California senator and presidential candidate Kamala Harris just released her “Medicare for All” plan. Some claim her plan, which retains private insurance, is better than Bernie Sanders’s plan, which eliminates private insurance. But the economics of Harris’s plan shows that private insurance has no significant role in “Medicare for All,” even if it is advertised that way.
In fact, private insurance may just as well be eliminated in Harris’s plan, because it ultimately requires that everyone will have roughly the same plan, which will be determined by a government bureau. Private insurance will be redundant, other than perhaps providing a check on the inflated costs that will certainly come with the federal bureaucracy that provides Medicare for All, or MFA.
While MFA may be well intentioned, Harris’s proposal, as well as those of other similar plans, will significantly reduce the quality of health care for most in the country, particularly those who will not be able to afford paying out of pocket for higher-quality care than they receive under MFA, or for procedures that are not covered under MFA.
Harris begins with a statement of the problem:
- “There is perhaps no more complicated issue for Americans than health care.”
Harris is right, health care is complicated, but she doesn’t explain why. Health care is complicated because it is highly regulated, involving complex interactions between government agencies, quasi-government enterprises, and the private sector, which in turn involves insurers, physicians, hospitals, employers, and the consumer. These regulations go far beyond protecting patient safety and privacy.
Consumers want a simpler, more transparent system with more choice and fair pricing, where “fair” means that the price covers reasonable costs, including the cost of capital.
Simple economic reasoning, as well as the experiences of single-payer health systems in other countries, indicates that nothing short of abandoning or sharply modifying much of existing regulation, introducing more competition and clarity, and incentivizing the users of health care to be more cost conscious, will create a better system.
Beware of any alternative approach that doubles down on the existing morass of regulation, limited competition, and limited cost sharing, such as MFA.
Harris then argues that the profit motive is the major negative factor in the provision of health care:
- “Corporations are still putting profits over people’s wellbeing.”
It is good that profits are number one for corporations. The United States has the longest record of sustained economic growth in the world and higher living standards than any other major country. This is because the United States permits more economic choice than any other country, which includes letting corporations making as much profit as they can, which indirectly benefits consumers.
To illustrate this, ask a young person—among the demographic group most supportive of “Medicare for All”—about his or her favorite product. Surveys suggest many will give the answer of their smartphone, and for good reason. This is a telecommunications device roughly equivalent in processing power to the world’s most powerful supercomputers circa 1995. The smartphone costs about $1,000, whereas that 1995 supercomputer would cost about $66 million in today’s dollars. The smartphone has completely revolutionized communications, particularly in the poorest countries, where landline technology is extremely scarce and unreliable.
A recent analysis estimates that 700 million Africans, who on average live on about seven dollars per day or less, now have cell phones (primarily refurbished units that are much more affordable). This number is expected to grow to 1 billion Africans by 2023. Yes, the “greed of corporations, who blindly place profit above everything else”, have made life remarkably better for hundreds of millions of the poorest people on earth. This is the power of the market, which economists have been preaching since Adam Smith first described it in 1776.
Harris next describes plan coverage:
- “Medicare for All will cover all medically necessary services.”
Depending on the definition of “medically necessary services,” this aspect of Harris’s plan could drive up costs enormously, and some of the services that she lists now should be purchased by consumers out of pocket. Creating affordable health plans means narrowing a plan to insuring against significant risks, not paying for everyday items that may be deemed as “medically necessary services.”
For example, birth control pills are part of the Harris plan. But oral contraception should not have to be run through a health-care plan. People should be able to freely purchase birth control at their local pharmacy, much as they purchase toothpaste and aspirin. The cost would fall enormously if birth control did not require a prescription. Deregulation, not more regulation, serves the interests of consumers.
Harris then describes the organization of her plan, in which Medicare for All will be provided by a public bureau, but where private insurance will still exist:
- “We will allow private insurers to offer Medicare plans as a part of this system.”
This is where Harris’s plan sounds much better than Sanders’s. Private insurance! You can keep your plan!
No, you won’t keep your plan, because:
- “Private insurers [must] adhere to strict Medicare requirements on costs and benefits.”
This is why private insurance might as well be eliminated under Harris’s plan. After a ten-year transition period, everyone will receive health care that is defined by Medicare for All requirements, and that costs what Medicare For All administrators decide. All plans will be extremely similar. This is not the private insurance that you want or expect.
She then discusses who will pay for this program, which will be costly:
- “We exempt [from additional taxation] households making below $100,000.”
Harris will exempt roughly 70 percent of US households from paying for this. Who does pay? Her plan would levy taxes on Wall Street security trades of 0.2 percent on stocks, 0.1 percent on bonds, and .0002 percent on derivatives.
These taxes affect investment returns and the allocation of capital across the economy, and thus will reduce economic growth. Most economic research concludes that consumers are best off when capital tax rates are very low, and perhaps zero. Moreover, taxing Wall Street transactions motivates investors to use alternative security exchanges for trading. This means that her revenue projections may not be nearly as high as she thinks if security trading migrates to other exchanges.
Harris also argues that herding all Americans into a “Medicare for All” program will be a good thing:
- “This isn’t about pursuing an ideology. This is about delivering for the American people.”
This is very much about ideology, and this is an ideology that is grossly at variance with the principles of free choice. Forcing everyone into the same plan eliminates choice. Preventing competing plans eliminates choice. Allowing a politically appointed planning bureau to determine costs and permissible procedures eliminates choice.
Every country with single-payer health care rations health care by forcing wait times and by limiting procedures. Do you need cataract surgery? You will be lucky if you receive that in Britain. Be prepared to go blind in the United Kingdom unless you are willing to pay $10,000 out of pocket for the surgery. You need a knee replacement? In Manitoba, Canada, be prepared to wait 14 months or longer.
In fact, the major trend in European health care is the growth of private healthcare provision, including for-profit systems that are far more efficient than existing government provision of services.
Medicare for All will not deliver for Americans. If this plan is implemented, it will be in place for years, perhaps decades, before consumers are so fed up by it that they force reforms. Europe has already run that experiment for us. We don’t need to make this mistake ourselves.
