan will be zero, this is bound to drive up demand considerably, thereby acting as a force driving the overall cost of the system up.
Whether this would be outweighed by the cost savings predicted by Sanders is questionable. On the same day that he unveiled his bill, Sanders’ office also released a list of proposals for how to fund the new health-care system. Added together these funding mechanisms would generate around $16 trillion of revenue over a decade. In a 2016 report on an earlier version of his Medicare-for-All bill, the Urban Institute estimated that the health-care system proposed by Sanders would cost $32 trillion over 10 years. Even a more modest estimate by the Committee for a Responsible Federal Budget pegged the costs of Sanders 2016 proposal at $25 trillion over 10 years. In either case, health-care expenses would outweigh the funding mechanisms proposed by Sanders by trillions of dollars. Any such gap would likely be made up by a growing budget deficit or dramatic cuts to other areas of spending or both.
The rising cost of health care in the United States is certainly a huge problem. The way to solve it, however, is surely not to create a system that incentivizes a dramatically increased use of non-essential health services and drives up costs, while completely removing individuals’ control over how their money is spent on their health. Many questions remain about how best to reform the American health-care system. But an understanding of the costly incentive created by the Sanders Medicare-for-All bill indicates that despite its appealing tagline, this proposal isn’t the answer.
Jack Hipkins is an Advocate for Young Voices based in San Diego, California. He writes about US foreign policy, taxes and economic theory. He can be found on Twitter @J_Hipkins.