Why Sanders Healthcare Plan Is on the Right Track

Why Sanders Healthcare Plan Is on the Right Track

photo: Phil Roeder

Presidential candidate Bernie Sanders has reopened the healthcare debate by urging America to adopt a system more like that of other wealthy countries. “The United States is the only major country on earth that doesn’t guarantee health care to all people,” he says, “And we end up spending far, far more per capita on health care as do the people of any other country: Canada, U.K., France, whatever.”

Yet, even though he’s right, his healthcare platform is under attack, not just from the right, but also from the left. Here is why I think his critics are wrong.

What to call it?

Sanders says he wants a healthcare system like those of other wealthy countries—one that provides better results at a lower cost than the one we have. Unfortunately, there is no generally accepted term that covers all such systems as a class.

Sanders calls his plan “Medicare for All,” but that is misleading. As we will see, his proposal—at least the brief version posted on his campaign website—differs from Medicare in some important ways. It also differs from many of the systems in other countries that he admires most.

Liberals tend to call Sanders’ plan a “single-payer” system. That is correct, in that Medicare for All would in fact be a system under which a single agency would make directly pay healthcare providers with funds from the government budget. However, many of the best healthcare systems of other wealthy countries are not single-payer systems in that sense. Their plans are surprisingly diverse. Some, like those of Germany and France, funnel payments through multiple independent insurance funds. Others, including those of the UK and Canada, are more decentralized than the “single payer” label suggests. None of them covers 100 percent of national healthcare expenditure.

Conservatives describe the healthcare systems of Scandinavia, Germany, France and other wealthy countries as “socialized medicine,” but that term doesn’t uniformly fit, either. Socialized medicine suggests something like Veterans Administration healthcare in the US—a system that not only features a single payer, but one in which doctors are salaried government employees and hospitals are government owned. That description, too, fails to capture the diversity of foreign healthcare systems, where we find a kaleidoscopic mix of salaried and fee-for-service doctors; for-profit, private not-for-profit, and state-owned clinics and hospitals; and both unified and decentralized payment mechanisms.

We could stick with “high performing healthcare systems of other wealthy countries,” but that is too long winded. For this post, I will shorten that to Euro style healthcare, despite the obvious problem that Canada, Australia, New Zealand and Japan also fit the pattern in many respects.

Enough with terminology. Let’s turn to Sanders’ critics, starting with those on the right and then moving to critics on the left.

Conservative Myth No. 1: The US already has the world’s best healthcare system

Many conservatives think, or at least pretend to think, that the United States already has the best healthcare system in the world, or at least that it did before the advent of Obamacare. Senate leader Mitch McConnell and former House Speaker John Boehner are both on record as having said so. A survey from Harvard University, taken not long before passage of the Affordable Care Act (ACA), found that 68 percent of Republicans (but only 32 percent of Democrats) thought the US healthcare system was the world’s best. To support that belief, conservatives often note that world leaders like former Italian Prime Minister Silvio Berlusconi, Jordan’s late King Hussein, and the Shah of Iran have all sought healthcare in the United States.

Unfortunately, hard data do not support that optimistic view. One of the most detailed recent comparative studies of healthcare systems in wealthy countries comes from the Commonwealth Fund. The following figure shows its ranking of eleven healthcare systems along with data on expenditures per capita (evaluated at purchasing power parity to avoid exchange rate distortions):

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The United States ranks last in the fund’s overall evaluation of health care, despite having by far the largest per capita expenditures. The Commonwealth study is not the only one to have reached that conclusion. This earlier post discussed other rankings that agree. (We will return to some of the more detailed findings of the Commonwealth Fund report shortly, but the whole report is worth reading.)

Conservative Myth No. 2: European healthcare saves costs only by severely rationing care

The second conservative myth is that Euro style healthcare achieves lower costs only by employing a degree of rationing that would be unacceptable to Americans. Here, for example, is David Brooks, writing the The New York Times: 

Sanders would create a centralized and streamlined system. His approach would also, as in Europe, reduce the rate of medical progress, increase the rationing of care, increase the wait times for patients, induce many doctors to retire, and centralize decision-making.

In a recent televised debate, Presidential candidate Ted Cruz put it even more bluntly:

Socialized medicine is a disaster. It does not work. If you look at the countries that have imposed socialized medicine, that have put the government in charge of providing medicine, what inevitably happens is rationing.

Canada is Exhibit A for many who make the rationing argument. Consider, for example, this “explainer video” from Vox, titled “What is Single-Payer Healthcare?” After noting that such a system could save administrative costs, the narrator says, “But there’s a catch.” The catch is said to be longer waiting times and other limits on services, illustrated by a graphic showing that waiting times for health services are longer in Canada than in the United States.

Detailed data from the Commonwealth Fund report show how unfair the charge of rationing is, especially when based on a comparison with Canada. Of the eleven countries covered in the survey, the US ranks last overall, but Canada is next to last. One of the main reasons for Canada’s poor performance is its poor record on measures of rationing, where it has the lowest ratings of the countries surveyed.

  • 48 percent of Canadians reported an emergency room waiting time of over two hours (11th place) compared with 28 percent in the US (7th place) and 14 percent in New Zealand (1st place).
  • 38 percent of Canadian doctors reported that patients had difficulty getting specialized tests like MRIs (10th place) compared to 23 percent in the US (7th place) and 3 percent in Switzerland (1st place).
  • 18 percent of Canadian doctors reported a wait of four months of more for elective surgery (9th place) compared to 7 percent in the US (6th place) and 1 percent in The Netherlands (1st place).

To compare the US with Canada in terms of rationing by waiting, then, is to make a sub-par system look better by comparing it with one that is truly terrible. Most wealthy European countries do better than either of their North American peers when it comes to rationing by waiting, and still manage to spend less.

Instead of rationing by waiting, the American system practices rationing by cost. Relatively few private plans, whether employer-provided or individual, give free access to a full range of providers, drugs, and services. Most middle-class insurance plans steer their members toward hospitals and doctors who are in a preferred provider network and drugs that are on the company’s preferred list. The uninsured often find themselves rationed out of anything but emergency services by high prices.

The burden of rationing by cost shows up clearly in the Commonwealth study:

  • 37 percent of Americans reported that they did not fill a prescription, skipped a test or treatment, or failed to visit a doctor when ill—the worst of all countries. In Canada, the figure was 13 percent, a respectable 4th
  • 28 percent of Americans reported that their insurance company denied payment or paid less than expected for treatments they received, the worst of all countries. In the top ranked countries, Norway and Sweden, the figure was 3 percent.

What is more, the pressure toward rationing by cost is intensifying. A recent New York Times article describes the situation in these terms:

Once emblematic of everything wrong with health insurance, the health maintenance organization is making a grudging, if somewhat successful, comeback. But its reputation for skimping on care has so tainted the plans that the insurers and companies resurrecting them have gone through innumerable steps to try to avoid using the term H.M.O. . . . Despite the stigma and many failed efforts, insurers say they are eager to push a revamped version that revives many of the same features that restrict choices as a way of lowering costs

In short, far from achieving their cost savings through rationing, European systems provide more timely care with fewer people skipping needed services for economic reasons.

Liberal critics focus on cost

Unlike conservatives, liberal critics, by and large, approve of Sanders’ Medicare for All plan in principle. They instead focus their criticisms on its cost.

The most widely publicized critique comes from Kenneth Thorpe of Emory University. As this discussion explains,Thorpe estimates that Sanders’ plan would be almost twice as expensive as the candidate claims. Instead of leaving most middle class households better off, Thorpe claims the Sanders plan would make 71 percent of households worse off, when the taxes needed to fund it fully are set against savings in healthcare costs.

I find Thorpe’s analysis disingenuous. The problem is that he construes Sanders’ plan in a naively literal way that makes it very different from the healthcare systems of Europe as they actually operate.

The first difference concerns just who pays for what under high quality, low cost Euro style systems. When many Americans think of European healthcare, they assume that the government pays for everything, providing a broad range of services at no charge to the consumer. That is not strictly true. The following chart, reproduced from a 2015 OECD report, shows that in other wealthy democratic countries, governments do pay a larger share of healthcare costs than in the US, but they do not by any means pay for everything. The government share of total healthcare expenditures ranges from nearly 90 percent in Sweden and the UK to around 75 percent in Switzerland, compared with a little under 50 percent in the US.

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The reasons for the substantial private healthcare expenditures vary from one country to another. Most countries expect copayments for some, if not all, services and medications. In many, people purchase private insurance to cover services not provided in the government’s basic package, for example, private hospital rooms. Some countries do not fully cover dental and vision services. (However, most Euro style systems have special mechanisms in place to shield low income families from some of these cost-saving measures.)

One of the reasons that critics like Thorpe come up with such high cost estimates is that they take at face value the version of the Sanders plan that is found on his campaign website. That version promises to “cover the entire continuum of health care, from inpatient to outpatient care; preventive to emergency care; primary care to specialty care, including long-term and palliative care; vision, hearing and oral health care; mental health and substance abuse services; as well as prescription medications, medical equipment, supplies, diagnostics and treatments.”

I do not think we have to take that language literally in estimating the cost of translating Sanders’ political aspirations into a specific program for implementation in the real world. The very fact that Sanders describes his plan as “Medicare for All” suggests that a final version is likely to include deductibles and co-payments similar to those in Medicare as it now exists for seniors. Nor would we need all of the features of the website version of the plan in order to meet Sanders’ often-repeated goal of equaling the quality and cost performance of other countries.

The hard part lies ahead

It is easy to criticize a campaign slogan and to inflate the cost of ambitious aspirations. Liberal critics, who ostensibly share Sanders’ aspirations, ought to put their energies into the hard part—filling in the details that would allow the US to equal the cost performance of the best Euro style healthcare systems without loss of quality.

Including Medicare-style deductibles and co-payments would go a long way toward closing the gap between Thorpe’s estimates of the costs of Sanders’ healthcare plan and the candidate’s own estimates, but it would not entirely close it. There are many other problems to deal with.

To date, Sanders has focused on two sources of potential cost savings. Administrative costs are one. The Sanders campaign estimates that administrative savings from his plan would reduce total healthcare spending by 13 percent. Thorpe says it would save 4.7 percent. If we split the difference, the savings would be a little under 9 percent. But reducing per capita healthcare spending to the level of The Netherlands (the most expensive after the US among the eleven covered in the Commonwealth study) would require US spending to fall by 33 percent. To get to the level of the UK (the least expensive of the eleven) would require a 60 percent cut. So, even viewed optimistically, administrative savings are just a start.

The second major saving claimed by the Sanders team comes from lowering the price of prescription drugs. The US currently spends about $300 billion per year, or 10 percent of total healthcare costs, on prescription drugs. Cutting that in half—a truly heroic accomplishment—would still save only another 5 percent of total healthcare costs.

So, beyond prescription drugs and administrative costs, where would the additional 20 to 40 percent saving come from that would be needed to bring US healthcare costs down to the level of the best performing Euro style systems? There are only two possible sources: Cuts in quantity of services or cuts in prices.

Cutting quantities is not as easy as it sounds. To be sure, there are some areas where the US does seem to provide excessive services or procedures. For example, the US rate for Caesarian sections is more than 30 percent, compared to around 7 percent in The Netherlands and Scandinavia. On the whole, however, as healthcare economists like Princeton’s Uwe Reinhart note, the quantity of healthcare services provided in the US is actually lower than in other advanced countries. It does not seem realistically possible to cut service quantities further while extending healthcare coverage to the 13 percent of Americans who remain uninsured, even under the Affordable Care Act, and to do so without any loss in quality of care.

Prices, says Reinhart, are the elephant in the room. US Prices for common medical procedures like appendectomies or normal deliveries average three or four times the levels in Europe. What is more, the prices for such services, or for tests like an MRI or colonoscopy, can vary by a factor of two, three, or more even with in a city. Worst of all, says Reinhart, “Fees in the private health care sector have been jealously guarded trade secrets among insurers and providers of health care.” That makes it impossible for consumers to shop around for the best price, as they would do if they wanted a new set of snow tires.

Liberal critics don’t even pretend to address the problem of healthcare prices. The widely cited Thorpe study simply assumes that prices under the Sanders’ plan would be an average of the prices now paid by private insurers and the modestly lower prices now paid by Medicare.

The day after a Sanders inauguration, his healthcare team would have to set to work on tackling the elephant in the room. Unfortunately, there is no single solution to the problem of high US healthcare prices. Instead, the problem would have to be approached one piece at a time. Coordinated bargaining for lower prescription drug prices is just a start.

Lowering the prices charged by the most expensive hospitals to those charged by the most effective ones would help—and no, they are not necessarily the same hospitals. A single government payer would have more bargaining power. Greater transparency in pricing would help, too. So would greater competition among hospitals. The present trend toward mergers and consolidations demonstrably pushes up prices.

Another reason for the higher cost of US healthcare services are higher earnings of physicians. US doctors earn considerably more than their European counterparts do, even when we adjust fees for differences in expenses and cost of living. But changing compensation practices for American doctors would not be easy without reforming other pieces of the healthcare complex. European doctors typically receive free education, so they don’t begin practice with tens or hundreds of thousands of dollars in student debt. Entry into medical schools is not as tightly restricted in Europe as in the United States. And less adversarial systems to deal with malpractice claims free European doctors from a major cost item while giving them less incentive to practice unproductive defensive medicine.

The bottom line

It is hard not to conclude that Sanders is right to think that America needs a healthcare system more like those in Europe. True, his Medicare for All plan is still more aspirational than operational, but what do other candidates offer? Hillary Clinton proposes building on Obamacare, but there is nothing in the byzantine complexity of the Affordable Care Act that makes it easier to solve any of the cost and price problems we have discussed, and many things that make it harder. Republican candidates have a field day enumerating the problems of the ACA, but offer only the vaguest suggestions of what they would offer in its place.

So I say, better to go with someone who has the right aspirations and hope his team can work out the details as they go along. Otherwise, we are stuck with the healthcare mess we have, or with a worse one.

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2 Responses to "Why Sanders Healthcare Plan Is on the Right Track"

  1. paxton68   April 28, 2016 at 4:25 pm

    Part 1 of 2
    Hear ye Hear ye.
    Candidate Bernie Sanders, how can you save the day?
    To achieve victory for your presidential candidacy, you must answer the question. The question is: how or why is government sponsored universal health care single pay better? It’s better because it’s cheaper. Yes, the main reason it is better is because it is more economical. Whenever the subject of universal healthcare comes up, conservative republicans say universal healthcare single pay is socialism, and it will increase the cost of taxes on the American people 200 or 300%. Rubbish; this statement is totally misleading, in fact, it’s bogus. Here’s why. On CSPAN and on the radio as well, the question was asked:
    “So, when you say single payer, you mean single pay to the various and sundry private healthcare insurance companies?”
    This question is deceptive; it is almost cynically misleading. Hillary Clinton is equally complicit. Universal Healthcare government sponsored single pay is, or, by definition, includes ALL the people. Not by virtue of some litmus test or predetermined prerequisite. That means, all the people, all the time. (Citizens) You have to listen to the words; they mean exactly what they say. Ergo, you would not need to make a payment to private healthcare insurance companies. As a matter of fact, you would not be able to, because private healthcare would have become anachronistic. I like Hillary Clinton, and I have always supported her and her husband. But I am going to vote for Bernie Sanders. Hillary Clinton is not an advocate for universal healthcare single pay. Republican conservatives are radically opposed to it. Payment to private healthcare insurance companies would be the second payment. If the American public had it, and there was universal healthcare–government sponsored single pay, there would be no need for private health insurance companies. I.e., that would amount to a redundant or double payment.

  2. paxton68   April 28, 2016 at 4:30 pm

    Part 2 of 2
    The main problem that American traditional systems of medicine have is that it is radically, exorbitantly expensive. The US system of healthcare needs to do 3 things. 1) It needs to reduce costs. 2) It needs to have, and therefore must devise, a system which includes ALL the people. That is by definition what universal healthcare government sponsored single pay is, and 3) The US needs to consolidate the institution of doctors, faculty and ancillary staff. It needs to standardize old age retirement homes, drugs and research facility capacities. It needs to co-op the presently malfunctioning Veterans Administration under and egis of unitary management. When I say universal healthcare system single pay, that is exactly what I mean, and its management. Very well. OK, how is this done? First, healthcare is comprised of 3 component parts which encompasses 100% of the cost. No. 1: look at the insurance companies. No. 2: consider the doctors and ancillary faculty and staff. No. 3: the consolidated old age retirement home people, drug development and research, and the subsuming of the Veterans Administration and Management.
    Now, Candidate Bernie Sanders never made it clear, but if you have government sponsored single pay, you don’t need medical insurance (private companies)–that would be redundant. Observe, just like that, as though by magic, we have reduced the total cost of healthcare fully by 1/3. So, the next time you hear somebody say that universal healthcare is socialistic and that it will raise the cost to the American public, i.e. — their taxes, by a couple hundred percent, you know flat out, that is an absolute lie. There are many kinds of insurance and medical insurance is just one kind. Arguably, medical insurance, universal healthcare single pay, is just as vital, and therefore no different than police, fire, and sanitation services. All of these are paid for with taxpayer money. You never hear anyone say these institutions are socialistic.
    (There is more, it gets better.) Doctors are paid a fee for services rendered. Under traditional market US Medicine, each doctor is an entrepreneur, a capitalist if you will. Now there’s nothing wrong with being capitalist and making money. The problem is, that we have gotten our institutions off center and out of kilter. People getting sick is a human frailty; it should be designated and limited to a public institution. Making money is a commercial endeavor, and should be designated to the private domain. So, according to the current understanding, the more services a doctor performs, the more money they can charge and will make.
    The problem is that this can get to be mighty expensive for you and me as patients. Obviously, doctors are fine with this, they would not have it any other way. (You and me, we must make a change). What would you consider a change which would actually make a material difference? I can’t consult you, so I will have to use my own initiative. I say, pay doctors a salary–not lavish but reasonable, practical, and yes, most importantly, economical. And why is this just not only a good idea, but a necessity? Because it removes the profit motive. In other words, the doctor is going to come to work because he is being paid, however, he or she is going to give you only such attention and treatment as you absolutely need and require. Why? Because there is no incentive to do more tests, perform more services, as there is no more money to be had (no additional fees).
    One more thing I would like to mention with respect to Hillary Clinton. The troubles that Hillary Clinton has had: first the emails, then it was Benghazi, and back and forth. Here’s what I say is the real reason Hillary Clinton has trepidation about winning victory in the current presidential race. Secretary Clinton is not an advocate for Universal Healthcare Single Payer. She is not a believer. Too bad, if she were , I would vote for her. She could almost guarantee herself victory. As it is, Bernie Sanders' supporters know the only way, the only avenue to universal healthcare is through him. His real supporters will accept nothing less. That is why Bernie Sanders will get their vote no matter what.
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