Medicare For All: The Wrong Answer To The Right Question

Jacob Hacker's enthusiasm for a 'real' public plan option is laudable. It also dramatically overstates the strengths of Medicare. I'm not entirely convinced that we need a public plan option, and am even less sure that Medicare should be the basis for a public plan option.

That said, there are at least three solid arguments for a public plan option;

1.) at least one public health provider actually does a terrific job of holding down costs while delivering outstanding care (hint it's not Medicare);

2.) most markets are already dominated by one or two large private insurers, making it extremely difficult for another private insurer to effectively compete. a government plan may (emphasize MAY) offer more competition which might (emphasize MIGHT) lead to lower costs/better outcomes, and

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3.) private insurers have done a lousy job of holding down costs, delivering better outcomes, and servicing their insureds. It is hard to see how a governmental plan could be any worse, and easy to envision much better results.

In my mind those arguments tip the scales in favor of a public plan option, and give the lie to opponents' arguments against said option.

But Hacker overstates the case for Medicare, and in so doing weakens the case for a public plan option. Specifically, he argues that Medicare has lower administrative costs and does a better job holding down medical trend. I disagree.

As has been well-documented, government plans have unfair advantages over private plans: they don’t need to maintain reserves, earn profits to attract capital, or pay premium taxes. These result in big dollar 'savings' over private plans. It is also important to note that Medicare's cost structure is dramatically different in other ways. Here are a couple examples:

1.) Medicare has no underwriting or sales expenses or marketing costs. No commissions, either. This saves a lot of admin dollars. This differential would disappear in a health connector-type system, with the playing field leveled by dramatically reducing commercial healthplans' marketing costs and elimination of their underwriting expense.

2.) Medicare has one-time enrollment and dis-enrollment, and greatly simplified eligibility processes. This cuts their costs, but would not continue under a connector model.

As significant as the admin expense argument is, it is Hacker's contention that "Medicare has increasingly out-performed private plans in restraining the rate of increase of health spending while maintaining broad access" that is the real problem with his argument for a public plan option.

The unfunded liability for future Medicare costs clearly and convincingly demonstrates that Medicare is not earning enough revenue to pay for future expense. In commercial insurance terms, they are dramatically under-reserved. Why? Premiums are not keeping pace with medical inflation, and Medicare is not controlling the primary driver of medical costs - utilization of services.

Here are a couple examples. Medicare's imaging expenses doubled between 2000 and 2007. Utilization of physician in-office services went up more than 10% in 2006. Back surgery rates for Medicare patients in Fort Myers Florida are five times higher than they are in Miami. And physician fees are scheduled to be cut 20.5% next January because total physician expenses under Medicare are way over budget. Not to mention the cost-shifting that currently has private insurers making up lost revenue from Medicare underpayments.

I could go on, but the point is clear - Medicare's supposed administrative and medical cost advantages are not real. That does NOT mean a public plan option isn't viable. In fact, there is a government plan that is kicking the collective private health plan industry's rear end. It's the Veteran's Administration, and rather than Medicare, i'd base a national plan on a dramatic expansion of the VA. Here are a few factoids...

- compared to commercial managed care plans, the VA provided diabetics with better quality care on seven out of eight metrics (NCQA report).

- In 2005, VA hospitals were the highest-rated health system, outperforming other systems including the Mayo Clinic and Johns Hopkins.

- the VA achieves higher scores than private hospitals for patient satisfaction, staffing levels, surgical volume and other significant quality measures

- for six years running, VA hospitals scored higher than private facilities on the University of Michigan's American Customer Satisfaction Index.

And costs haven't increased nearly as fast as they have in the private sector. In the ten years ending in 2005, the number of veterans receiving treatment from the VA more than doubled, from 2.5 million to 5.3 million, but the agency needed 10,000 fewer employees to deliver that care - as a result the cost per patient stayed flat. (costs for care in the private sector jumped 60% over the same period).

The VA did this by closing down unneeded facilities, developing an industry-leading electronic health record system, opening clinics, and dramatically increasing the quality of care, especially for patients with chronic conditions.

Oh, and patients can access their own health records - securely - anytime on the web.

Medicare's not the answer. A public plan option based on an expanded VA would force private plans to get better - a lot better - or lose share quickly to this very efficient, and very effective, health system.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future