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Democrats Are Focusing on the Wrong Part of Medicare

Democrats Are Focusing on the Wrong Part of Medicare

Saturday, 24 July, 2021 - 05:30

It’s good to see that some US politicians are still working on fixing the country’s broken health care system. Proposals from Senator Bernie Sanders had some very promising elements, though also some less helpful ones. Unfortunately, it seems that the only piece of his plan likely to make it into the final spending bill is the least helpful part: the expansion of Medicare to include dental, vision and hearing benefits. Going with this alone would only make it politically harder to extend Medicare coverage to more Americans, which should be the top priority.


Sanders is trying to insert a health care provision into the $3.5 trillion spending bill Democrats hope to pass through the budget reconciliation process. The original proposal would lower the Medicare eligibility age by either 5 or 10 years in addition to the dental and vision coverage. And it would pay for the expansion by forcing Medicare to negotiate lower drug prices.


Unfortunately, there are indications that lowering the eligibility age and increasing Medicare’s negotiating power will be cut from the final bill, leaving only the expanded benefits. That would be a mistake. Expanding coverage is a worthy goal for the future, but as things stand now, the US health system’s overwhelmingly important problem is cost. The US pays far more than other rich countries, for about the same outcomes. The primary purpose of a national health insurance system should be to control costs. The alternative is to let health care slowly eat more and more of the US economy even as the industry’s productivity stagnates.


Expanding Medicare coverage to include care like dental and vision doesn’t further this goal. Instead, it makes it more expensive to insure each additional person. That will make elected officials more reluctant to do the thing they really need to do in order to restrain America’s exorbitant prices: Extend Medicare to the entire populace.


Providing Medicare to all Americans would bring the US system roughly in line with countries like Japan and South Korea, where the government covers everyone but only pays about 70% of health-care costs for most beneficiaries. This system creates widespread security, but also uses monopsony negotiating power and cost-sharing by patients to hold down costs, while preserving a role for private insurance. The result is some of the cheapest high-quality health care in the world.


Sanders’ original plan to force Medicare to negotiate for lower drug prices would also move the country toward a Japan-like system. Because Japan’s National Health Insurance system covers part of the cost for every health service, it’s able to determine a price for each drug. This is the magic of monopsony bargaining power -- when there’s a single buyer, that buyer gets to set the price. Monopsony power cancels out the monopoly power of drug companies, hospitals, and other providers.


So the more people Medicare covers, the more it will be able to squeeze monopoly pricing out of the system. And making Medicare cheaper strengthens the case for extending it even further. So an ideal health-care approach would focus on cutting costs per enrollee, igniting a virtuous cycle where falling costs make it appealing to extend the program even more. The cost savings thus created could then be used to offer benefits like dental and vision in the future.


Instead, it looks like Democrats may try to put the proverbial cart before the horse, making Medicare spend more on each of the people it already covers.


In making incremental reforms to the shabby US health care system, the Democrats should keep their eyes on the prize. Control costs and get everyone covered under the Medicare system, and then it will be time to think about making benefits more generous.


Bloomberg


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