Medicare for All Won't Solve Healthcare's Price Problem

Medicare for All is an idea stemming from a simple principle, everyone in the US should have access to the healthcare they need. This is certainly an admirable position that I undoubtedly support. However, I do not believe Medicare for All to be the panacea that many supporters claim, or even a moderate solution to the high cost nature of our system today. The reason is equally as simple: prices.

Uwe reinhardt

Uwe reinhardt

The late Uwe Reinhardt, Gerard F. Anderson, Peter Hussey, and Varduhi Petrosyan penned a timeless piece in Health Affairs back in 2003 (source) that clearly articulates why the US is so different from other developed nations. Their conclusion is in the headline, “It’s the Prices Stupid.” Despite lower utilization of healthcare services compared to other countries across most metrics, the US spending per capita is far higher. We provide more intensive, more expensive services in less efficient settings.

Fundamentally, the US is very different from other countries. We are the bedrock of healthcare innovation across the world, and it is our incredibly high prices that enable firms to invest heavily in the advancement of medical technology. However, along with this innovation comes the pressure to restrict access and shift costs to consumers that has also become a major blocker for needed treatment (primarily through spikes in insurance premiums). There is a trade-off that we must consider: is it time to reduce investment in medical innovation in order to ensure affordable access for all?

A Single Buyer is Powerful

One area where Medicare for All could have a significant impact on pricing is via monopsony power (i.e., when there is a single buyer for healthcare services that spans the population). In today’s market, where payment comes from a variety of fragmented public and private sources, buyers often have, at best, weak power against the suppliers of care. This allows healthcare providers to charge monopolistic prices - driving our high costs.

While this is a great benefit from M4A, it relies on a key principle of negotiation. If government regulators refuse to pay a specific price, and healthcare organizations refuse to provide care at the price deemed appropriate by the government, then regulators will need to feel comfortable walking away from the negotiating table. By default, this means that a particular treatment, drug, or service will not be covered for the US population. Personally, I believe that using cost effectiveness for coverage determinations is going to become necessary in the US, regardless. However, over the past several decades, the US has been weary of using cost-effectiveness in this way. This is directly opposed to many other countries whose health agencies consider the price of a treatment in approval decisions (e.g., NICE in the UK).

Fix the Prices, Expand Access

Medicare for All, in my opinion, focuses too heavily on the concept of access without considering the financial implications. With current projected costs of $1.38T per year, this fails to consider the continued rise in healthcare prices well above inflation, not to mention the massive utilization spike we would expect following its implementation. $1.38T now can easily become $2T in just a few years. M4A will not freeze this price growth, and this is a big problem.

While I won’t comment on whether or not M4A is the best way for us to provide a public form of health insurance (yet, that’s another post), I think it is incredibly important that we look more closely at how we can effectively slow price growth either in conjunction with, or in lieu of, the passage of M4A. Here are 6 targeted things we could do:

1. Kill the Mergers and Facilitate Provider Competition

Prices following a hospital merger have been shown to increase up to 18%. (source). This is monopolistic behavior, and our anti-trust legislation has been a key enabler. While the government has stepped up blockages of key provider mergers in recent years, we need to continue to look at every M&A transaction under a microscope. There are even some institutions that we should break apart given their behavior. Competition is our greatest asset against increasing prices, and we need to use it.

2. Alter Hospital Payment Structures

Facility fees are charged for services performed in hospitals, outpatient clinics, and physician practices owned by health systems. Providers will argue that these higher charges are needed to cover things like extra overhead and administration of their organizations, and regulators have enabled them with extra payments to ensure that many hospitals don’t go bankrupt. I think we should let them. The need for facility fees indicates a business model that is both inefficient and bad for patients. Force providers to innovate their business models or we will continue to see shocking hospital bills far into the future.

3. Include Cost Effectiveness in Approval Decisions


NICE in the UK utilizes a cost per quality adjusted life year measure of £20,000 when deciding whether or not to cover a new drug (although some are approved in the £20-30K range). In the US, this is not a metric that CMS uses. As a result, drugs that extend life as little as 6 months have prices in the $100K to $1M range. The general public should have a say in how much we are willing to pay to enable people with a longer lifespan. If we don’t, we will all be bankrupted by precision medicine.

It is important to note in this discussion that implementing such a policy will have dramatic effects on the number of new drugs that are produced each year. There will be a lot more negative NPV projects out there that once seemed highly profitable. However, this is a trade-off I am willing to make. Reduce speed of innovation and provide greater access.

4. Drive Manufacture of Generics

43% of the 1,600 generic drugs approved during the Trump Administration are not on the market (source). This means that the brand names can continue to charge monopolistic prices. Generics are one of our greatest assets in the fight against long-term high drug prices, and we need regulation to drive their manufacture. I am not against public subsidization of this effort - pending the right economics.

5. Empower Patients

This is a hard one because it is incredibly difficult to change consumer behavior. I need to include it in this list as there is a subset of the US population for which more information and transparent prices will have a meaningful effect. By giving these individuals the data that allows them to effectively shop for care, we will see reductions in costs (instead of just reductions in utilization that we see with HSA plans). With that said, the highest cost patients (e.g., Dual Eligible Members over 85+) are unlikely to do this shopping on their own. We need other parties at the table to provide the assistance needed.

6. The Ultimate Gatekeeper


Primary care with financially rewards tied to the organization’s ability to keep patients healthy and reduce cost of care is arguably one of the most promising innovations in driving down costs. HMOs run by insurance administrators were highly controversial, but this is much different. Patients trust their doctors a lot more than they do their insurer. But when your physician practice (including the admins, nurses, care managers, etc.) takes financial ownership, you bet that there will be much more focus on ensuring that you get the best quality care for the lowest possible price. This is disruption at its most elemental form, and I am excited to watch it grow in the coming decades.