Healthcare in the U.S. costs too much. We spend roughly double (17.1% of GDP) on healthcare what other advanced economies (8.6% of GDP) spend, but according to OECD Health Statistics we aren’t any healthier.
So why is healthcare so expensive?
It’s because of our dysfunctional healthcare market. Let’s list the multiple market failures:
Lack of competition – According to the Commonwealth Fund, most big cities are dominated by hospital and health insurance oligopolies.
High barriers to entry – It is basically impossible to run a hospital without a small army of administrators who understand the intricacies of government regulations and the rules for filing paperwork with each insurance company.
Lack of information – In general, patients don’t know whether they are getting good medical treatment; providers don’t know how to avoid being sued; insurers don’t know whether a procedure is medically beneficial; and no one really knows how much each treatment costs.
Throw in malpractice incentives for providers to push unnecessary treatments, financial incentives for insurance companies to refuse payment, and tax incentives for healthcare spending of any kind (medically beneficial or otherwise), and you get the dysfunctional healthcare market that is America’s.
It’s true that the high cost of malpractice lawsuits in the U.S. is a serious problem. It increases the cost of healthcare and leads to wasteful “defensive healthcare” expenditures – but, it only accounts for about 2.4% of all healthcare spending. If we could magic away all malpractice lawsuits, then we would still be spending double what other advanced countries spend on healthcare.
And don’t forget that our healthcare system is also pretty unfair. We ration care in American by who can pay: people with good insurance or lots of money get lots of healthcare, while people with bad insurance and no money get little healthcare. Even after years of Obamacare, 11.1% of Americans still lack health coverage.
Single Payer Could Work…
We could fix dysfunctional markets by simply abolishing insurance companies and setting up one government agency that gets all of the medical money (via taxes) and pays all the private health providers.
Under such a “single payer” system, the Federal government can use its monopoly on payments to force lower prices on healthcare providers. By taxing the to provide universal coverage with no out-of-pocket expenses, the healthcare access gap would shrink dramatically.
It could work in America. It already does work in Canada and France.
… But There’s a Price
First, Medicare for All would cost $34 trillion in additional federal spending over a decade. Basically, doubling the size of the Federal government. Sanders and Warren would pay for it by funneling all current private health spending to Medicare for All, plus some extra taxes on the wealthy. For argument’s sake, let’s say we’re willing to pay the dollar price.
I am more worried about the price in lost innovation. Medicare for All would lock the whole country into one system managed by an uber-bureaucracy. Change and innovation would happen at a glacial pace, as already does in every other federal agency.
I work at the Defense Health Agency, the second-biggest healthcare payer/provider in America. I am impressed every day by how smart, motivated, and hard-working my colleagues are.
But the barriers to change are daunting. Let’s say you’re a doctor at a military hospital. You have an idea for a new IT system that will undoubtedly improve health outcomes and lower costs. If everyone is on board with your idea, then you can implement it in as little as 2-3 years to allow for leadership review, budget planning, contract award, IT development, deployment, and training. This is how a Federal bureaucracy does innovation.
The benefit is that no bad ideas can withstand this process. The drawback is that few good ideas can withstand this process either. Stunted innovation is the price for centralization.
I say kick healthcare down to the states and let them tackle the problems. If we give each state some money to play with, then blue states like New York and California will almost certainly try single payer systems. Purple states like Nevada may offer a public option, like a Medicaid buy-in. Red states like Ohio and Arizona will probably pursue more market-based solutions (think price transparency laws and health insurance vouchers).
Over time, states will learn from another and adopt the best-practices from next door. While they may never converge upon one single solution, they will never stop striving to get better. That’s what American healthcare should look like.
Gabe Aaronson does IT project management for the Defense Health Agency and public policy and communications consulting for various clients.