Rising premiums and declining coverage have led growing numbers of Americans to consider a system of national health insurance, a system of Medicare for All. A majority of Democrats in the House of Representatives, 15 senators, and large majorities of Democratic presidential primary voters have endorsed Medicare for All. Recently, we endorsed Medicare for all in an open letter that concluded that “a program of Medicare for All (M4A) could be considerably less expensive than the current system, reducing waste and profiteering inherent in the current system, and could be financed in a way to ensure significant financial savings for the vast majority of American households.” Other economists led by Michael Boskin have challenged this conclusion in an open letter from economists “on Medicare for All plans.” Unfortunately, Boskin’s letter adds nothing to our understanding of the economics of Medicare for All. It combines misinformation and political rhetoric, demonstrating that there are only poor arguments for retaining a wasteful system of private health insurance.
The Boskin letter’s suggestion that free markets can provide healthcare is fundamentally misguided. Far from a solution, reliance on markets is the problem in our healthcare system. There is no free market in healthcare and the lack of regulation has allowed a few powerful pharmaceutical and hospital companies to exploit the rest of us, employers and employed alike. Increasing reliance on markets rather than government regulation explains why healthcare costs and prices have risen so much faster in the United States than elsewhere.
Whatever the merits of laisser faire in perfectly competitive markets, this does not apply to healthcare. Kenneth Arrow demonstrated decades ago how distinctive features of healthcare require public regulation. Far from perfectly competitive markets with multiple independent agents and perfect information, healthcare is provided by a relatively small number of providers, many of whom exercise significant monopoly power, and sell to patients under conditions of limited information and uncertainty. When many deal with uncertainty by buying insurance, adverse selection and moral hazard give insurance companies interests antagonistic to their subscribers. Unregulated markets allow monopoly providers to raise prices to levels virtually unrestrained by highly inelastic demand for life-saving products.
The Boskin letter reasserts the fallacious claim that federal spending under Medicare for All would increase by more than $32 trillion over the decade 2022-31. This overstates additional federal spending in two ways. First, It under counts projected federal spending by $7.5 trillion. Furthermore, it is based on a study that seriously exaggerates increases in spending and understates savings to be achieved through Medicare for All, contradicting a plethora of studies demonstrating that Medicare for All would generate dramatic savings from reducing administrative waste and monopoly prices and would lower the cost of health care even after taking account of the cost of covering the uninsured and the underinsured.
By lowering the cost of healthcare and allowing the transfer of compensation from premium dollars into wages, Medicare for All would produce the largest increase in take-home pay in American history. With more money in their pockets, consumer spending would increase, encouraging more investment and faster economic growth.
The Boskin letter’s argument that Medicare For All would hurt the economy rests on the perverse assumption that higher costs are good for business. Instead the high cost of American healthcare saddles American businesses with costs that their foreign competitors do not pay. Medicare For All would also promote income and employment by raising productivity. Removing the link between employment and health insurance will promote faster growth, innovation, and entrepreneurship.
Ironically, the Boskin letter’s assertion that Medicare For All would “lead to shortages” and “restrict access to care” concedes one of the current system’s great failings that millions of Americans are now denied access to needed care because they lack insurance or cannot pay deductibles or co-pays. It is also contradicted by empirical findings that past coverage expansions have been accommodated with relative ease. The current system wastes the time of nurses and physicians on unproductive billing and insurance related tasks. Medicare For All would free this time, allowing physicians and nurses to practice medicine and to care for the patients now suffering from restricted access.
The Boskin letter’s warning that Medicare For All would “eliminate the coverage millions of Americans rely on through employer- and union-sponsored plans” is particularly odd during this period of sharply rising unemployment. What does this say to the millions of Americans who are losing their health insurance at the same time they lose their job? It is our continued reliance on employment-based coverage that threatens workers’ coverage. By ending the link between employment and health insurance coverage, Medicare for All would assure all Americans of access to healthcare regardless of their employer, and it would be better coverage than is now available in virtually all private insurance plans.
The current Covid-19 pandemic is exacerbated by the system of private, market-driven healthcare system. Millions of Americans are facing loss of access to health care because they are losing their health insurance when they lose their jobs. Their loss of access threatens all of us by facilitating the spread of the virus. At the same time, hospitals and even health insurers face enormous financial losses because of the pandemic, threatening the viability of our healthcare system in the future. How much will remain of our private, for-profit healthcare system after so many market-based institutions go bankrupt?
The assertion that Medicare For All would lower quality rests on the false claim that high prices are needed to encourage research in new medical technologies. This discounts the role of government research funding which is already responsible for the largest share of R&D spending. Unlike most private research, which focuses on marketing or on the evergreening of existing products, the public already funds most basic research and is responsible for most of the major advances in pharmaceuticals and other medical technology. Nor are the outrageously high prices for Americans’ health care system needed to fund research and development. The 100% markup on drug prices in the US compared with other countries far exceeds total company spending on research and development.
Finally, the Boskin letter neglects the issue of equity. Because of our highly unequal distribution of income, allocating healthcare according to ability to pay violates our democratic norms of equal rights, the principle that all citizens should have rights to life, liberty and the pursuit of happiness. Our system of private health insurance kills over 68,000 Americans each year. How many more will die because of a misguided faith in laisser faire economics?
James G. Kahn, Professor, Institute for Health Policy Studies, School of Medicine, University of California, San Francisco
Jeffrey Sachs, University Professor and Director, Center for Sustainable Development, Columbia University
Anders Fremstad, Assistant Professor, Economics, Colorado State University
Robert Reich, Carmel P. Friesen Professor of Public Policy, Goldman School of Public Policy, University of California, Berkeley
Robert Pollin, Distinguished University Professor of Economics and Co-Director of Political Economy Research Institute, University of Massachusetts Amherst.
Leonard Rodberg, Professor Emeritus of Urban Studies, Queens College/CUNY
Emmanuel Saez, Professor of Economics, Director, Center for Equitable Growth, University of California at Berkeley
Gabriel Zucman, Associate Professor of Economics, University of California at Berkeley
Alison Galvani, Burnett and Stender Families' Professor of Epidemiology, Director of the Center for Infectious Disease Modeling and Analysis, Yale School of Public Health
Gerald Friedman, Professor of Economics, University of Massachusetts at Amherst
Katherine Moos, Assistant Professor of Economics, University of Massachusetts at Amherst
Lindy Hern, Associate Professor of Sociology, University of Hawaii at Hilo
Lawrence King, Professor of Economics, University of Massachusetts at Amherst
Michael Ash, Professor of Economics, University of Massachusetts at Amherst
Markus P. A. Schneider, Associate Professor of Economics, University of Denver
Jeff Helton, University of Colorado Denver School of Business
Mark Paul, Assistant Professor of Economics, New College of Florida
Elissa Braunstein, Professor & Chair, Department of Economics, Colorado State University
Dean Baker, Senior Economist, Center for Economic and Policy Research and Visiting Professor of Economics, University of Utah
Darrick Hamilton, Professor of Economics and Sociology and executive director of the Kirwan Institute for the Study of Race and Ethnicity at The Ohio State University.
Stergios Skaperdas, Clifford S. Heinz Chair and Professor of Economics Director, Center for Global Peace and Conflict Studies University of California, Irvine
Ramaa Vasudevan, Professor of Economics, Colorado State University
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