Sens. Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont have built their presidential campaigns around merciless attacks on special interests, but when it comes to healthcare they are comparatively silent about doctors and hospitals, two groups that account for a majority of healthcare spending in the United States.
Unless Warren and Sanders change their approaches, they will never be able to achieve anywhere near the savings that they promise would magically appear as a result of their $34 trillion plan to socialize health insurance.
When experts assess the cost of a healthcare proposal, they typically look at two different measures of spending. One is the question of how much a given program would increase federal spending on healthcare (that is the $34 trillion figure in the case of the Sanders proposal that Warren has endorsed). The other is how the proposal would affect the overall amount that the U.S. spends on healthcare.
Much of the focus in Democratic debates has centered around the first measure. Warren and Sanders have faced questions about how they can possibly pay for a proposal that would increase total federal spending by nearly 60% over a decade. Warren has refused to acknowledge that such a proposal would require higher taxes on the middle class and has only recently vowed to release a plan to demonstrate how she would finance it. Sanders, for his part, acknowledges that taxes for the middle class would go up but says that he would not put out a detailed plan to explain how he would pay for it.
Both candidates, ultimately, are attempting to make a different version of the same argument — that costs would go down for Americans overall under a socialized insurance system. That is, if the government was absorbing costs currently paid by Americans and their employers and creating efficiencies then total spending on healthcare would be less. For instance, if a family no longer has to worry about premiums, co-payments, or deductibles, then their overall costs could go down, even if they are paying higher taxes than they do now. Whenever he’s pinned down on the costs of his program, Sanders makes the case that other countries manage to cover everybody and pay far less per capita for care than the U.S.
The problem is that neither Warren nor Sanders lay out how they plan to extract trillions of dollars a year in savings from the current system and make per capita spending resemble that of other nations.
Both candidates spend a lot of time bashing profit-hungry insurers and drug companies. Sanders has called on all candidates “to reject money from the insurance and pharmaceutical industries.” In Democratic debates, Warren lamented that last year the insurance industry “sucked $23 billion in profits out of the healthcare system” and asked whether Democrats “have the guts to stand up to the corrupt, price-fixing pharmaceutical industry, which is charging us the highest prices in the world for prescription drugs.”
The candidates speak as if getting rid of insurers’ profits and administrative costs and taking on drug companies would reduce overall healthcare costs to the point at which it suddenly becomes affordable to provide free and virtually unlimited coverage to everybody.
But the $23 billion in insurance profits that Warren and Sanders want to do away with are a fraction of 1% of the $3.5 trillion in U.S. health spending in 2017, according to official data from the Centers for Medicare and Medicaid Services. Prescription drugs only accounted for 10% of national health spending.
In contrast, hospitals accounted for 33% of health spending and physician and clinical services took up another 20%. In other words, a majority of the money spent in the U.S. healthcare system goes to doctors and hospitals. Yet, noticeably absent from Sanders and Warren screeds, and from actual legislation, is a specific plan to tackle medical provider costs.
From a political perspective, Warren’s and Sanders’s posture makes sense. Polls show that doctors are viewed overwhelmingly favorably by the public, and hospitals are also more popular than insurance or drug companies. Those who actually provide care and have a personal relationship with patients are more popular than faceless companies. As Warren herself has put it: “I’ve actually never met anybody who likes their health insurance company. I’ve met people who like their doctors.”
Sanders and Warren claim they will bring healthcare spending more in line with other countries and yet they don’t mention that one reason why other countries spend less is that doctors earn significantly less elsewhere. They have not explained how they are going to get doctors to accept less. They like to rail against insurance and drug industry lobbyists but doctors and hospitals also have powerful lobbying groups.
Under the current system, doctors and hospitals accept relatively lower payments from Medicare but then shift costs onto those with private insurance. But once private insurance is eliminated, so is the ability to cost shift, and thus the problem of extracting costs out of the system becomes much more difficult. It’s a simple formula: squeeze doctors and hospitals more and many of them could be forced to scale back or stop operating, thus reducing the availability of providers at a time when over 300 million people would be flooding the system trying to take advantage of the new or enhanced benefits being promised by Sanders and Warren. If Sanders and Warren pay hospitals and doctors more to avoid access problems, the cost of their proposal goes up significantly.
The same study from the liberal Urban Institute that found that the type of plan advocated by Sanders and Warren would raise federal spending by $34 trillion over a decade also found that the plan would not save money relative to the current system. In fact, it projects national health spending would go up $7 trillion on a net basis — i.e. even after accounting for the fact the federal government would be absorbing costs currently paid by states and the private sector. And the Urban Institute assumed the plan would pay doctors Medicare rates (i.e. significantly less than they’re currently getting from private insurance). That means that the system could be even more costly if Warren and Sanders do not impose cuts to doctors’ payments.
Warren and Sanders are finally getting more scrutiny concerning how they would pay for what would be the most expensive government program in U.S. history. But they also need to be challenged on their promises that they’ll be able to realize massive healthcare savings without acknowledging it would require significantly slashing payments to doctors and hospitals.
