What about the various “public option” proposals, including the less-sweeping version also known as “Medicare for all who want it”? They will open the doors to the treasury wider, too. Although supporters assert that premiums will cover the public option’s costs, that’s not how government-funded health care works. Public programs are heavily subsidized with taxpayers’ dollars. A typical one-earner couple pays $70,000 in Medicare taxes during the working spouse’s lifetime and gets $427,000 in benefits in return. The premiums for Medicare Part B, which pays for doctors’ services, originally covered 50 percent of the cost, but today cover only 25 percent. Premiums for Medicare Part D (which covers prescription drugs) are so low that the program depends on general tax revenue for more than 70 percent of its funding.
A public option is sure to follow the same path, paying out far more in benefits than subscribers pay in as premiums. Proponents will want millions of people to sign up, and the easiest way to get them to do so will be by making the public option a steal. Elizabeth Warren has already said that the public option she wants to create in the course of transitioning to Medicare for All “will be immediately free for nearly half of all Americans.” Interest groups like AARP, which wants a subsidized buy-in option for near-seniors, will pressure Congress to support the program with taxpayers’ dollars too.
Like the advocates of Medicare for All, the public option’s proponents also hope to save billions of dollars by paying doctors and other providers at Medicare rates or something similar. (Medicare pays hospitals about half as much as commercial insurers, and it pays doctors about 20 percent less.) We’ve seen this movie before, however, and that’s not how it ends. If threatened with drastic payment cuts, doctors and hospitals will fight back in the public arena. They will generate widespread panic by threatening to close their doors. That’s what happened during the managed care revolution in the 1990s, and the backlash was ferocious. Americans like their doctors, and hospitals have huge traction in their communities. When providers rose up against managed care, state legislators introduced more than 1,000 bills designed to protect patients and calm consumers’ fears of losing control of their health care. The public option’s proponents are seriously underestimating the industry’s power to rally the public.
If neither Medicare for All nor the public option is an attractive means of controlling health care spending, what is? We believe that the spending crisis will disappear when Americans pay for most medical services directly, the same way they pay for everything else, and reserve insurance for catastrophes. Homeowners’ insurance kicks in when houses are destroyed by fires or other calamities that rarely occur. Homeowners pay out of pocket for predictable non-catastrophic expenses, like maintenance, remodeling and new paint. Health insurance should work the same way.
More concretely, a national health reform that truly wants to address spiraling costs should take the following steps:
Increase retail options. Let retailers like Walmart, CVS Health, Costco, and the Surgery Center of Oklahoma that operate on a cash basis offer a full range of medical services. They have demonstrated their power to make primary care, blood tests, medications, hearing aids, eyeglasses, surgeries, mental health counseling, dental cleanings and telemedicine cheaper. Lower prices will help everyone, and poor people, who are especially sensitive to costs, will benefit the most. Competition from retailers will pressure traditional providers to be more consumer-friendly, too.
End tax subsidies. Eliminate the tax exclusion for employer-provided health insurance and all coverage mandates. These steps will encourage (but not require) people to switch from expensive comprehensive insurance to much cheaper high-deductible catastrophic care insurance, and to pay for most treatments themselves. The entry of tens of millions of new cash-paying health care consumers into the market will cause the retail sector to expand, and the pressure to lower prices will grow.
End Medicare as we know it. Replace Medicaid, Medicare and other programs that provide in-kind benefits with a single program, modeled on Social Security, that gives poor people cash plus an insurance policy covering catastrophes. If combined, the budgets of existing social welfare programs would more than suffice to bring all Americans above the federal poverty line. Cash transfers would also enable people to pay for food, housing, education and other social determinants of health that affect wellbeing more than medical treatments do.
Will these arrangements work perfectly? Of course not. But they will vastly out-perform the existing system, which is known to waste almost $1 trillion a year. And unlike Medicare for All and the public option, these proposals will transform the health care system without raising taxes or putting the economy at risk. When consumers pay for most medical services directly—the same way they pay for nearly everything else—the health care spending crisis will disappear.