Medicare for All

The Contradiction at the Heart of Bernie Sanders' Medicare for All Plan

The democratic socialist from Vermont wants to radically expand coverage and benefits—while paying far less for health care services.

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sanders-m4a-signs-sfphotosthree970476 | SIPA/Newscom
(SIPA/Newscom)

There is a huge contradiction at the heart of Bernie Sanders' Medicare for All plan.

On the one hand, Sanders not only wants to expand government-provided coverage to everyone in the country, he wants that coverage to be significantly more generous than Medicare, private insurance, or comparable government-run systems in other countries. On the other hand, he wants to drastically cut payments to hospitals, many of which lose money on Medicare right now, making up for the program's relatively low payments by charging much higher prices to private insurers.

What Sanders is proposing, in other words, is that the government finance a significant increase in government services while also radically reducing the amount it pays for those services. Even making generous assumptions, it's almost impossible to see how his plan could work.

Let's start with the promises Sanders makes about Medicare for All. No networks, premiums, deductibles, or copayments. Under his plan, essentially all non-cosmetic services would be free at the point of care for everyone.

Sanders calls this Medicare for All, but what he's describing isn't Medicare as we now know it. As The New York Times noted earlier this year upon the release of a Sanders-inspired Medicare for All bill in the House, the new program would "drastically reshape Medicare itself," changing both what it pays for and how. In many ways, it would be a completely different program. Medicare for All, in other words, isn't really Medicare.

And that program would be far more expansive and expensive than nearly any other comparable system. It would cover more, and require less direct financial outlays (not including taxes), than either today's Medicare or typical private insurance plans in the U.S.

It would also be substantially more generous than the national health systems set up in other countries. Sanders likes to unfavorably contrast America's mixed public-private health care system with foreign systems where the government is more directly involved. When he announced the 2017 version of his Medicare for All plan, for example, he bemoaned the state of affairs in the United States "a time when every other major country on earth guarantees health care to every man, woman, and child." Discussions about health care policy on social media often include some variant of the question, "If every other country with a developed economy can do it, why can't the United States?"

The problem with this line of questioning is that what Sanders is proposing isn't what other countries do. Canada, for example, has a single-payer system, but it doesn't cover dental care, vision, drugs, or any number of other services. A majority of Canadians carry private insurance in order to cover those services. In Britain, which offers a fully socialized medical system where health care providers are government employees, many resident still buy private coverage. Sanders, on the other hand, would effectively wipe out private coverage in the space of just four years.

There are similar limitations on coverage in other countries, like the Netherlands. It's also true in Australia, where patients typically pay a percentage of the cost of specialty services. It's true that in these countries, government plays a more central role in health care financing. But their systems have also reckoned with costs and tradeoffs in a way that Sanders, after so many years, has not.

Indeed, the main trade-off that Sanders seems willing to discuss is the elimination of insurance companies, which he portrays as greedy middlemen driving up the cost of health care. Wiping out the industry in one fell swoop, as Sanders has proposed, would be a unprecedented and disruptive move that would have significant economic repercussions, including the probable loss of thousands of insurance industry jobs. But it still wouldn't do much to bring down the cost of health care, because so much money in the nation's health care system is tied up in provider payments, especially hospitals.

And therein lies the contradiction.

Most people probably think of hospitals as places where you go to get health care services. Politically and economically, however, they also fulfill another role: They are hubs for stable middle-class jobs, paying reasonably good wages to thousands of highly trained workers, most of whom are not doctors or specialists earning stratospheric salaries.

To acquire the revenue to pay for all these jobs, hospitals rely on a mix of private and public payments. Public payments make up a somewhat larger share of total hospital budgets, but private payers are typically charged much higher prices.

Hospitals like to argue that Medicare and Medicaid payments are too low to cover their costs, and that as a result, higher private payments effectively subsidize public health coverage. Critics (with some evidence) often respond that hospitals either overstate or don't really understand their own costs, and that this is just a ploy to extract more money from government health programs and private payers.

But when considering Medicare for All, the particulars of this debate are largely beside the point, because there is simply no question that eliminating private insurance and payment for all services would drastically reduce the amount of revenue for hospitals.

Yet that is exactly what Sanders wants to do. His plan calls for paying for health care services at Medicare rates, which means that, practically overnight, hospitals would end up with far, far less revenue. Exactly how much is unclear, but one estimate indicated that payments could drop by as much as 40 percent.

That would leave hospitals with a couple of difficult choices. They could eliminate services. They could try to force some employees to take pay cuts. They could fire large numbers of workers. Or they could simply shut down. As a recent New York Times report on how Medicare for All would affect hospitals noted, rural hospitals—many of which are already struggling to stay afloat—would be particularly at risk of closing.

Whatever ended up happening, there is simply no way most hospitals would or could continue operating as they do now under the payment regime that Sanders envisions. Lots of middle class jobs would disappear. Services would be eliminated or cut back. 

Yet Sanders not only imagines that hospitals would continue to operate as they do now, but that they would expand their services to even more people, since more people would have coverage. And since he also imagines a system with no deductibles or copays, those people would almost certainly end up dramatically increasing utilization of hospital services.

Studies of health insurance have consistently shown that expansions of health insurance result in increased demand for (and use of) health care services; more people with coverage means more people lining up to get care. (Relatedly, introducing even very small copays—on the order of just a few dollars—can reduce the number of visits to doctors and hospitals.) Greater utilization of health care services does not necessarily translate into measurably better physical health outcomes. But it does increase the strain on the health care delivery system—which is to say, it puts a huge amount of pressure on hospitals.

So what Sanders is proposing is a massive reduction in funding for health care services at the exact moment that the system experiences a massive increase in demand. It would be difficult to do either. Sanders wants to do both at the same time. 

It is a recipe for disaster—and a contradiction that Sanders has so far barely acknowledged, much less resolved.