Embracing the Hard Realities of Health-Care Reform

Michael D. Tanner

It is an old joke among health-policy wonks that what the
American people really want from health-care reform is unlimited
care, from the doctor of their choice, with no wait, free of
charge. For Republicans, trying to square this circle has led to
panic, paralysis, and half-baked policy proposals such as the
Obamacare-replacement bill that passed the House last month. For
Democrats, it has led from simple disasters such as Obamacare
itself to a position somewhere between fantasy and delusion.

The latest effort to fix health care with fairy dust comes from
California, whose Senate voted last week to establish a statewide
single-payer system. As ambitious as the California legislation is,
encompassing everything from routine checkups to dental and
nursing-home care, its authors haven’t yet figured out how it will
be paid for. The plan includes no copays, premiums, or deductibles.
Perhaps that’s because the legislature’s own estimates suggest it
would cost at least $400 billion, more than the state’s entire
present-day budget. In fairness, legislators hope to recoup about
half that amount from the federal government and the elimination of
existing state and local health programs. But even so, the plan
would necessitate a $200 billion tax hike. One suggestion being
bandied about is a 15 percent state payroll tax. Ouch.

The utopian fantasy of a
single-payer system is attractive to many voters, but it would
destroy the American economy.

The cost of California’s plan is right in line with that of
other recent single-payer proposals. For example, last fall,
Colorado voters rejected a proposal to establish a single-payer
system in that state that was projected to cost more than $64
billion per year by 2028. Voters apparently took note of the fact
that, even after figuring in savings from existing programs,
possible federal funding, and a new 10 percent payroll tax, the
plan would have still run a $12 billion deficit within ten
years.

Similarly, last year Vermont was forced to abandon its efforts
to set up a single-payer system after it couldn’t find a way to pay
for the plan’s nearly $4 trillion price tag. The state had
considered a number of financing mechanisms, including an 11.5
percent payroll tax and an income-tax hike (disguised as a premium)
to 9.5 percent.

On the national level, who could forget Bernie Sanders’s
proposed “Medicare for All” system, which would have cost $13.8
trillion over its first decade of operation? Bernie would have paid
for his plan by increasing the top U.S. income-tax rate to an
astounding 52 percent, raising everyone else’s income taxes by 2.2
percentage points, and raising payroll taxes by 6.2 points. Of
course, it is no surprise that Medicare for All would be so
expensive, since our current Medicare program is running $58
trillion in the red going forward.

It turns out that “free” health care isn’t really free at
all.

How, though, could a single-payer system possibly cost so much?
Aren’t we constantly told that other countries spend far less than
we do on health care?

It is true that the U.S. spends nearly a third more on health
care than the second-highest-spending developed country (Sweden),
both in per capita dollars and as a percentage of GDP. But that
reduction in spending can come with a price of its own: The most
effective way to hold down health-care costs is to limit the
availability of care. Some other developed countries ration care
directly. Some spend less on facilities, technology, or physician
incomes, leading to long waits for care. Such trade-offs are not
inherently bad, and not all health care is of equal value, though
that would seem to be a determination most appropriately made by
patients rather than the government. But the fact remains that no
health care system anywhere in the world provides everyone with
unlimited care.

Moreover, foreign health-care systems rely heavily on the U.S.
system to drive medical innovation and technology. There’s a reason
why more than half of all new drugs are patented in the United
States, and why 80 percent of non-pharmaceutical medical
breakthroughs, from transplants to MRIs, were introduced first
here. If the U.S. were to reduce its investment in such innovation
in order to bring costs into line with international norms, would
other countries pick up the slack, or would the next revolutionary
cancer drug simply never be developed? In the end, there is still
no free lunch.

American single-payer advocates simply ignore these trade-offs.
They know that their fellow citizens instinctively resist rationing
imposed from outside, so they promise “unlimited” care for all,
which is about as realistic as promising personal unicorns for all.
In the process, they also ignore the fact that many of the systems
they admire are neither single-payer nor free to patients. Above
and beyond the exorbitant taxes that must almost always be levied
to fund their single-payer schemes, many of these countries impose
other costs on patients. There are frequently co-payments,
deductibles, and other cost-sharing requirements. In fact, in
countries such as Australia, Germany, Japan, the Netherlands, and
Switzerland, consumers cover a greater portion of health-care
spending out-of-pocket than do Americans. But American single-payer
proposals eliminate most or all such cost-sharing.

Adopting a single-payer system would crush the American economy,
lowering wages, destroying jobs, and throwing millions into
poverty. The Tax Foundation, for instance, estimated that Sanders’s
plan would have reduced the U.S. GDP by 9.5 percent and after-tax
income for all Americans by an average of 12.8 percent in the long
run. That is, simply put, not going to happen. So Americans are
likely to end up with a lot less health care and than they have
been promised.

Santa Claus will always be more popular than the Grinch. But the
health-care debate needs a bit more Grinch and a lot less Santa
Claus. Americans cannot have unlimited care, from the doctor of
their choice, with no wait, for free. The politician that tells
them as much will not be popular. But he or she may save them from
something that will much more likely resemble a nightmare than a
utopian dream.

Michael
Tanner
is a senior fellow at the Cato Institute, a free-market
oriented think tank.

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