The spread of COVID-19 virus has prompted predictable criticisms of U.S. health care, which has a deserved reputation of being bureaucratic and inflexible. While the presumptive Democratic nominee Joe Biden is hesitant to commit to such a plan, with so many people deemed as “non-essential” losing their jobs, many argue that now is the time for the United States to move to a Medicare For All plan with no copays or deductibles. According to Newsweek public support for Medicare for All has risen in the wake of coronavirus fears. Is Medicare For All an effective treatment to the disease plaguing our country’s health care market?
First, it is important to point out that Medicare For All would likely make the biggest problem with health care markets even worse: the way people behave when they’re spending other people’s money. One of the scariest things about a pandemic is the thought of not being able to get the care you need because of a shortage of beds, ventilators, or simply a lack of available health care workers to treat the sick. Just because people would have health insurance does not mean they would receive health care when they need it most. What we see now during the pandemic is that in countries where everyone is covered by national insurance, the shortages are just as bad as in the U.S., if not worse.
What is needed in a crisis is a health care system that is responsive and flexible, and to move resources like masks, ventilators, and doctors quickly to where they are most needed, prices must be flexible. Insurance need not thwart that flexibility, but health insurance does just this when it prevents prices from working, as it does in the U.S. today. Simply expanding insurance to all would not make the problem go away, and would likely make things much worse.
To illustrate how health insurance distorts prices and peoples’ behavior, we can compare it to a different, and more familiar insurance market: auto insurance. Auto insurance doesn’t protect you against injury, nor does it protect your car against damage. Instead, it protects you from the financial consequences of a car wreck. This is good for you as a driver and car owner, but it’s bad if the protection from those consequences leads drivers in general to take more risks that lead to more accidents and higher premiums for everyone.
So what do auto insurance companies do? They mostly cover unlikely but expensive costs, like the high costs that come from a wreck or theft. Smaller, predictable expenses like new tires and tune-ups are understandably the responsibility of the owner. If you have collision insurance, for example, then you only have to pay your deductible and the insurance company takes care of the rest.
But there’s more to it; after a wreck the insurance company also has you get an estimate before your car’s damage can be repaired. That estimate isn’t perfect, but usually it’s close to the actual cost of the repair.
When was the last time you were presented with an estimate at the doctor’s office prior to receiving your care? Our guess is never. On some occasions, you may be given an estimate of how much the visit’s cost will be to you, but the total cost is something you only learn later, if you bother to read the statement you get in the mail. Because of this, patients never actually know how much their medical care costs up front and cannot make informed decisions about which treatments to seek and which doctor’s office to seek them from. In fact, oftentimes we don’t even know what our own actual cost is going to be until we receive a bill from the doctor for what insurance did not cover. Often, the doctors themselves do not know how much the patient and insurer will be billed for treatment and medicine. There are several reasons for this, but the core problem is that the insurance is treated as if it were a shopper’s card at a grocery store, meant only to provide discounts to people, instead of as a means to reduce uncertainty.
What does this mean for Medicare for All? The most that expanded health insurance can do is protect you from the financial consequences of illness or injury. On the surface, this sounds wonderful. Who could argue against relieving millions of people from the financial burdens of the most expensive healthcare systems in the world? Having insurance itself, no matter how generous the coverage, is no guarantee of care; doctors, nurses, beds, and ventilators are still scarce and must still be allocated somehow. Medicare for All would do little to address this and would likely even exacerbate it by even further removing prices as a means of transmitting information about which medical resources are needed where and when.
Fixing the healthcare sector is a huge task that will likely require several changes. One fix is incredibly obvious: we need transparency in prices up front to allow patients a more informed choice in which treatments to seek. Doing so carries with it the added bonus of forcing hospitals and doctors offices to compete with one another, which would drive prices down as informed consumers shop around to compare prices for similar procedures and treatments. But for price competition to work, there need to be competitors, not cartels who lobby Congress to obfuscate the cost of healthcare from the consumers. The result would be a more flexible health care system, one that in a sudden crisis can shift resources to where they are needed most.
Writtin in cooperation with David Hebert, an associate professor of economics at Aquinas College and Director of the Center for Markets, Ethics, and Entrepreneurship.