If Warren Scraps Private Health Care, Beware the Unintended Consequences

Presidential candidate’s promise that Medicare for All will deliver more care for less money needs a reality check

By Greg Ip. Excerpts:

"How does she do it? By saving trillions of dollars spent on things she claims have zero value: administrative overhead, inflated salaries of hospital executives and surgeons, and exorbitant drug-manufacturer profits."

"Jonathan Gruber, a health economist at the Massachusetts Institute of Technology who helped design Obamacare, agrees big savings in administrative costs are feasible. But “not everything private insurers do is waste,” he says. Private insurers guard against overuse of health care by regulating which care givers members can see, and how often.

"In a 2015 study of eight New York counties, Mr. Gruber and two co-authors found that patients forced to switch from Medicare Advantage plans, which are financed by Medicare but administered by private insurers, to regular fee-for-service Medicare increased hospital usage by 60%. Their health didn’t benefit: the hospitals they chose didn’t provide better care, and mortality didn’t go down.

This doesn’t mean Medicare for All’s expenses will rise that much, and Ms. Warren proposes various mechanisms to better tie payments to patient outcomes. It does mean, though, that a lot of what Ms. Warren saves by paying less for each procedure could be offset by patients consuming more of them.

Ms. Warren notes Americans pay far more than foreigners for the same service: nearly five times as much as the Dutch on heart-bypass surgery and nine times as much as Canadians on a CT scan. Her plan would narrow that gap in part by reimbursing physicians at 100% and hospitals at 110% of current Medicare rates—significantly less than private insurers, though more than Medicaid."

"Ms. Warren claims most doctors’ incomes will be little changed once savings on billing are counted. But Mr. Garthwaite says invariably some doctors, in particular well-paid specialists, will earn less—and supply less care as a result.

Mr. Garthwaite found that in the 1990s many pediatricians saw reimbursement rates drop when patients switched from private insurance to a new federal-state health-insurance plan for children. As a result, they spent less time with each patient and worked fewer hours."

"Ms. Warren would slash what the federal government pays for drugs to closer to foreign levels, saving $2.5 trillion over a decade. But numerous studies have found that drug innovation is correlated to expected revenue. For example, in a 2004 study, Amy Finkelstein of MIT found federal initiatives to expand vaccination led to a 2.5-fold increase in vaccine trials. She concluded that each dollar of anticipated revenue translated into 6 cents of investment in vaccine development. This suggests government caps on drug prices would reduce the number of new drugs—both marginally useful “me-too” drugs and genuine breakthroughs."