October 14, 2020
As the election nears, efforts to revamp the nation’s healthcare system by expanding government-run insurance are intensifying. Recent Democratic proposals would lower the eligibility age for Medicare and create a public option in the exchange marketplace. This would significantly alter the existing healthcare landscape by increasing the government’s fiscal responsibility, influence, and control over healthcare. It is important that policymakers, and those affected by the policy changes, fully understand the far-reaching adverse consequences of these proposals.
Medicare, Medicaid, and the Children’s Health Insurance Program currently cover 42 percent of hospital reimbursement, 35 percent of physician office payments, and 43 percent of retail prescription drug spending. Shifting millions of people from comprehensive private insurance into public programs would have broad negative economic effects. A recent report I authored delineates these negative effects on workers, employers, healthcare providers, consumers, and taxpayers.
Workers and Employers. Workers may believe that their wages will increase if employers are not paying for health insurance, and employers may think that they will enjoy savings from shifting the cost of health insurance to the government. But any financial benefit cannot accrue fully to both employers and workers. Even if gross wages do rise for workers, after-tax wages will generally increase significantly less, and employers may face a new tax to provide a funding source for Medicare expansion. Moreover, because Medicare cost sharing does not cover as much as most private insurance, workers could be left with high out-of-pocket costs or the need to purchase supplemental insurance.
Healthcare Providers. Medicare reimbursement rates are far lower than average private insurance rates. With more people covered by Medicare, providers will see more patients at these lower rates. Any large reductions in reimbursement will have significant consequences across all provider settings – and not just for well-paid physicians, but for nurses and other staff as well. Moreover, facilities hit hardest by reductions in reimbursement from this change could reduce services, consolidate with other providers, relocate to more populated or profitable markets, or close.
Consumers. One rationale often given for expanding Medicare is reducing the number of older uninsured individuals, but only 8 percent of adults aged 60–64 are uninsured. Research has shown that Medicare expansion would have only a minimal impact on coverage while increasing premiums and out-of-pocket spending for those remaining in the individual market. Meanwhile, a public option in the exchange marketplace would drive private plans out, with researchers estimating that 2 million people insured through the individual market could lose access to private plans a decade after the introduction of a public option.
Taxpayers. When it comes to the cost of Medicare expansion or a public option, there is no way around needing taxpayer dollars to pay for what would be an exorbitantly expensive undertaking for the federal government.
As federal and state policymakers consider broader health reforms, they need to understand that a public option or Medicare expansion would erode the employer-sponsored insurance program and destabilize coverage across major insurance markets for millions of individuals. Expanding the government’s role in the healthcare sector and setting lower prices risks the viability of broad swaths of the healthcare system and could be harmful to workers, employers, healthcare providers, consumers, and taxpayers.
Alex Brill is the founder and CEO of Matrix Global Advisors, an economic policy consulting firm in Washington, DC, and a resident fellow at the American Enterprise Institute. He previously served on the staff of the House Committee on Ways and Means and the White House Council of Economic Advisers.