Bernie Sanders' Medicare for All: How would it work?

Sen. Bernie Sanders often points out that the U.S. is the only advanced nation that doesn't offer universal health coverage for its citizens. Worse, Americans also spend nearly 50 percent more on medical care, notes the Vermont senator, who on Wednesday joined 15 other lawmakers in introducing a plan, dubbed "Medicare for All," that would expand a system that covers about 55 million people to the entire country.

But a so-called single-payer approach to providing health care isn't the only way to achieve universal coverage, although such systems often achieve better care for lower cost than others. And while it would save billions for the country as a whole, decisions over who would win and lose under a new system will almost certainly derail it.

How other countries provide health coverage

Developed economies achieve universal health care coverage in a number of ways, often by combining financial incentives and penalties. In many of these, the actual delivery of medical care -- from doctors, hospitals and facilities -- remains private, and private insurance still exists. But this is often lost on Americans first learning about single-payer.

"The real issue is when people hear 'single-payer,' they hear 'single-provider.' Sanders is not proposing single-provider," said Laurence Kotlikoff, an economics professor at Boston University.

This single-provider approach is the system that exists in the U.K., where the National Health Service employs doctors, runs the hospitals and purchases drugs.

Other countries with single-payer health systems, like Canada, fund care publicly but deliver it privately. Canada's system is paid for by taxes and administered by regional governments. Medical care is delivered by doctors, most of whom work in private practice.

Switzerland achieves that goal with a system that's strikingly similar to the Affordable Care Act. All citizens are required to have health insurance, which they buy privately. The central government approves premiums, defines the benefits that must be offered and subsidizes premiums for low-income people. Insurers, all of which are nonprofits, aren't allowed to charge sicker people more and must pay back any surplus to their customers.

Insurers would lose

Sanders' plan, which resembles Canada's health regime more than Switzerland's, would almost certainly make patients' lives easier. It would eliminate private insurers and networks, the source of much frustration not only for Obamacare enrollees but any American who has had to navigate late payments, been denied care or faced surprise charges under private insurance.

Sanders' plan touts the promise of efficiency, much of which comes from eliminating the operating costs of insurance companies. About 21 percent of every dollar spent on health insurance goes to overhead and profit, according to America's Health Insurance Plans, the insurance industry trade group. For Medicare, the comparable figure is less than 3 percent. That's because Medicare doesn't have marketing expenses and because of its scale.

"Medicare is more efficient," said Gerald Friedman, an economics professor. "Even large insurers are more efficient than small insurers. It's not just that the public system is less expensive."

Sanders' bill greatly curbs the power of the insurance industry by creating essentially a single, large insurer. But it doesn't have to.

In Canada's system, about two-thirds of the population has private health insurance to cover what the public system doesn't -- things like dental care, prescription drugs and long-term nursing care. Australia supplements its system of publicly funded free or low-cost care with a private health insurance system offering perks like faster access for nonemergency medical services and a wider choice of providers, especially in hospitals. 

Depending on the level of benefits a Medicare-style system requires, private health insurers could still have a place to compete on marginal benefits, without denying anyone the right to essential care.

Medical community split

Friedman, who teaches at the University of Massachusetts-Amherst, has studied a number of single-payer proposals, including Sanders' plan a few years ago and a plan introduced in the New York state legislature. Eliminating marketing and billing personnel would also create savings for medical providers, he said.

"Massachusetts General Hospital has 450 people doing billing," he said. "Toronto General has three people, and one of them works on billing the U.S." (MGH is about double the size of Toronto General Hospital.) For many doctors, Friedman said, "it'll be a wash -- they will get lower reimbursements, but those will match their lower expenses."

The medical community's split on Medicare for All reflects its unequal impact. In the U.S. health system, general practitioners tend to earn less than their counterparts abroad, while specialists often earn far more -- a situation that has led to a widely bemoaned shortage of primary-care doctors in many parts of the country. That state of affairs would be somewhat reversed under a Medicare-style system. 

The American Medical Association, many specialists and hospitals oppose such a system, which by curbing high spending, would directly hit some specialists' power to charge more, especially for elective procedures, like orthopedic or cosmetic surgery. Conversely, many primary care physicians, as well as nurses and other health workers, support a Medicare-style system. 

Businesses would save money, but that doesn't mean support

The lower costs of a single-payer system would be an economic boon to businesses, whose current health care spending -- an average of $18,000 for family coverage or $5,000 for a single worker -- would be greatly reduced. American companies with a sizable workforce north of the border have lavished praise on the Canadian system, in both quality and costs.

And experts say single-payer would level the playing field for many small businesses that now find the costs and requirements of providing health insurance prohibitive or just inconvenient.

However, the changes required to put this in place would be significant. Sanders' plan requires eliminating the tax-free status of employer-provided health insurance (and since his plan would essentially eliminate employer-provided insurance, it makes no sense to preserve its tax-free status).

That's the biggest tax expenditure for the government -- even more than the tax-free status of retirement plan contributions -- costing more than $260 billion a year, according to the Congressional Budget Office. But its repeal is likely to be fiercely contested. (Ronald Reagan and George W. Bush both tried and failed to rein in the value of the tax break.) 

Health benefits, just as they're prohibitively expensive for small businesses, are a competitive advantage for many large corporations. And in the current system, where wages are taxed but employer-provided health insurance isn't, it's cheaper for a company to spend $18,000 on health care for an employee's family than to put that same $18,000 into the worker's paycheck. 

Perhaps the biggest impact of a Medicare-style system would be in the stock valuations and market capitalizations of companies that profit from the system's high costs, such as health insurers, for-profit hospital chains and pharmaceutical companies. That would have a cascading effect on mutual funds and pension plans that have invested in those companies. 

Sanders, and many others, also make a moral argument that society should privilege people's lives and well-being over profit. But achieving that goal means redistributing the profits that have already been gained -- something that profit-holders, historically, have been loath to do. 

In:
• Patient Protection and Affordable Care Act