“Medicare for All” Would Be an Operational Disaster and Would Not Fix the Real Problem with Healthcare

I. Introduction

In his call for “Medicare for All”, Bernie Sanders is silent on the implementation and the operational details of his proposal. That is a big oversight because what he is proposing would be extraordinarily difficult to implement and operate, subjecting over 150 million people to the risk of deteriorating healthcare brought on by an administrative nightmare.

Before his proposal should be considered seriously, Senator Sanders must address: 1) the monumental task of switching the records of 150+ million people from multiple private systems in different formats to the current Medicare systems platform, 2) the plan for a federal agency to take over and manage the responsibilities of over half-a-million additional employees and to keep the operations state-of-the-art, 3) the political and legal instability of such a federalized approach (and its impact on people who get whipsawed between changing approaches), 4) the effect of subsidizing such an approach on the economy as a whole and 5) how all of this effort would lower costs and improve healthcare service.

II. Transferring and Managing 150+ Million Additional People on Medicare’s Information Systems

While Medicare is the largest health insurer in the country, it covers less than 20% of the population. Moving the information records of 150+ million people on private systems onto the Medicare system would be daunting. This information exists in environments with different protocols, system architectures, program languages, formats, etc. The conversion could not be fully automated. The Medicare system would also need to be substantially upgraded.

One should think about the difficulty of the government in automating political elections. The election systems start with a clean slate which makes things much easier to develop. There are no inter-dependencies. There is one simple relationship that needs to be tracked and tabulated. Other than that, the system and information need to be secure and the output must be auditable. It’s hard for system requirements to be easier to meet than this. Yet these relatively easy requirements have proven hard for federal, state and local governments to meet.

Separately, it’s easy to forget that the Healthcare.gov website, the heart of Obama’s healthcare reform, crashed upon launching.

In the UK, the government abandoned its healthcare system after spending $15 billion on new technologies.

Now consider a system for “Medicare for All”. We begin with the current government systems being under-resourced. Transferring the information of 150+ million people in different formats, languages, etc. to the existing systems would be a nightmare. It literally would be more than 100 times as difficult as building an election system or website. This project could take a decade to complete, come with millions of incorrect entries, have tremendous cost over-runs, and be obsolete by the time it was ready.

Has Senator Sanders given any thought to the implementation of his idea? If he did, he would rethink his approach and focus on a program that could be implemented quickly and have a big impact on an important healthcare issue right from the start.

III. Managing the Federal Workforce

With the adoption of “Medicare for All”, there also would be a tremendous disruption to the workforce of over 500,000 people in the healthcare insurance industry. For example, most of the current office space and call center facilities could not be retained because they are shared with other company functions. The employees would have to relocated, or let go. All of the carry-over personnel would have to be retrained on the new policies and systems. The employees would have to be given direction and be motivated. The workforce answering phones would be difficult to manage on a national level given the wide disparity in the workforce skills, age and pay scale per region. Is it doable? Probably. Will it be more efficient than a decentralized workforce working for a number of different, competitive service providers? Probably not; at least, not in the short-run given the logistical problems, nor in the long-run given the ability of the private sector to better manage employee performance through incentive pay plans and creative recognition events.

IV. Political and Judicial Instability

One of the biggest problems with Obamacare is that it didn’t get any Republican votes. That turned it into a political football. For example, the subsequent Republican Administration gutted important parts of the law. This had a particularly unfair impact on those people who had insurance coverage before getting a chronic illness, then changed to Obamacare, only to lose coverage when the implementation rules were changed.

Obamacare is now back before the Supreme Court. It could be further gutted through the judicial arm of the federal government.

Senator Sanders should learn from the Democrats’ past mistakes and not even propose to introduce any significant healthcare legislation unless it has bi-partisan sponsorship.

V. The Additional Debt Would Harm Most Americans

The U.S. now has over $20 trillion in debt, or over $150,000 per voter. Its debt exceeds its annual Gross National Product. This juxtaposition puts the U.S. government in the class of the world’s ten worse countries when it comes to fiscal management.

“Medicare for All” would add another $30+ trillion to that debt amount, even with several immediate tax increases to help defray some of its costs. Such an approach would be a prescription to higher interest rates, a recession and a possible default on the debt (in order to write it down to a manageable level). These effects would have a large impact on the stock market and substantially decrease the net worth of millions of U.S. citizens.

VI. The Basic Economics of the Healthcare Industry

The most significant economic characteristic of the U.S. healthcare industry is that a relatively small percentage of the population produce the majority of the costs. This proposition holds when looking at the costs of the top 1%, 5% or 10%.

The key to addressing this issue is to understand why this occurs. Is the split caused by a specific group of people? If so, what factor in that group is causing the high costs to occur?

As it turns out, the biggest driver of costs are those patients with chronic illnesses such as heart disease, diabetes, cancer, etc. which consume somewhere between 50% and 75% of the industry’s resources. Additionally, a fair chunk of these expenses (>25%) occur in the last year of life.

VII. What is Causing All of the Costs?

 “Medicare for All”, even if it works flawlessly from an administrative and managerial perspective, addresses only one part of the healthcare industry, namely health insurance. 

This approach would not solve the underlying healthcare problem in this country that costs are too high and the level of service is inadequate. For example, eliminating all of the profits from the insurance companies would amount to a savings of less than 1% of the industry’s cost structure.

Why then is the healthcare industry such a poor performer given that the American economic system is the envy of the world? As the Supreme Court has said: “the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress”.

The reason for the poor performance is that a large part of the healthcare industry operates in a marketplace characterized by market failure. That is, the market does not meet the conditions necessary to be workably competitive.

For example, in the case of a chronic illness such as heart failure, there is no way for a patient to know whether the evaluation and recommendations are on point and the prices for the proposed services are reasonable. Moreover, patients, practitioners, hospitals, insurance companies, etc. typically know certain things that others don’t. Without the free flow and availability of all of this information, there is no market force guided by an “invisible hand” to ensure an efficient outcome. Costs can continue to bound out of control without any corrective action by the supply and demand forces in the market.

VIII. Addressing the Real Issue

The solution to rising healthcare costs must address the fundamental issue of better information flow, particularly for chronic illnesses. Senator Sanders does not address how “Medicare for All” will satisfy this requirement.

Let’s look first at the apolitical issue of billing. There is no industry-wide standardization on basic design issues such the format to collect and store the data. Each practitioner that bills for service speaks to each insurance carrier in a “different language” for each of its customers depending on their carrier and sometimes even the state of the record. Given the administrative complexity of this approach, one estimate puts the cost of billing at $80,000 per physician per year. Industry standardization of billing would save a lot of costs and headaches without the need to reshuffle the entire health insurance industry.

The same principal applies to each leg of the healthcare stool, particularly as it relates to chronic diseases. What are each of the providers in the area of a particular chronic illness trying to accomplish? Is the research community coordinated on which avenues to pursue to avoid unnecessary overlap? Will the FDA fast-track this priority research? Will the insurance companies cover any drugs coming from those efforts?

A standardized approach to care of chronic illnesses would substantially reduce the industry cost structure. With a more coordinated focus on the “big ticket” illnesses, researchers might even discover that we all would be collectively better off if the federal government gave young people money to avoid being obese. That would be a strange prescription, but if it worked so be it.

IX. Conclusion

“Medicare for All” may be a good campaign slogan, but it doesn’t offer much hope for improvement in healthcare. Senator Sanders simply points to other countries and says if they can provide healthcare service more cheaply, we should be able to do so. He doesn’t explain how. Nor does he provide a mechanism for moving over 150+ million people off of their current carrier’s system and onto the government’s system.

We all agree that healthcare costs too much in this country. To materially change that fact, the government needs to focus on chronic illnesses and information flow (e.g., by standardizing certain functions). Without addressing these two critical issues, Senator Sanders does not have much more than an empty campaign slogan.

Steven Zecola

May 8, 2020

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