We have the greatest health care system in the world. – Senator Richard Shelby (R-AL)

Our current system is the most expensive, bureaucratic, wasteful, and ineffective in the world. – Senator Bernie Sanders (I-VT)

Obviously these senators cannot both be right. In the first of this three-part article we shall begin by considering whether or not our healthcare system needs to be radically changed. In the second part, we’ll look at Senator Sanders’s recent healthcare reform proposal, which calls for extending Medicare to all Americans. Then, in the third part, we shall provide an estimate of the cost of his proposal.

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healthcare costs

Part 1.  Our nation’s current healthcare system

We shall try to answer two questions: Do we have the world’s best healthcare system? Why does healthcare cost so much?

Do we have the world’s best healthcare system?

Our healthcare system is paid for by government agencies, private employers, and individuals. Fifty-five million people receive Medicare benefits, which cover most of their medical expenses. Five-sixths of the recipients are 65 or older, and the rest are disabled people under 65. An additional seventy-four million Americans with relatively low incomes are covered by Medicaid. Two other programs, one administered by the Veterans Administration, and the other by the Childrens Health Insurance Program, each covers nine million people.

Just over half of all employed Americans are covered by their employers’ insurance plans, which often require employees to pay part of the premiums, impose high deductibles and copayments, and don’t cover certain medical procedures or allow employees to choose their own doctors. Tens of millions of Americans pay for their own individual plans, which often have the same shortcoming

Some 28 million people have no medical insurance whatsoever. Few of them can afford to pay for doctor’s visits, so sometimes in desperation,  they turn up at hospital emergency rooms. Others receive no medical attention at all.

We spend almost twice as much per capita on healthcare as most other wealthy nations, and yet we’re the only one that does not provide medical insurance for all its citizens. In fact, the World Health Organization ranks the quality of US. healthcare last among seventeen industrialized countries. Clearly, we are not getting much bang from each buck we spend on healthcare.

And yet, many Americans believe we have the best healthcare system in the world. After all, we have some of the finest hospitals, many excellent doctors, and if you have good insurance coverage – or a lot of money – then you can be confident of getting very good medical care.

On the down side, twenty-eight million Americans are uninsured, and tens of millions more have what can be fairly described as very crappy insurance, which does not cover such basic services as maternity care, hospital stays, MRIs and other vital medical procedures. And then too, tens of millions more have policies with large deductibles and high co-payments. Many of these people actually cannot afford to go to a doctor, so their policies are completely useless.

In effect, more than a third of all Americans are uninsured or underinsured, and receive little or no medical care whatsoever. Ask them if we have the greatest healthcare system.

Why does healthcare cost so much?

Why does American healthcare cost so much more than the healthcare that is provided by the rest of the industrial world? By far, the largest factor is our vast administrative costs – which account for between one quarter to one third of our $3.2 trillion bill.

Right now our public healthcare system is run by dozens of government agencies, while privately supplied insurance is administered by hundreds of insurance companies.

Some three million people are employed by healthcare providers and insurance companies to negotiate reimbursement. The former try to maximize reimbursement while the latter try to minimize it. Their efforts essentially cancel each other out. Despite their hard work, these folks do nothing to enhance our nation’s healthcare. But they do provide an excellent illustration of Parkinson’s Law: Work expands to fill the time available for its completion.

Senator Sanders has observed that “Layers of bureaucracy associated with the administration of hundreds of individual and complicated insurance plans is stunningly wasteful, costing us hundreds of billions of dollars a year.”

https://www.nytimes.com/2017/09/13/opinion/bernie-sanders-medicare-single-payer.html

Another reason for our nation’s huge healthcare bill is that we are the only wealthy nation that does not negotiate drug prices with the large pharmaceutical firms. In fact, under the Medicare Prescription Drug, Improvement, and Modernization Act, which was passed by a Republican- controlled Congress and signed by President George W. Bush, the federal government is  expressly prohibited from entering into these negotiations. This prohibition, which ensures that our nation has, by far, the highest prescription drug prices in the world, costing Americans tens of billions of dollars a year, was included to ensure the support of the giant pharmaceutical firms in enacting the law.

Many drugs produced by American companies, are sold for five or ten times as much in our country as they are in other countries. But there are legal barriers to reimporting these drugs to the United States, ostensibly because they may be “unsafe.”

There is also a vast provision of unneeded medical services. Many doctors, fearful of malpractice suits, order medically unnecessary tests and procedures. In addition, they provide medical services because they are reimbursed for services performed, whether they are needed or not. And finally, many patients with insurance plans that do not require high copayments consume medical services as they would food at an all-you-can-eat buffet.

Well insured patients rarely shop around for the lowest cost hospital care or medical procedures – both of which vary widely in price even in the same locality. There is no incentive for patients to comparison shop if their insurance company will pick up the bill.

At the other end of the spectrum, tens of millions of Americans must do without essential drugs and forego life-saving medical procedures because they cannot afford them. So we are really operating two separate and unequal healthcare systems – one for those who have very good insurance coverage, and the other for those who don’t. In sum, compared to people living other wealthy nations, Americans pay much more for much less healthcare.

Let us stipulate that we do not have the world’s greatest healthcare system – nor are we even close. No amount of tinkering, however well intentioned, will appreciably raise the quality and quantity of healthcare, nor will it greatly increase the efficiency with which it is delivered.

The Affordable Health Care Act of 2010, aka Obamacare, did cut the number of uninsured and underinsured Americans by 42 percent, but it left in place an extremely inefficiently functioning healthcare system. What is still called for is an overhaul that will tear out those inefficiencies root and branch.

Senator Sanders’ plan, Medicare for All, would appear to do just that. In Part 2 of this article we’ll take a close look at that plan, to see if it meets our nation’s healthcare needs.

Full disclosure: Bernie Sanders and I ran track together in high school, and were roommates for one semester at Brooklyn College. When he ran for president, I provided the media with information about Bernie’s high school and college days.

About the Author

Steve Slavin has a PhD in economics from NYU, and taught for over thirty years at Brooklyn College, New York Institute of Technology, and New Jersey’s Union County College. He has written sixteen math and economics books including a widely used introductory economics textbook now in its eleventh edition (McGraw-Hill) and The Great American Economy (Prometheus Books) which came out last month.