(Bloomberg Opinion) — If Joe Biden wins the presidential election, he’ll have a lot of policy challenges — defeating Covid-19, resuscitating the economy, and restoring the quality of U.S. institutions chief among them. But as soon as these things are done, he should think about tackling one of the country’s most glaring and intractable economic problems: the broken health care system.
Fortunately, the U.S. already has an alternative system that works: Medicare. It just needs to be universal.
Americans, on average, get comparable health care to people in other rich nations, but pay twice as much. Part of that owes to the U.S. being a richer country, but much is due to a dysfunctional system that charges excessively high prices. Also, because health insurance is often provided by employers, the fear of losing insurance can keep people tied to their jobs, preventing many from quitting to search for a better position or start their own business.
Even Americans with health insurance can incur large out-of-pocket health costs, sometimes in the form of huge and surprising hospital bills. Those costs create enormous economic risk: Though the oft-cited statistic that 2 out of 3 personal bankruptcies are due to medical bills is probably way too high, getting sick or injured can saddle Americans with crushing medical debts for years or decades, preventing them from being able to buy houses, go to school, start businesses, or change jobs. And even smaller out-of-pocket costs are a major hassle for poor Americans, adding to a life already filled with hassles.
Many fixes have been proposed for this dysfunctional system. But conservative calls for getting the government out of health care are a non-starter for many reasons. The resulting health inequality would violate Americans’ notions of fairness. Economic problems such as adverse selection — the tendency for healthier people not to want insurance — would lead to a spiral of rising premiums and fewer people buying insurance. And mechanisms free markets use to control costs, such as price shopping and competition, are often absent in the health industry. The Obamacare system, meanwhile, is largely incapable of controlling costs and vulnerable to political reversals at the state level.
A better alternative would be to copy the idea used by the rich countries that have been most successful at controlling health costs while providing high-quality care: national health insurance. And the easiest way to achieve national insurance would be to use the government health system the U.S. already has in place for seniors: Medicare. Currently, Medicare benefits kick in at age 65; simply lower this age to 0, and a national health insurance system will exist.
Medicare is an extremely popular system, and it’s also extremely successful. Even as private insurers have paid higher and higher prices to providers, Medicare has managed to keep the prices it pays largely under control:
The most likely reason for this is market power. Because Medicare is such a huge customer, it has more power to negotiate down the prices it pays on behalf of patients. If the system were expanded to include Americans of all ages, then all could benefit from these lower prices. The reduction might not be total, because providers might not be able to afford offering Medicare-level prices to all patients. But it would likely go a long way toward controlling spiraling health costs.
Because universal Medicare would reduce costs, it wouldn’t break the budget or hurt the economy. Employers would no longer have to pay for workers’ health plans, nor would people have to buy their own insurance; instead, the government could replace private payments with taxes, while eliminating Medicaid and other health programs that would now be redundant. The cost to Americans would go down, and the federal deficit wouldn’t rise. And expanding the existing Medicare system wouldn’t require creating a whole new federal bureaucracy.
Medicare would also reduce the amount patients must pay out of pocket. It doesn’t pay for everything; in fact, many Medicare beneficiaries buy supplemental insurance called Medigap or Medicare Advantage. So the private health insurance industry would survive even with universal Medicare, albeit in a somewhat shrunken form. And Medicare’s cost sharing, similar to what the government health systems of Japan and South Korea require, would help control costs and discourage overuse of services, thus placating conservatives.
The natural name for this plan would be “Medicare for All.” But that name has already been taken by the more radical plan put forward by Senator Bernie Sanders. That plan, in a big departure from the actual Medicare system, would eliminate essentially all private insurance and cost sharing. Polls show a majority of voters don’t want such a radical system. But simply providing Medicare to Americans of all ages polls much more strongly. So just call it universal Medicare instead.
Voters might not be ready to immediately switch to universal Medicare. Instead, they might prefer a public option, where anyone can buy into the system instead of getting more expensive private insurance. But given the ability of Medicare to negotiate lower prices, it would offer cheaper premiums than private plans, meaning this public option would eventually turn into universal Medicare.
The U.S. has maintained its unique and exceptionally dysfunctional health care system for too long. It’s time to go with one that has been proven to work, both at home and abroad. Universal Medicare is the simplest and best fix.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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