The #3 Reason Bernie Sanders’ Medicare-for-All Single-Payer Plan Is A Singularly Bad Idea – Forbes

In part 1, I showed that the new federal taxes required by Senator Sanders’ Medicare-for-All plan would impose a hidden cost of $1.1 trillion in deadweight losses in 2017 alone. This is the #1 reason his single-payer plan is a singularly bad idea.

In part 2, I showed that the Sanders single-payer health care plan would add more than one half trillion dollars in waste to an American health system that already has far too much waste, making waste the #2 reason this plan is a bad idea.

The #3 reason Medicare-for-All as conceived by Senator Sanders is a bad idea is because of the inevitable rationing it will produce. In other well-known single-payer systems, this rationing takes several forms, including restrictions on the availability of treatments or, more commonly, rationing by waiting.

Rationing Availability of Services

Rationing of services can occur in two ways. The first is through deliberate administrative decisions not to cover certain expensive medical technologies.

The second is through the inevitable shortages that arise when monopoly public payers impose price controls that underpay providers. Venezuela is a classic illustration of this: “free” care there has resulted in an 85% shortage of medicines along with and a 90% deficit of other medical supplies used to treat severe conditions like cancer and hemophilia. USA Today reports that “more than 13,000 doctors — about 20% of medical personnel — have left the South American country in the past four years to find better opportunities elsewhere.” Other estimates put the figure at 15,000 doctors who have left shortages of drugs and equipment and poor pay. Consequently, the situation has gotten to a point where thousands are dying early as the medical system implodes there. 

While we might think or hope Venezuela is a worst-case outlier, the reality is that we already see signs of this in the U.S. where physician underpayment and red tape associated with Medicaid has resulted in physician non-participation rates as high as 32% in states such as NJ. Because it pays more generously than Medicaid, Medicare is not quite as bad, but Medicare non-participation exceeds 20% in states such as Nevada and Virginia.  And the Medicare actuary has been warning for years that under Obamacare, this situation is likely to get far, far worse after 2030 as the law’s payment restrictions ultimately force Medicare physician payment rates below those of Medicaid!

Source: Memo from John D. Shatto and M. Kent Clemens, “Projected Medicare Expenditures under an Illustrative Scenario with Alternative Payment Updates to Medicare Providers,” July 13, 2017, at https://www.cms.gov/Research-StatisticsData-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/2017TRAlternativeScenario.pdf.

And there is no question that rationing is such an enduring feature of Britain’s National Health Service that the Nuffield Trust has written an entire report on the matter: Rationing in the NHS. As I explained recently, advisory committees to NICE (the National Institute for Health and Care Excellence) use a threshold for recommending treatments of between £20,000 and £30,000 per quality adjusted life year (QALY). Since 1 British pound currently equals $1.29 in American currency, that translates into roughly $26,000 to $39,000 per QALY.

This is not a hard and fast ceiling: as explained in the Nuffield Trust report: “NICE recommends when people should and should not receive treatment, but its general guidance (in contrast with its technology appraisals) is not binding. 15 Clinical Commissioning Groups (CCGs) are responsible for planning and commissioning of health care services for their local geographic area. So there ends up being differences across CCGs in terms of the circumstances under which caesarean births are covered, for example.  That said, there are unquestionably instances in which medications are denied altogether on grounds they are too expensive.

Medicare currently spends approximately $88,000 a year on kidney dialysis for each patient who has end-stage renal disease. Without it, such patients would die.  So Americans evidently are willing to pay $88,000 for one added year of life. But the average quality of life of kidney dialysis patients is roughly 0.4 (i.e., 60% lower than someone in optimal health) [1]. Taking this into account implies that Americans are willing to spend $217,000 per QALY for such patients.  

This amount is substantially larger than the NICE cost-effectiveness threshold. In fairness, U.S. GDP per capita is 34% higher than in the UK, but even if we adjust the threshold to account for this (lifting it to between $35,000 and $52,000), kidney dialysis would fall quite far beyond its upper limit. If Senator Sanders is such a fan of the NHS, he probably should explain whether he favors following their stringent cost-effectiveness guidelines by denying coverage for kidney dialysis or whether instead he believes the NHS instead has made a terrible mistake in setting its threshold too low.

Rationing by Waiting

Rationing by waiting also is a persistent feature of both the NHS and Canada’s single-payer health system. According to the most recent annual report from the Fraser Institute “The median wait time in Canada in 2016 was 20 weeks—the longest ever recorded—and more than double the 9.3 weeks Canadians waited in 1993, when the Fraser Institute began tracking wait times for medically necessary elective treatments.”  In short, this is a problem that is non-trivial in magnitude but which also appears to be systematically growing over time.

We also have solid evidence from Canada that under single-payer health systems, physicians deliberately reduce the supply of their services. That is, the waiting time problem is a combination of the excess demand that arises under “free” care (discussed in Part 2) and a shrinkage of supply, which simply aggravates the situation [2]. As summarized by Wharton School chaired professor Patricia Danzon a quarter century ago: “In Quebec, in the two years immediately after the introduction of universal health insurance, home visits dropped by 63 percent, telephone consultations fell by 41 percent, physician time spent per office visit declined by 16 percent, and office visits rose by 32 percent.” I cannot think of any reason to believe that American physicians would respond any differently were a single-payer system adopted here.

Single-payer enthusiasts claim that single-payer systems provide more physician care than in the U.S. In Japan, for example, the latest OECD data show that annual physician visits per capita in Japan (12.8), for example, is three times as high as in the U.S. (4.0). But as Prof. Danzon astutely points out, the average Japanese patient sees the doctor for a mere 5 minutes per visit, whereas the average American’s doctor visit is 15-20 minutes. So the total amount of MD face-time appears to be comparable in both countries, but in Japan it is inefficiently allocated across 3 times as many visits, each of which has a hidden time cost. A recent Harvard study shows that a typical American doctor appointment (average length 20 minutes) actually took 121 minutes inclusive of travel, waiting, paying, and completing paperwork.

Even if this figure is only half as large in Japan due to lower administrative costs (an assumption, not a proven fact), it implies that the average Japanese patient incurs 50 minutes of time costs per visit, so the “excess” 8.5 visits they receive each year translate into about 7 hours of wasted time every year. Multiply this times 250 million adults in the U.S. and the result would be 1.75 billion wasted hours. At the most recent U.S. average hourly wage of $26.52, this would translate into $46 billion a year of wasted time just for physician care alone.

But time spent waiting is not limited to physician services. In Canada, hospitals are paid a fixed budget per year giving the perverse incentive to fill their beds with low-cost “bed-blockers” (the mere fact this problem has a name illustrates its pervasiveness). Canada has the same supply of hospital beds per capita as the U.S. (2.7/1,000 population). But the average length of stay in Canada is 36% higher (7.5 vs. 5.5 days) in part because, as Prof. Danzon explains, “more hospital beds in Canada are occupied by elderly patients with average length-of-stay of over sixty days, despite waiting lists for acute care admissions.” The consequence is avoidable suffering as patients wait months rather than weeks for various types of surgery.

How Much Rationing Would There Be Under Medicare-for-All?

Prof. Danzon’s study is a quarter-century old, but it is the best stab I’ve seen at trying to quantify the hidden burden imposed by rationing in the Canadian health system.

On the physician side, she concluded that patient time costs under a single-payer health system likely amounted to anywhere from 10 to 110 percent of spending on physician services. This is a conservative calculation insofar as it assumes that care is rationed to its highest-valued uses. If this is incorrect, then there would be an additional hidden cost associated with failures or delays in treating the most serious illnesses. Government actuaries project we will spend $717 billion on physician services in 2017, meaning Medicare-for-All would impose anywhere from $72 to $789 billion in hidden costs not included in the Urban Institute estimates of the cost of the Sanders plan.

On the hospital side, she synthesized findings from several Canadian studies to conclude that the foregone health benefits of excessive waiting times likely amounted to at least 7 percent of hospital spending but possibly could be as high as 11 percent. In light of projected 2017 hospital expenditures of $1.141 trillion in 2017, this implies a hidden cost of between $80 and $126 billion were we to bring Canadian-style health care to the U.S.

So the grand total hidden cost associated with the kinds of rationing typical in the Canadian-style single-payer approach proposed by Senator Sanders would range from $152 to $914 billion a year 

These are extremely conservative figures, as they do not even attempt to account for the adverse effects on health and longevity from the exclusion of certain high-cost medications that would be likely under single-payer health care.

Bottom Line

Things are looking bleak: now we know that Senator Sanders’ misguided single-payer plan would have produced in 2017 alone:

  • $1.1 trillion in deadweight losses due to higher federal taxes;
  • An additional $524 billion worth of waste in a U.S. health system that already has about that same level of waste.
  • An additional $152 to $914 billion in costs related to rationing of physician and hospital services.

So we’re now up to additional hidden costs amounting to at least $1.7 trillion in 2017 (at obviously more than that in each year going forward) and possibly as high as $2.5 trillion associated with Bernie Sanders’ single-payer plan. I hope readers better understand why I believe this plan is misguided (and raises the question of what it would take to convince single-payer enthusiasts to abandon the idea). It is hard to believe I even need to address the last two reasons this plan is a singularly bad idea. But I will: stay tuned.

Update #1: September 30, 2017

I updated the discussion of spending on kidney dialysis patients to take into account their measured quality of life.


READ CHRIS’ BOOK, The American Health Economy Illustrated (AEI Press, 2012), available at Amazon and other major retailers or as a pdf at AEI. With generous support from the National Research Initiative at the American Enterprise Institute, an online version complete with downloadable Powerpoint slides and companion spreadsheets has been made available through the Medical Industry Institute’s Open Education Hub at the University of Minnesota.

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